For Bebe Stores at least, China is looking pretty good right now.
The U.S. apparel chain, which has struggled with weak sales in its home country, is expanding into the Asian nation in search of growth. As part of a licensing deal announced Thursday, Bebe will get its brand into as many as 150 places in China during the next five years.
Bebe is making the move at a time when China's economic prospects are in doubt. Concerns about a slowdown in the world's second-largest economy have roiled global markets over the past week. But Bebe Chief Executive Officer Jim Wiggett sees the China expansion as a no-brainer. Demand for brand-name clothing is still huge in the country, he said, and Bebe's Shanghai-based partner will defray the risks.
"The appetite is voracious," Mr. Wiggett said in an interview. "The market might be adjusting in the short term, but it's going to settle down."
The retailer, which sells going-out attire and other clothing for women, is teaming up with Longgoal, a retail management firm. Longgoal will open at least 60 retail and wholesale points of distribution for Bebe in mainland China, Hong Kong, Macau and Taiwan. The first boutique will debut next summer, said Brisbane, Calif.-based Bebe.
Longgoal already has partnerships with retail brands such as Thomas Pink, which is owned by LVMH Moet Hennessy Louis Vuitton SE. Under the Bebe agreement, as much as 30% of the products sold in China will be designed and developed locally.
Mr. Wiggett is working to turn around the retailer by cutting down on promotions and relying less heavily on nightlife clothing -- the dresses and tops that Bebe is known for. Earlier this month, the company announced plans to sell an athletic footwear line at Macy's Inc., pushing into a category that has bolstered results at Old Navy and other retailers.
Though news of the China expansion sent Bebe shares up before Thursday's close, they plunged on Friday after the earnings results were posted. The stock, which was already down 15% this year, tumbled as much as 30% in New York, the biggest intraday decline since it began trading in 1998.
For investors, China has been a risky bet of late. The country has the world's most volatile stocks after Greece, and its equity markets lost $5 trillion during a two-month rout. The Chinese government has devalued its currency and cut interest rates. And a crackdown on extravagance has stoked fears of an economic slowdown.
To some extent, Bebe is insulated from the greater uncertainty. Because of the wholesaling arrangement, sales will be in U.S. dollars with no currency risk, Chief Financial Officer Liyuan Woo said. And while Chinese shoppers may not be buying luxury items right now, Bebe products will be sold at more attainable price levels, Ms. Woo said.
Furthermore, Chinese tourists are already familiar with the chain from visiting the U.S.
"We figured: 'Let's go to where she lives and give her an opportunity to shop locally,'" Mr. Wiggett said. "Because of our price point, there's a larger base for us to go after who can't afford the prestige brands."