Expansion to Asia Pacific

Asia Pacific excluding Japan remains the key region for expansion for luxury retailers
Luxury houses continue to expand aggressively in Asia Pacific, especially in China
Luxury retailers regard China as the number one destination for international expansion, with many now expanding their operations after gaining a foothold in the market previously. In July 2011 French design house Longchamp – which is known for its handbags that have recently been endorsed by British model Kate Moss – said that it planned to open six to 12 stores annually in China over the next two to three years, to make the country one of its top three markets. In July 2011 Longchamp had 13 boutiques across eight cities in China and said that it had seen its sales increase by 67% year-on-year during the first six months of 2011. Similarly, US-based luxury handbags and accessories company Coach has been expanding aggressively in China, following the acquisition of direct control of its business in the market. In the three months to the end of June 2011 Coach launched 11 new retail locations in China, bringing the total number of Coach China locations to 66, up from 41 at the end of June 2010. The company said that same store sales in the country rose at a double-digit percentage rate in fiscal 2011, and that it still perceives the Chinese market to be its biggest opportunity. Italian luxury house Prada is set to open 30 new stores in China by the end of 2012 to add to its 15 stores there, and plans to launch a design studio in Hong Kong later in 2011. Along with Greater China, smaller countries like Taiwan, Hong Kong, Macau, and South Korea are also delivering strong growth in luxury goods consumption. A free trade agreement between the EU and South Korea which took effect on July 1, 2011 has benefited European luxury retailers, with Louis Vuitton registering sales of $82.6m in South Korea between July 1, 2011 and September 14, 2011 according to CPP Luxury, up 16.9% on the previous year. Similarly, sales at Chanel rose by 14.6% to $42m and Hermès saw its Korean sales jump by 11.4% to $14m in the same period. Consumers' increasing spending power and passion for luxury has attracted luxury retailers and fueled their rapid expansion plans, not only in terms of stores, but in terms of operations through the expansion of distribution centers and warehouses.

Luxury houses are now seeking direct control in the growth markets of Asia Pacific
Initially, the majority of luxury houses operated in the lucrative markets of Asia Pacific through local partners. Now, however, luxury companies are keen to take full control of their operations in the region, having accumulated sufficient market knowledge since many of them have had some presence in the region for about 10 years. Direct control allows retailers to accelerate store rollout and obtain a full share of revenues from the market. Companies can also have a tighter grip on the label's marketing, while an ability to engage with local customers can help them to better adapt their product proposition to domestic needs. Luxury houses are particularly keen to obtain direct control of their Chinese operations due to the size and future potential of the market. Buying back their operations that were previously run by a local partner also highlights retailers' commitment to the region. In September 2011 luxury footwear label Jimmy Choo, which earlier in the same year was acquired by Labelux Group, took direct control of its Hong Kong operations by buying back the remaining 50% of the joint venture it had with domestic company Bluebell Hong Kong. The move gave Jimmy Choo direct control of its five stores in the city and its wholesale

its Hong Kong-based franchisee. British luxury house Burberry bought back its Chinese operations. and Hong Kong from its former distributor ImagineX Group. Polo Ralph Lauren acquired its franchised and licensed operations from Hong Kong-based partner Dickson Concepts. Burberry had been present in the Chinese market for almost 20 years and at the time of the acquisition had 50 stores across 30 cities. a design house controlled by PPR. . announced plans to buy back its five franchised stores in China from its local partner Kutu Trading Company. including Singapore. piracy and its conservative image caused Polo Ralph Lauren to lose market share in China to rivals such as Louis Vuitton and Ermenegildo Zegna. This differs from the majority of other markets where women take the lead. Lanvin's chief executive officer Thierry Andretta said that the company had licenses in South Korea and Japan that it was planning to buy back "in the next coming years. Customers in China are becoming increasingly demanding and knowledgeable about brands Men remain the key luxury shoppers in China due to a strong gift-giving culture in business The Chinese luxury market has been particularly male-driven.and third-tier cities. Taiwan. and Thailand. with men spending the most on luxury goods in the country. Macau. China. in contrast to about 25% of spending across other parts of Asia and just 15% worldwide. while Malaysia will follow suit at the end of fiscal 2012. in fiscal 2009 to the end of June 2009. however. in comparison to 15% comparable growth in other retail operations. Polo Ralph Lauren continued to focus on its retail operations in Asia Pacific as it acquired its licensed operations of the Polo-branded clothing and accessories lines in South Korea. Earlier in the year.Expansion to Asia Pacific operations. following earlier similar acquisitions. Jimmy Choo bought back its Japanese operations. the partnership was terminated due to Polo Ralph Lauren's decision to assume its retail and wholesale operations as part of its worldwide strategy. In June 2011 Sergio Rossi. In fiscal 2011. in order to accelerate its expansion in the market. The label plans to double its store network in mainland China "within the next several years. and Australia. American company Coach acquired its retail business in Mainland China. at the FT Business for Luxury summit in June 2011. However. In Q1 FY2012 the company announced that the acquired Chinese stores delivered comparable sales growth of around 30% in the quarter. The company also opened a regional office in Hong Kong to manage its retail network of 27 stores in Asia Pacific. In January 2011. the company announced that it had also transferred its operations in Singapore to its direct control. Similarly. which were previously operated by Kwok Hang Holdings. According to the official statement. Over 50% of Burberry shoppers in China are men. Singapore. Hong Kong. Malaysia. the Philippines. American luxury accessories company Coach said that men accounted for 45% of spending on handbags and luxury accessories in Mainland China. which previously represented the American brand in China. Indonesia. Similarly." In September 2010. maintain its partnership with department store retailer Sichuan Lessin in order to push the label's expansion to second. In 2010. which were previously carried out by local company Doosan Corporation." Sergio Rossi said that it would. Following the acquisition Burberry is making use of digital marketing initiatives to further strengthen its brand's awareness and appeal in China. At the end of 2009.

especially Queelin.Expansion to Asia Pacific Luxury goods consumers in China are also much younger than in other markets. We are likely to see more companies increasing their effort to further encourage the rising female interest in luxury through dedicated marketing. even when acquiring a luxury item. including shoes and handbags. unleashed by the country's rapid economic growth and the fact that there are more men than women in China. This practice of carrying cash around further fuels the demand for men's handbags. For instance. as younger people are more willing to spend their disposable income on luxury goods. This is due to the fact that electronic payment security remains a key concern in the market. such as Bulgari and Giorgio Armani. Italian. Young people have potentially become the first generation to be able to spend money on discretionary designer items. and revenue from women's apparel and clothing is expected to rise steeply in the future. Male consumers especially tend to make a purchase decision relatively quickly. several luxury houses such as Richemont and Polo Ralph Lauren could not say that their customer base in China was much different to other markets regarding gender distribution. Giorgio Armani Group has been hosting private cocktail parties together with sports car maker Maserati to specifically appeal to this emerging segment. while Hong Kong labels. Luxury customers in China exercise different behaviors than those in Europe and North America Chinese customers still prefer to pay in cash. and female friends. girlfriends. French labels are particularly popular with their fashion and beauty products. The concept of the "alpha male" – a man of high social status and confidence – is still very common in marketing efforts. . Additionally. making luxury labels' digital marketing and online communications very important in encouraging purchases. Several luxury houses. and the desire to exert their increased spending power. As a result many luxury houses with a growing presence in China have expanded their men's accessories proposition in recent years. to enhance the business process. a shift towards more female luxury goods consumers is taking place in China: more women are successful professionally and now have money to spend on such goods due to growing independence. These gifts can sometimes come in the form of clothing but are most often small accessories such as watches or belts. Also. highlighting that some luxury brands are currently more attractive to female customers than others. A new segment of female professionals is emerging This does not mean that all of the luxury goods bought in China are targeted at men – Chinese men also buy luxury goods for their wives. are sought after for their jewelry. generally between 25 and 40. Italian luxury houses are especially well known for their leather goods. Luxury shoppers in China are increasingly researching brands and products online. and luxury labels are deemed instrumental in expressing their masculinity. There is a strong desire among wealthy Chinese men to flaunt their status. and Hong Kong luxury labels are the most sought after by Chinese luxury shoppers. have revamped their marketing tactics to increase their appeal to self-made female entrepreneurs and other successful female professionals. Chinese businessmen often try to build relationships (or guanxi) and rapport with clients or partners through gift-giving. without showing much doubt and consideration when instore. these men have grown up accustomed to getting what they want and have a sense of great competition. French. China has a strong gift-giving culture: about 50% of luxury products bought by Chinese shoppers are gifts. while up to 75% of luxury watches are purchased as presents. This is a result of the family planning policy of allowing only one child per family.

This is because they are very much interested in the labels' heritage and want their luxury items to be recognized by their peers. Meanwhile the competitive environment in the sector is heating up. Additionally. In February 2011. "Je suis Chloé." where visitors could see behind-the-scenes footage and vote for their favorite models. In January 2011. with global labels aggressively expanding their retail networks and luxury houses putting an extra effort into boosting their brand image through dedicated fashion events and the opening of destination shops. The show. Prada held its first runway show outside of Europe in Beijing. Chloé hosted its largest every runway show in Shanghai's Expo Centre to celebrate the brand's fifth anniversary in China. the future will see more experimentation with their product offer. Chinese customers are increasingly demanding quality and unique products Chinese customers are becoming more knowledgeable about luxury goods. The luxury house included some new items designed specifically for the event. which featured a performance by music band Pet Shop Boys.Expansion to Asia Pacific Similarly to wealthy shoppers in other emerging markets. they are increasingly demanding higher quality. they are growing increasingly proud of being Chinese. Verdict Research believes that the trend will be also boosted by heightened competition in the Chinese luxury goods market. In April 2011. The event was also broadcast live online. grand openings. and along with being drawn to well-known brands. The show featured several famous local models. and especially China. such as Hong Kong-based premium jeweler Queelin. which featured lifelike holograms along with real models and a concert by British rock band Keane. Several luxury brands originating from Asia Pacific. they are not yet keen on experimenting with younger and less recognizable labels in search for uniqueness. the British company aimed to highlight its image as an edgy and modern luxury brand and thus to generate greater appeal to young urban luxury consumers in China. Luxury retailers are putting extra effort into standing out from the crowd in China Luxury retailers seek to improve their brand image in Asia Pacific through runway shows. For this reason. This will lead to luxury houses taking steps to improve their proposition by better adapting products to local consumer tastes. and Chanel. and destination stores Consumers in Asia Pacific. Chinese customers are attracted to internationally recognized labels. especially giants such as Louis Vuitton. However. including Bonnie Chen. Prior to the show the French label launched an interactive Chinese language blog. are becoming increasingly interested in and knowledgeable about global luxury labels. a trend which can be observed in mature markets. In recent years many luxury houses have embarked on dedicated marketing campaigns with local celebrities. Through embracing technology. Burberry staged its biggest runway show to date at Beijing's Television Centre. Local celebrities such as Gong Li and Maggie Cheung were invited to attend the event. was attended by many domestic celebrities. are benefiting from this trend and growing in popularity in China. Gucci. . resulting from international labels' rapid store rollout and aggressive marketing.

Hermès does not specify its stake in the business. Hermès opened the first dedicated store for the Shang Xia range in Shanghai. targeted at the rapidly growing market. and tableware. . who is also behind the design of other Louis Vuitton maisons globally such as the one in London.com VERDICT In September 2011 Louis Vuitton launched a destination store in Singapore. Most products are produced from materials which are typical to the region. including clothing. Designed by architect Peter Marino. and are priced slightly lower than the Hermès collection. porcelain. but it is thought to exceed 75%.Expansion to Asia Pacific Figure 1: Prada's runway show in China in January 2011 Source: www. The store is Louis Vuitton's 12th maison globally. as well as an art gallery tunnel leading directly to the Marina Bay Sands Mall. and sells a range of premium products. where it sits on water and its floor-to-ceiling windows overlook the bay. Shang Xia designs aim to obtain inspiration from the heritage of China and the Asian continent. and cashmere. In September 2010. It is designed by Chinese designer Jiang Qiong'er. The store has four floors. Hermès launched a brand dedicated for the Chinese market under the name Shang Xia. The business designs. such as bamboo. red-luxury. the store is based in Marina Bay. It is set up as a Chinese company and is run by Chinese management. and outdoor space. shoes. produces. In 2008. homewares. and the first one in Southeast Asia. a private lounge. who was trained in France. which means "up down" in Mandarin. Hermès is the leader in terms of adapting its product portfolio to the Chinese market Hermès already has a first-mover advantage in adapting its proposition to the Chinese market.

inspired by the jackets worn by the country's first prime minister. The plan involved a reduction in workforce and the closure of some retail stores and concession shops. the Chinese management behind it is likely to provide different insights into how to establish the brand in the market. Those Chinese that have obtained education overseas are particularly sought after. Nevertheless. Similarly. third-. Another global luxury player which is well placed to offer unique products for the Chinese market is Richemont. Meanwhile. Bottega Veneta recently launched a limited edition "Knot India" clutch. Luxury menswear label Canali retails a closed neck jacket specifically designed for Indian consumers. Products specifically designed for a target market appeal to customers because of their cultural relevance and the opportunity to own something of a recognized brand that is not available in other markets. finding qualified staff has proved especially difficult. in order to be successful Hermès will need to convince Chinese shoppers that Shang Xia is more than a discounted version of Hermès. Polo Ralph Lauren expects this restructuring plan to result in pretax charges of approximately $10–20m in fiscal 2012. The clutch features "India" embossed on a sterling plate inside. suggesting that the American company has struggled in China and did not manage to make all of its stores profitable even in this high growth market. even in the Chinese luxury goods market In May 2011 Polo Ralph Lauren initiated a restructuring plan in Greater China. Additionally. . which comprises Mainland China. as a dedicated brand can be stretched further to appeal to domestic consumers. China is not the only growth country in which luxury retailers are aiming to appeal to customers through locally adapted merchandise: in India.Expansion to Asia Pacific Acquiring behind a Chinese luxury label is a very smart and forward-looking move by Hermès to win over Chinese consumers. Hermès launched a range of saris in October 2011. as qualified staff quickly move jobs in favor of a higher salary. with several important domestic positions not being filled for months and luxury houses aggressively poaching experienced staff from their rivals and local partners. which owns a controlling stake in Chinese company Shanghai Tang. Staff retention is also a problem. Hong Kong. managing director of Chloé's Asia Pacific operations. as international companies feel that the Chinese education system does not help students to develop the necessary sales skills. and even fourth-tier cities. and Macau. the design of which combines conventional embroidery with a signature Bottega Veneta weave. The issue is becoming more serious as luxury houses acquire direct control of their operations in the region and seek to expand to second-. Taiwan. In August 2011 Helen Willerton. said that it was particularly hard to find staff in China and that it was on everyone's agenda at the moment. Success is not always easy to achieve.

Department stores in China Table 1: Department stores in China Beijing Cuiwei Plaza Co Beijing New Yansha Group Beijing ShunYi Guotai Plaza Beijing Wangfujing Department Store Co Ltd Beijing Xidan Youyi Market Company Changchun Eurasia Group Co Ltd Chongqing General New Century Department Store Dalian Dashang Group Co Ltd Golden Eagle Retail Group Ltd GuangZhou Friendship Group Co Ltd Guangzhou Grandbuy Co Ltd Hefei Department Store Group Co Ltd Hualian GMS Shopping Center Co Ltd Intime Department Store Group Co Ltd Jiangsu Wenfeng Great World Chain Development Corp Lane Crawford HK Limited Maoye International Holdings Ltd Nanjing Central Emporium.Ltd New World Department Store China Ltd Parkson Retail Group Ltd PCD Stores (Group) Ltd Rainbow Department Store Co..Ltd Shenzhen Shirble Department Store Shijiazhuang Beiguo Renbai Group Corp Zhengzhou Dennis Department Store Co Ltd Source: Verdict Research VERDICT .Co.

ihaveu.toplife.cn/ http://www.taobao.com/ http://www.cn/ http://www.org.xiu.com Taobao I Have You Shangpin Kela Zouxiu ihush Vipstore Toplife http://l.vipku.vipstore.ihush.cn/ http://www.com.com/ http://www.com http://www.Chinese luxury e-retailers Table 2: Chinese luxury e-retailers Sina Luxury Vipku Xiu.shangpin.com/ http://www.com (to be launched in November 2011) Source: Verdict Research VERDICT .kela.zouxiu.com/ http://www.sina.com/ http://www.com http://www.

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