Global Briefing | How Can Emerging Fashion Brands Get a Leg Up in Chinese Retail?

Sparkle Roll Luxury World | Photo: Timothy Coghlan

BEIJING, China — With Chinese luxury consumption projected to account for 20 percent, or US$27 billion, of global luxury sales by 2015, it’s no secret that big international fashion brands are racing to establish and expand their retail operations in the country. But as competition for prime real estate surges, it’s clear that not all brands are treated equally. While some find it relatively easy to secure retail space, others have to fight tooth and nail, or create strategic partnerships, to have any hope of opening stores.

The ‘big five’ brands — Louis Vuitton, Gucci, Chanel, Hermès and Cartier — have no shortage of options in cities all across China and can be highly selective in choosing their locations. In most cases, Chinese mall operators and real estate developers will bend over backwards to entice these five brands, offering lucrative leasing terms, long rent-free periods and large subsidies to build and outfit stores. For the smaller brands that belong to large luxury conglomerates, the easiest way to secure store space is to leverage the group’s power by insisting on multi-brand deals. In this way, the dominant brand of the group (Vuitton for LVMH, Gucci for PPR, Cartier for Richemont) will enter a mall only on the provision that the selected smaller brands in the group are also given desirable spaces.

In this context, even brands such as Burberry, Lanvin and Tod’s are at a disadvantage. So how do fashion brands, without the backing of large luxury groups, stand a chance of securing retail locations that will allow them to get a foothold in the country and tap the booming Chinese market?

“Each brand’s situation is unique and everyone can use different vehicles to enter,” said Wen Zhou, president and chief executive of 3.1 Phillip Lim. “As long as you recognise your strengths and weaknesses, and identify a strategy early on and follow through, I think the rest will come.”

For smaller and independent luxury brands entering the country, one strategy is to work with a partner or distributor in the early years of the China business. Although most luxury brands would prefer to directly operate all of their China stores, the market is simply too big and complex for most smaller brands to comprehend. But selecting the right partner is critical. “Crucial to your success in China is finding a partner that shares the same vision as you for the brand and product,” continued Zhou. “Everyone involved should be on the same page.”

Earlier this year in a high profile case, even megabrand Burberry partnered with a distributor, Sparkle Roll, to secure its Beijing flagship location. Unable to expand its existing store in Shin King Place (Beijing’s top luxury mall), the brand tapped Sparkle Roll, and their high level connections in Beijing, to obtain the prime piece of real estate upon which they built the Sparkle Roll Luxury World complex. Sparkle Roll filled half of the space with their own luxury brands including DeWitt, Richard Mille and Boucheron, while the other half was allotted to Burberry in a win-win deal. By partnering with Sparkle Roll and creating a de facto group, Burberry secured a store location they couldn’t have secured on their own and Sparkle Roll was able to piggyback on Burberry’s popularity and brand recognition to garner attention and draw customers for their own brands.

It’s also important to remember that business in China still relies heavily on a system of relationships and favours. Each city has its own key ‘heavyweights’ who can get things done and acquire the right retail locations, despite seemingly insurmountable odds. In some cases this may be a large distributor. Or it may be an individual who has the right government, military or other special connections. Indeed, finding the right connections in China is not always easy.

“In China the high quality distributors and connected people prefer to keep a low profile,” said Nicole Chen, founder and chief executive of NC Style, a fashion marketing, PR and distribution company based in Beijing. “They don’t always have websites and they certainly don’t show up in Google searches for ‘fashion distributors in China,’” she continued. “You need to be patient and build the right relationships that will then get you into the right circles.”

But emerging brands do have one advantage. As the big fashion players like Burberry, Dior and Zegna continue their expansion in China, luxury shopping malls are at increasing risk of becoming generic. With this in mind, brands new to the China market can appeal to mall operators who wish to differentiate their offerings and bring something unique to their retail mix. “Landlords are very smart,” said Zhou. “Just being [one of] the ‘big’ names, or the already established ones is not enough of a draw anymore, or even enough to differentiate yourself from the next retail location to really make a splash,” she added. “What [landlords] want is a mix of big, young, cool and commercial brands — it’s all about a securing a great balance.”

But to open a conversation and establish a solid negotiating position with landlords, emerging brands must first build brand equity and recognition in China through local PR and marketing. While brands are often reluctant to invest in PR activities prior to opening a store, Ms. Chen believes that it’s vital to begin brand promotion as early as one year before a retail launch. “Many European and US brands have never been heard of in China, so how can they convince landlords to give them prime spaces?” she said. “You must promote yourself heavily, show the brand’s background and give gifts,” she continued. “Through this you can educate the developers about your brand and convince them to include you in their mall plans.”

Though competition for retail space is already fierce, the situation will likely get worse in the coming years. But even with a predicted 76 million consumers and 36 cities entering the Chinese luxury market in the next few years, the fight for suitable real estate should not dissuade emerging fashion brands from striking out in the country. Indeed, all luxury fashion brands, regardless of size, need to have a China strategy. With well-timed investments in building brand equity, the ability to find the right partners, and a little panache, even emerging fashion brands have a chance at securing successful retail space in China’s booming market.

Timothy Coghlan works for an international consulting company, helping fashion and luxury brands source store locations in China, and is the founder of The Maosuit.

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5 comments

  1. I lived opposite Xin Kong Place (adjacent to Sparkle Roll Luxury mall) for a year. For the last 3 months, I went in to the Mall to the new watch retailers on a tri-weekly basis, varying the times I visited.

    Not once did I see a single person buying a single product, nor did I see any visible intent of anyone trying to buy anything.

    Believe the analysts if you like, but my Rich Chinese friends all go abroad to buy luxury goods, which can also be evidenced by statistics. You get more “Face” and recognition from getting goods as part of an overseas trip than buying locally. The products, bought locally, are by and large 20-30% higher than in the West. There was talk of the PRC government reducing the import tax burden to boost consumer spending on Luxury goods in October, but AFAIK it’s been delayed and is not going ahead as slated.

    As for “Finding a Partner on the same page…who believes in the brand…” I have to say that having worked in partner due diligence, post-merger integration and on JV issues, I think the chances of finding a local partner with shared values and integrity is next to zero. Most will be in it for short term gains, not long term strategy.

    Bottom line is that investment in China for luxury goods might be more wisely spent on advertising than retail in order to avoid much of the corruption/relationship issues. There are some other locations where retail presence can be created or developed in a much more legitimate landscape [KL, Thailand, SG, even India, for example]

    Sinawatcher from Singapore
  2. I live near Plaza 66 in Shanghai and this mall is pretty much empty Monday to Friday. Only time i see the mall busy is on Saturday and its usually the same stores PRADA, DIOR, DOLCE, LV and my experience in Prada is that the locals only buy the hand bags and usually the most tacky ones with big logos and cheaper items. This scene is the same for all the other high end fashion malls in Shanghai i have experienced. China is an amazing market but still very young in terms of understanding designs and personal style. If you look at most middle class or upper middle class in China they they very hard to copy what they considered the “rich” look is but always tacky and not right. Give this market about 100 years and maybe you start seeing real fashion consumers with their own personal style and taste.

    Luxury_china from Shanghai, Shanghai, China
  3. My company is a distributor for 5 international brands in China. It is quite simple for an emerging brand to obtain a good retail location: bribe the leasing manager. Otherwise, be prepared to wait months or years (in China very few leasing managers will give you an outright ‘no’ since that would cause you to lose face). This is the consistent practice for all malls and department stores in China, from New World (which is actually from HK) to Shin Kong Place (JV between Taiwanese and Chinese businessmen).
    On the other hand, established brands have no problem getting the best space. Their rental is usually free for the first few years and some developers even offer to foot all renovation costs.

    Jeremy from Beijing, Beijing, China
  4. Jeremy – I haev several brands in teh US looking for a distributor – how can I get in touch with you?

    Courtney Harold from United States