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Nuclear Expansion

Physicist turned entrepreneur gears up to bring his healthy lifestyle brand to China

Michael Zhang, majority owner of Blue Hawaii Lifestyle, pictured at the worksite of his Ala Moana store.

With a background in nuclear physics, Michael Zhang is perhaps not the most likely candidate to launch an international retail chain.

But as the majority owner of Blue Hawaii LifeStyle, he has set out to do just that. Zhang is aggressively building a global brand that taps Hawaii’s image of fostering active, healthy lifestyles with an eclectic assortment of locally made products, ranging from healthy snacks and beverages to bath and body products. In fact, while he was opening his first store in Ala Moana in March, the Shanghai native was already planning to substantially penetrate the consumer market in China in under five years.

“People say, ‘How do you move from nuclear physics to the surfboard?’ But I like physics because it gives you two things: You need logical thinking and imagination. There are a lot of people who have one [attribute],” says Zhang, who studied nuclear physics in China. “My background training in physics taught me that you have a dream, and you work at it step by step.”

His first step was identifying his market. Zhang had long eyed a tremendously lucrative consumer segment in China, and, at first, Zhang researched opening a surf shop in China. But after gathering market research, he found the surf lifestyle did not resonate with consumers there. However, he found a foreign chain such as Starbucks was “huge in China.” Says Zhang, “It’s not just coffee, but the American lifestyle and the gathering place.”

Then when the SARS (severe acute respiratory syndrome) virus hit China in early 2003, many affluent and prominent figures fell ill and the
general population was reminded that affluence meant nothing without health. Meanwhile, Zhang says, there are no health-conscious brands in China, such as Whole Foods or General Nutrition Center.

According to Zhang, Chinese tourists come to Hawaii with a two-pronged mission: to bring home various nick-knacks and chocolates branded with Hawaii themes and labels; and to purchase huge quantities of vitamins and health products because many in China don’t trust the quality of similar products sold in China.

“So I said to myself, if I have a store combining Starbucks and a healthy lifestyle, there would be a huge market,” says Zhang, who has since brought on former Starbucks Hawaii Regional Food Manager Jack Pitcher to lead the company’s Hawaii division. “We don’t need to promote Hawaii anymore in China; everybody knows Hawaii. We need to encapsulate Hawaii, and make money [based on] its image.”

His store motto? “Live Healthy, Live Aloha.”

Building Blocks

While Zhang’s goals might seem overly ambitious, he is no stranger to building a small business into a world-renowned enterprise.

Zhang currently serves as CEO of Blue Hawaii Surf, a company that started in 1984 with an inventory of surfboards shaped by industry veteran Glenn Minami. As the company rode a strong economy into the 1990s, Blue Hawaii Surf grew into one of the leading surfboard producers in the world, and gained the endorsements of eventual champions Sunny Garcia and Derek Ho. But, the success didn’t last. Internal struggles led to the company filing for bankruptcy in 1996.

Enter Zhang.

He purchased the company in 1996 and aggressively implemented an all-out brand blitz, giving consumers a choice of surf, skateboarding and leisure wear and products that went far beyond “surfboards and wax.” The concept worked, and the company thrived as more athletes signed on to promote the various styles of gear and equipment.  “We took Blue Hawaii Surf and made it into one of the most popular [skateboarding and surfing] brands in Hawaii,” Zhang says.

Zhang still presides over the company, which, in addition to the company headquarters in Kalihi, has since opened specialty stores in both the Ala Moana Center and Waikele Premium Outlets. He would not share sales numbers beyond saying that the company was making less than $1 million annually when he bought it and now takes in fives times that.

“My strength is in [working with] people,” Zhang says. “In my companies, everybody knows [the individual products] better than me, but I know the business. I’m the only one in the company that doesn’t know everything; I don’t skate and I don’t surf. But I know business.”

Step by Step

Zhang’s goal for Blue Hawaii LifeStyle, which is a separate company from Blue Hawaii Surf, is to become Hawaii’s most recognized brand. To accomplish this, Zhang believes he must embrace some already prominent Hawaii brands and locally-made products, rather than attempting to compete with them.

All products will be sourced and manufactured in Hawaii and the chain will help market them to a wider audience. Suppliers already include Oils of Aloha, North Shore Soap Factory, Waialua Soda Works, Hawaii Coffee Co., Aloha Superfoods and The Mountain Apple Co.

Blue Hawaii LifeStyle’s mission is to expose its customers to healthy alternative lifestyles by offering products featuring ingredients or materials from Hawaii. Zhang envisions the all-encompassing store as a combination between ultra-brand specialty stores such as Starbucks, General Nutrition Centers and Bath & Body Works.

“You have one stop: anything that’s made in Hawaii and [promotes a] health-conscious [lifestyle],” says Zhang. “Ala Moana had a hard time finding a category for us. We don’t belong to food, we don’t belong to nutrition; it’s a combination, and that’s the concept we’re building. When people think of Hawaii, they think lifestyle and longevity. There’s a huge demand for the products, but our challenge is to market it.”

In order to finance this undertaking, Zhang has secured an initial sum of $30 million from a group of investors from both Hawaii and China. Blue Hawaii LifeStyle at press time, was set to open its flagship store in the new Nordstrom wing of the Ala Moana Center on March 7 — the first step in the company’s seven-year business plan. After establishing strong roots here in Hawaii, and a resulting credibility factor, Zhang plans to open two locations in Shanghai, China, by 2009. By 2011, the company hopes to have at least 50 locations all over China, as well as a strong presence online. The ultimate goal is to turn the initial investment into $50 million in revenue annually by the year 2013. If that benchmark is achieved, Zhang says the company would be ready for an initial public offering the ultimate goal of this process.

In order to build Blue Hawaii LifeStyle, Zhang enlisted an advisory board composed of roughly 15 business veterans from a wide range of companies around the world. Most notable of the bunch is Kenneth Weller, the former No. 2 man at home and electronics giant Best Buy. Weller took that company from $1 billion in sales to $8 billion in a period of seven years, while managing over 26,000 employees nationally.

The advisory board will help Zhang develop another key component of the business plan — online shopping. Zhang wants customers to have a choice between the convenience of shopping on the Internet, and the hands-on, traditional customer service received in a physical store. He draws a parallel between his strategy and the ultra-popular lingerie chain, Victoria’s Secret, which uses visually appealing models to push its products in posh retail outlets, through catalogues and on the Web.

“We want to be real heavy online,” Zhang says.

As Zhang works to make his dream a reality, he emphasizes the importance of the process of building a business. Step by step — the basic building blocks any good nuclear physicist knows.

“We totally enjoy the journey, and I think that’s most important,” Zhang says. “We will see how many goals we reach along the way.”

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