Stanley Szeto, chairman of apparel supply chain manager Lever Style, on the strategies he used to transform his failing family business and tackle the economic challenges that lie ahead
I’ll always remember that evening back in 2000, when my father sat me down and said: “Son, please mentally prepare yourself—our family business is about to go bankrupt.” After the shock of his announcement had subsided, I asked to take over the business. I was just 25 and in the finance industry at the time, but hoped a miracle might yet happen.
My only two conditions to my father were that I be given free rein and that he retire, which he did immediately, to his credit. It was an uphill battle: We had negative equity and were literally struggling to make payroll the next week. Our shirtmaking company, Lever Shirt, was being brought to the brink of bankruptcy by one of our smaller outfits, a branding and retail business.
Today, as Lever Style—an apparel supply chain manager—our books tell a vastly different story. We’ve been listed on the Hong Kong stock exchange since 2019 and are a key supply partner to e-commerce pioneers such as Bonobos and Stitch Fix, as well as premium brands including Paul Smith, Hugo Boss Theory, and Coach. For the first half of this year, our sales jumped 66 per cent over the same period last year and our net profits almost tripled. These results came on the back of our 64 per cent growth in full year 2021 over 2020.
Here’s how we did it.
Leave no sacred cows.
In order to do things in a new way, we had to clean house in a big way. A year after I took over, six out of the eight most senior people in the company— including my father—had gone. When my staff saw this, they quickly realised there were no sacred cows and that, unlike in many family businesses, there would be no patriarchy protecting the old guard.
Next, I had to deal with the cancer that was eating our main business alive—our small branding and retail business. Business School 101 dictates that if you can’t make it work, close it down. But that wasn’t an option because closing the business would have meant massive write-offs on our balance sheets due to the account receivables and inventory related to this business. Closing it would have meant breaking all bank covenants and immediate death as all the banks would sever our lines.
Given my background in mergers and acquisitions, I looked for strategic partners and found a small company with significant angel investor funding that was doing fashion, branding, and retail in China. We merged with them and no longer had to finance the operating losses of the combined business, instead being able to focus on righting the ship of our main business. We broke even in 2021 and eked out a small profit in 2022.
Plan for the unpredictable.
Back in 2005, I’d publicly predicted that China’s worldwide market share of apparel production would jump from what it was at that time (around 40 per cent) to double that, because I was seeing similar trends in other light manufacturing industries such as bicycles, light bulbs, and toys. The reasoning was sound—after all, China had joined the WTO, and the quota regime (where countries could only ship a certain amount of apparel to the developed world) was coming to an end.
But China’s market share did not jump as predicted, mainly because it was going through a rapid cost inflation of 15 to 20 per cent yearly, for ten years straight. From this, I learned that the world is very unpredictable and nobody knows what will happen in the next few years, whether in China or anywhere else. That’s why in 2010, we pivoted to an outsourcing strategy, moving production from our own factories to third-party ones, and from China to other locations such as Vietnam and Cambodia. This actually turned out to be a better way to serve our customers, because their needs are always changing. If we had built our own facilities, our first priority would have been to fill the facility by selling what we produce, rather than produce what our customers need.