Great stall of China
A population of 1.3 billion, a booming economy and a culture of flaunting success all combine to make China a market of almost limitless potential for luxury goods brands, as Gary Bowerman reports
Set beside the mystical Xi Hu Lake, 200km south of Shanghai and surrounded by gentle hills and fertile tea plantations, Hangzhou is one of China’s most cherished cities. Its calming lake views have inspired generations of poets, painters and writers, while its picturesque landscape is dotted with pagodas, temples, gardens and bridges. The city even shares its own Chinese eulogy: ‘In heaven there is paradise, on earth there is Suzhou and Hangzhou.’
Hangzhou’s touristic charms only partly explain why Italian fashion designers Stefano Gabbana and Domenico Dolce chose to locate their Chinese flagship store here. The capital of wealthy Zhejiang province, Hangzhou draws a healthy income from tourism, but this is a region built fairly and squarely on private commerce, and is home to some of the nation’s most fearless and successful entrepreneurs. Money is not in short supply, and in China, new wealth likes to be visible. Consumerism is king and designer brands are rapidly becoming the chosen medium for displaying success.
China’s sustained, double-digit annual economic growth rate is generating new urban affluence at a mind-blowing pace: the country now boasts around 320,000 dollar millionaires, and 16 dollar billionaires. As the nation marches confidently towards a brave new world of branding, technology and marketing, money talks Mandarin. And the luxury goods companies are listening intently, preparing to sell large quantities of everything from clothes to cars, watches to private jets, and yachts to foreign villas to the waiting wealthy.
The Chinese consumer is already very significant to luxury brand retailers,’ says Radha Chadha, co-author with Paul Husband of a new book, The Cult of the Luxury Brand: Inside Asia’s Love Affair with Luxury (Nicholas Brealey Publishing). ‘In today’s Asia, and this is very relevant in China, you are what you wear,’ Chadha says. ‘We are seeing phenomenal societal change. The old ways of defining your place in society, such as birth, profession or family, have been dismantled. Now there is only one key classifying criteria: money. Luxury brands have the capacity to translate a big bank balance into social esteem.’
China currently accounts for around 11 per cent of the world’s luxury goods market, but that could be just the beginning. An October 2006 survey by market information group TNS, of 830 consumers across China aged 20-45, revealed that more than half longed to buy luxury goods even if they could not afford them at present. As urban incomes rise, and more people get the opportunity to shop and travel, rapid growth is projected. Goldman Sachs predicts that Chinese consumers – purchasing at home and overseas – will account for 29 per cent of global luxury goods sales by 2015, overtaking Japan as the world’s number one luxury market.
‘China is the biggest opportunity ever in the luxury market,’ says Raphael le Masne de Chermont, executive chairman of upmarket Hong Kong-based retailer, Shanghai Tang. He says that until a decade ago – apart from Japan – Taiwan, Singapore and Hong Kong were the most successful markets for luxury goods. ‘They [Taiwan, Singapore and Hong Kong] have a combined population of 34 million; China has 1.3 billion people who will be open to the luxury industry. Can you imagine what that means?’
Hangzhou’s Hubin Road-based EuroStreet, which opened in 2005, is a glassy lakeside shopping development designed for shoppers chasing consumer credibility. Its cobbled streets and landscaped walkways showcase, among others, Armani, Zegna, Omega and Swarovski. A stone’s throw away is the Hyatt Regency hotel and a new Bentley car showroom. Dolce & Gabbana chose Hangzhou because of the city’s high level of disposable income and rising retail spending – and to test Chinese waters before opening stores in brand-savvy Beijing and Shanghai.
D&G’s store on Shanghai’s riverfront Bund opened in summer 2006, and features its very own Martini bar, as well as the latest in luxury haute couture. It counts Cartier, Zegna, Shiatzy Chen and Hugo Boss as neighbours. The Bund – a
1.5km strip of grand, neo-classical mansions built in the late 19th and early 20th centuries as headquarters for foreign banks during the street’s brief tenure as the Wall Street of Asia – is transforming itself into an axis of sumptuous living. French superchef Jean-George Vongerichten opened his first signature restaurant outside New York at Three on the Bund in 2004; Miuccia Prada hosted a retrospective exhibition at the Peace Hotel in 2005; and Singapore’s upmarket Attica nightclub opened on the Bund in late 2006.
The pursuit of luxury is evident in cities along the increasingly affluent eastern seaboard, but nowhere more so than Shanghai: China’s brashest, most commercial and most internationalised city. Its main shopping thoroughfare, Nanjing Road, has long been nicknamed ‘China’s favourite shopping street’, but city officials are actively seeking – and financing – a new branding: China’s Fifth Avenue.
In the past four years, the transformation of Nanjing Road’s west end is little short of breathtaking. Today, the luxury brand assault along a kilometre strip between Jing An Temple and Shaanxi Road is unrelenting: Jean Paul Gaultier, Tiffany & Co, Marc Jacobs, Chopard, Gucci and Ferragamo are all clustered together, while giant Dior hoardings surround a new deluxe plaza which is currently under construction. The cherry on Nanjing Road’s luxury cake is Plaza 66, a swish shopping mall presenting every conceivable designer brand, from Dunhill to Hermès, Bulgari to Prada, and Versace to Louis Vuitton – with a classical music sextet performing in the atrium on Sundays.
Shanghai’s self-created status as China’s nexus for fashion and lifestyle has made it a favoured location for international retailers. In November, the lavish World of Calvin Klein party was held at a disused warehouse in the north of the city. Featuring a state of the art sound system, free-flowing champagne, 1,200 guests, 75 international models in various stages of branded undress, and A-list Chinese stars, it was showered with glitz and glamour. ‘This is our biggest global PR event this year,’ said Tom Murry, CEO of Calvin Klein. ‘We aim to open 100 new stores in 2007, and a high percentage of those will be in Asia and, specifically, China.’
The calendar of luxury events in Shanghai is evolving fast. In 2006, Hugo Boss celebrated the opening its 1,000th store worldwide here and Mont Blanc threw an ice-themed 100th anniversary party at the cavernous Shanghai Movie Studios, with guests strolling through a life-sized recreation of streets and landmarks from 1930s Shanghai. In November, the China Luxury Summit gathered together international retailers, financiers, marketers and lawyers to discuss the way ahead for luxury retailing, and the China International Luxury Property Show presented the world’s most prestigious properties currently on sale.
More events are scheduled for 2007. The International Luxury Travel Market, an upmarket travel show held annually in Cannes, will launch an Asia Pacific spin-off in Shanghai, and the China Millionaire Fair will return after successful shows in 2005 and 2006. The China International Boat Show also returns for a 12th time, hoping to beat its 2006 performance, which recorded more private yacht sales than in any previous year.
While Shanghai is spearheading the promotion and marketing of luxury brands in China, the two other wealthiest cities, Beijing and Guangzhou, are also playing their part. Particularly Beijing, which is undergoing a seismic pre-Olympic makeover, and will open several new deluxe hotels in the next two years, many of which will be mixed-use developments combining a hotel with upmarket shopping malls to rival the current luxury leader, the Peninsula.
Retailers already established in the three largest cities are now looking further afield – to China’s emerging second- and third-tier cities. ‘We have a strategic, long-term plan in China,’ Emmanuel Prat, senior executive vice president for LVMH, told November’s China Luxury Summit conference in Shanghai. ‘We estimate that 10-13 million Chinese are active luxury purchasers today, and that number will continue to grow. We started our development in the three major cities, but we are now looking at opportunities in advanced regional cities, such as 
Chengdu, Hangzhou and Shenyang.’
Wuxi, a city of 4.5 million people in Jiangsu province, is also seeking to luxe-up its retail environment. Inviting luxury investment, it has prepared a brochure for retailers to promote its Hodo International Plaza: ‘Wuxi’s retail volume is ranked second in the Yangtze River Delta, and is catching up with Shanghai. Zhongshan Road is to Wuxi what Fifth Avenue is to New York. While Saks Fifth Avenue is the utter totem of its number one commercial street, Zhongshan Road is eager for its own symbol.’
So is China – still classified as an ‘emerging’ economy – really a luxury Utopia? ‘Insofar as it presents an untapped potential for massive long-term growth,’ says author Paul Husband. ‘China’s real lure is the growth to come.’ Indeed, the China Association of Branding Strategy expects the number who can afford luxury brands to reach 250 million by 2010. ‘Plus there’s aggressive spending by Chinese tourists abroad,’ adds Husband.
For luxury retailers involved in a land grab for prime retail spots in cities across China, future potential outweighs the current risk of low volume sales. ‘It’s not a profitable market for the next three to five years because of the cost of doing business in China, and of the establishment of new stores, distribution channels, and the taxation position,’ says Husband. ‘But the key driver is money, and as long as China’s economy continues to grow, then sales of luxury goods will grow in parallel.’
TOP SIX HOTSPOTS
Paul French, Shanghai-based retail analyst for Access Asia, says the following Chinese cities are currently the best bet for luxury retailers:
• Beijing: China’s capital is experiencing a pre-2008 Olympic consumer buzz.
• Shanghai: this is China’s largest and brashest city, and is the centre of luxury and fashion.
• Guangzhou: the engine city of economic growth in southern China.
• Dalian: a fast-growing northeastern coastal city, with a large Japanese and Korean population.
• Chengdu: the emerging powerhouse of central and western China.
• Wenzhou: a highly entrepreneurial city, with many millionaire businessmen and women.
