Silk road to riches

LUXURY brands can’t get to China fast enough. Fashion shows are conducted on Olympic scale as designers compete for their share of a $200bn market.

Christopher bailey

"IT'S the biggest event ever to happen in Beijing," a Chinese socialite told the packed media scrum at a gathering last month in the country's capital for British fashion brand Burberry.

It’s easy to see why she might have forgotten the huge event Beijing hosted way back in 2008. Fashion events here are conducted on an Olympic scale. More than 1000 guests attended the Burberry party at the Beijing Television Centre, including Burberry CEO Angela Ahrendts, chief creative officer Christopher Bailey, Chinese celebrities Maggie Cheung and Fan Bing Bing, a smattering of Brit actors and models flown in for the occasion, media from all over the world and last, but certainly not least, loyal Chinese Burberry customers.

The number of microphones and cameras thrust into Bailey’s face as he arrived at the event would make you think he was a world leader instead of a fashion designer. Officially, the occasion was the opening of the brand’s new, 1160sqm store at Sparkle Roll Plaza, one of 57 Burberry stores in China and the second-biggest globally – but it was much more than that. Multi-million-dollar fashion events in China by Europe’s luxury brands are part brand-building exercise and part diplomatic mission. Burberry was selling Britain almost as much as it was selling trench coats with a show that combined luxury with digital technology and featured holographic models, images of buildings along the Thames and a unique celebration of British weather.

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“To us, this is a global event that happens to be taking place in Beijing, happens to be taking place in arguably one of the fastest growing markets in the world,” Ahrendts told Women’s Wear Daily, although there is no argument about it. Last July, Burberry bought back its mainland Chinese franchises, totalling 50 stores, for £65 million ($100 million). Since then the company has opened seven more stores and established a headquarters in Shanghai. So, despite having 57 stores trading, this event marked something of a new beginning for Burberry in China. 

China is the luxury industry’s El Dorado. With a sluggish US recovery, a Japanese economy that was already stagnant before this year’s earthquake and a mature luxury market in Europe, analysts estimate that by 2020 China will be the world’s biggest luxury market. Ahrendts told WWD at the event that since taking back the Chinese operations revenues have increased by 30 per cent and that the company plans to increase the number of stores on the mainland to 100 over the next few years.

And while experts will tell you that the Chinese have an insatiable appetite for European luxury goods that shows no signs of slowing any time soon, the luxury brands are not leaving anything to chance. Ever since Fendi staged a fashion parade on the Great Wall of China in 2007, fashion events in China have been getting progressively bigger and more sophisticated as each brand attempts to make its presence felt in this booming market.

In January, Prada flew in models, journalists, celebrities and virtually every senior executive in the company to restage its Spring/Summer 2011 men’s and women’s fashion show at the Central Academy of Fine Arts Museum in Beijing. It was the first time Prada had staged a show for its mainline collection outside of its homeland of Italy (sister brand Miu Miu, however, shows in Paris) and Miuccia Prada even redesigned parts of the collection specifically for the Chinese market. The Prada event also drew the likes of actresses Maggie Cheung and Gong Li but the point of difference with this event was a performance after the show by the Pet Shop Boys, who were flown in just for the occasion.

Simply restaging a fashion show from Milan in Beijing has its problems and the least of it is the drop in excitement levels. China’s ever-growing population of 400 million internet users had already had the opportunity to see the collection online so Miuccia Prada says she had to think long and hard about what to put in the Beijing show.

“We wanted to do some special pieces. Especially as this season I ended up designing a collection entirely in cotton. Everyone told me, the Chinese hate cottons. They hate uniforms,” Miuccia Prada told UK newspaper The Times. “The collection we showed in Milan had really plain suits, everything was in cotton, although very expensive cotton, but it had a humble effect. I was also told that anything that reminds the Chinese of the past is not wanted. So nothing from the 1920s or 1970s and no cheongsam necklines ... actually, this collection in its original form couldn’t have been more wrong for China.” The cotton pieces were, therefore, redesigned in silk; flapper-style striped dresses were covered in sequins and the canvas bags re-imagined in silk or saffiano leather.

Prada, which has had an on-again, off-again initial public offering for over a decade, will finally list on the stock exchange this year but don’t expect that to happen in Italy. The company has chosen Hong Kong as the place
to list. At press time, the IPO was scheduled for July and the timing couldn’t be better. Prada’s net profit for the year ended January 31 was €250.8 million ($342 million), a 150.4 per cent increase on the previous year. Banca IMI-Intesa Sanpaolo Group owns 5 per cent of Prada;  Miuccia Prada and her husband and CEO, Patrizio Bertelli, own the remaining 95 per cent. According to WWD, the Hong Kong IPO will be a listing of a 20 per cent stake that could value the company at $US9.5 billion.

Prada’s revenue from China increased by 75 per cent for 2010 to €389 million, which is approximately 20 per cent of the total turnover for the company. It has 14 stores in mainland China, nine in Hong Kong and two in Macau. This year the company plans to open nine stores on the mainland in cities such as Harbin, Guangzhou, Changchun and Hangzhou and another 11 in 2012.

Tapping China’s appetite for luxury goods requires investment. Right now Hong Kong has the hottest stock exchange in the world for IPOs (French company L’Occitane listed there last May) and its investors understand this appetite. Credit Lyonnais Securities Asia expects consumers from Greater China (which includes Hong Kong, Macau and Taiwan) as well as Chinese nationals who purchase abroad to account for 44 per cent of global luxury sales by 2020, up from 15 per cent now. Overall, CLSA expects the Chinese market for luxury goods to grow at about 25 per cent per annum for the next five years, followed by about 22 per cent thereafter. What that means in monetary terms is a €74 billion domestic luxury market in China by 2020. Add to that the €86 billion Chinese tourists are expected to spend on luxury goods when abroad and by 2020 China will be purchasing luxury goods totalling the equivalent of today’s entire luxury market.

Staging elaborate, expensive fashion shows is only one part of the strategy to seduce wealthy Chinese. Compared with other luxury brands in China, Chanel is relatively underdeveloped. It has eight stores in mainland China, six of which carry ready-to-wear and two jewellery and watches. Chanel’s small footprint, however, didn’t stop it from holding a spectacular event in Shanghai in late 2009. Designer Karl Lagerfeld staged a fashion show on a custom-built barge on the Huangpu River with Pudong’s neon-lit futuristic skyline as a backdrop. The Paris-Shanghai Metiers d’Art Collection, as it was called, consisted of 71 looks inspired by “the idea of China, not the reality,” he said. Since then Chanel has done much to subtly educate Chinese customers. It partnered with the Museum of Contemporary Art in Shanghai to stage Culture Chanel, a retrospective of Coco Chanel’s life, the aim being to teach Chinese customers about the culture of the House of Chanel. It was also a sales pitch. 

Christian Dior, on the other hand, created a special version of its best-selling Lady Dior handbag and shot the print advertisement for the bag in Shanghai. Diane von Furstenberg has two stores in China: one opened four years ago in Shanghai, the second last year in Beijing. According to an interview she gave Newsweek last month, the Beijing store has already exceeded its initial sales projections by 30 per cent. To further raise her profile, von Furstenberg threw a party in the Shanghai studio of conceptual artist Zhang Huan for more than 500 people, including actress Jessica Alba and shoe designer Christian Louboutin (who also plans to open stores in China). She followed that with an exhibition called Diane von Furstenberg: Journey of a Dress at the Pace Beijing gallery, the first big New York gallery to open a branch in the Chinese capital. The exhibition runs until May 14 and features portraits of the designer by some of the most celebrated artists of the past four decades, including Andy Warhol and Helmut Newton, along with a retrospective of DVF fashion spanning the past 40 years.

Louis Vuitton, one of the first luxury brands to open a store in China, is also going down the exhibition and education path. Last year Louis Vuitton, which operates stores in 29 Chinese cities, partnered with the French Pavilion at Shanghai Expo and this month an exhibition opens at Beijing’s  National Museum of China featuring the brand’s trunks and innovations in luggage-making. 

The connection luxury brands are making with the art world in China is not mere happenstance. In China you can’t access Facebook or YouTube. Even the popular, and fairly innocuous, fashion blog The Sartorialist is blocked to Chinese IP addresses. Restrictions and censorship of traditional media, literature, art and popular music remain despite China’s many leaps forward. But fashion is one avenue of self-expression that is open to the Chinese and they are taking to it with gusto. The only problem facing luxury brands is not when will the boom in China end but how will they continue to meet the demand for their often hand-made products.

This story was originally published in the May edition of WISH magazine, which investigates the state of the burgeoning luxury market in China. WISH magazine is free with metro editions of The Australian today, Friday May 6.