KKR to invest in Novo Hold

KKR & Co LP, a leading global investment firm, announced Tuesday that it will invest $30 million in Chinese youth apparel retailer Novo Hold Co through its China fund, Caixin magazine reported Tuesday.

An investment manager at KKR could not confirm the investment by press time when reached by the Global Times Tuesday.

"For KKR, it is a long-term bet, though the country's retail sales growth has slowed down," Li Weidong, research director at consultancy China Venture, told the Global Times.

Li noted that with China's fast urbanization and rising demand for mid- and high-end products, Novo will enjoy healthy profit margin in future.

China's consumption growth cooled down when economic growth declined to 7.6 percent in the second quarter.

The total volume of retail sales reached 1.63 trillion yuan ($256 billion) in July, an increase of 13.1 percent year-on-year but 0.6 percentage point slower than the previous month, according to the Ministry of Commerce.

KKR has raised a total of $1.1 billion for its China fund since it set up its office in Hong Kong in 2005, according to Reuters.

Most of KKR's previous investments in China focused on consumer companies, including clothing retailer China Outfitters Holdings Limited and Mengniu Dairy Co.

Novo, a fashion retailer targeting young consumers with relatively high income, rents stores in prime shopping malls in the first- and second-tier cities and sells dozens of foreign brands, especially mid-level brands which can not afford the high rents independently.

"Novo has its advantages in bargaining over rents with the shopping malls, because it could introduce many popular foreign brands into the malls, which could improve the malls' overall marketing position," Nie Qibing, executive director of RET, a domestic commercial property consultancy, told the Global Times.

Nie, who has been working in the retail property sector for many years, noted that Novo could have a larger market share with the increasing purchasing power of young middle class consumers.

But the offline retailers like Novo may face challenges from some e-commerce companies, who have advantages of lower operation cost.

"Offline retailers must improve shopping experience like comfortable environment and recreational facilities, which the online retailers could not offer," said Qin Xiaomei, director at the Beijing office of Jones Lang LaSalle, a global commercial property consultancy.