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

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  • Guest Contributor

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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