BEIJING – Louis Vuitton is optimistic about the development of the Chinese luxury market, in words and investment.
“I think, ultimately, the customers of luxury in China will be sophisticated customers,” predicted Bernard Arnault, LVMH Moët Hennessy Louis Vuitton’s chairman and chief executive officer, here last month to reopen the brand’s China World flagship. “At the time we first opened, a lot of brands thought the future in China was in secondary concepts like duty-free outlets. I think that was a big strategic error, because I am absolutely convinced that the customer will become sophisticated, and quite knowledgeable about fashion.”
Arnault isn’t the only one. The past year has solidified China’s position as the market of the future for most fashion brands, and there is likely to be even greater activity in 2006. More and more companies are opening their first freestanding stores in Beijing and Shanghai (among them Chloé, see story opposite page) while brands in the market for some time are now moving beyond the major cities into secondary ones like Hangzhou and Dalian.
Vuitton’s expanded, three-story China World store, with an overall area of almost 18,000 square feet and a sales area of 8,470 square feet, is the largest of the company’s 12 stores in Mainland China. The new China World store, which features a facade of 3,035 square feet, was launched on Nov. 20 with a party for 1,500 people, including celebrities like Olympic hurdling champion Liu Xiang and actress Zhao Wei.
Since launching in the country in 1992, Vuitton has invested heavily in the market and become one of its best-known luxury fashion brands. Vuitton’s first China store in 1992 was in Beijing’s Palace Hotel, now called the Peninsula. The brand’s 12 flagships are spread among Beijing, Shanghai, Chengdu, Dalian, Guangzhou, Hangzhou, Shenzhen, Xiamen, Xian and Qingdao. Vuitton also has six stores in Hong Kong, and opened one in Macao in 2002.
The company claims its China operations have been profitable from their inception, although it maintains a policy of never disclosing figures. While Vuitton’s massive flagships rarely appear busy, one source in the property industry reported the China World store prior to its expansion enjoyed 10 million renminbi, or $1.2 million at current exchange, in monthly sales, compared with 3 million RMB, or $371,568, at the Prada flagship and 1 million RMB, or $123,856, at most other stores.
Related Articles
You May Also Like
“We plan to open two to three new stores per year in China,” said Serge Brunschwig, managing director of Louis Vuitton Malletier, out of about 15 new stores per year worldwide. Along with the China World store, the brand opened flagships on Dec. 1 in Jakarta, on Dec. 3 in Dalian and on Dec. 8 in Hong Kong, and will launch another shop in Hong Kong’s Peninsula Hotel on Jan. 9. A Shenyang store is also on the schedule for next year.
“We are still underrepresented in China, with only 12 stores,” said Brunschwig. “China’s an underdeveloped market, with good potential. There’s a lot to discover out of China; it’s a place with huge potential for development, so there’s more need for stores than in Hong Kong.”
Like many of its competitors, Vuitton is eyeballing the potential of China’s dozens of second- and third-tier cities. Francois Delage, president of Louis Vuitton Asia-Pacific, reported that while Shanghai and Beijing enjoy more established retail environments and brisker sales, smaller cities provide the opportunity to work more closely with developers.
“People never think that China is anything beyond Shanghai and Beijing,” remarked Brunschwig. “At the other end, there’s Guangzhou, which is more like Bangkok. In Guangzhou, you can feel the money, the activity. Plus Shenzhen – it’s an amazing place. You can be walking in the Hong Kong countryside, and suddenly see a skyline, and it’s Shenzhen.”
“One of the pleasures of working in China is that the places are so differentiated. You can go from freezing in Shenyang to sweltering in Guangzhou,” added Vuitton’s China general manager Christopher Zanardi-Landi. “In China, you see different influences on different cities; every one is different.”
He cited the heavy Korean influence in northern Shenyang, adding, though, that the same products sell similarly in Vuitton stores all over China.
Vuitton’s heavy investment in the country includes aggressive marketing. The company’s marketing campaigns over the years have included “The China Run,” a 1998 rally of 50 vintage cars between Dalian and Beijing; a scrapbook designed by Beijing artist Sun Chuan in 2002, and participation in a French luxury goods exhibition by the Comite Colbert this past October.
“If we are big now, it is because we started early,” said Arnault. “We started early because we were really convinced that modernization was going on in China, although outside, in Beijing, it was different from today; everyone was pushing bicycles. But we knew it would someday be the biggest market in the world. Whether it would be 20, 30 or 40 years, it was irreversible.”
Arnault continued, “China is this block equivalent to the U.S., which is just under Japan, which is just under Europe. Within China, Hong Kong and Taiwan are bigger, but [Mainland] China is catching up.”
Internationally, Chinese travelers are now the “fourth or fifth” largest tourist market for Vuitton, and the company is working to install Mandarin-speaking sales staff in its key stores. Mainland Chinese are now traveling abroad in record numbers and, according to Brunschwig, prices for Vuitton are roughly 10 percent less in Hong Kong and 25 percent less in Europe than in Mainland China due to luxury taxes.
The company shies away from identifying a particular customer base in China. “Our philosophy is that we have 9,000 different products in our store, so we don’t feel we have a specific customer, but more of a broad base, a very diverse range,” said Zanardi-Landi. “The age range is similar to the rest of the world, and we get all sorts.”
According to Arnault, though, the client base has shifted significantly over the past 13 years. “China goes very fast. Our customer at first was the entrepreneur, who had to have the Louis Vuitton briefcase and the Rolex watch. A few years ago, we started to cater to his wife. Today, the customer is already a very sophisticated buyer, similar to internationally.”
Evolving toward a women’s wear market has been one of the major trends for Vuitton in China, which generally is considered more of a men’s wear and accessories market.
“China is more balanced between men and women then most markets; it’s about half and half,” said Delage. “Accessories are a core business for Louis Vuitton, leather goods are predominant and ready-to-wear is also doing well. Sunglasses were just introduced here, and it shows how sophisticated Chinese customers have become because new market categories take off quickly.”
Accessories are also at the core of Louis Vuitton’s Achilles heel in China: piracy. Fake luxury brands are ubiquitous in China, but nothing more so than knockoff LV bags. Every size, shape and style from the company’s arsenal, as well as many new designs featuring the LV logo, can be found in almost every shop and market in China. It is estimated that roughly one of every five women on urban Chinese streets is carrying what is presumed to be a knockoff Louis Vuitton purse – presumably, because the quality of the fakes can be very high.
Vuitton executives play down the extent to which their brand is pirated in China, however, and insist the situation is improving, despite the situation on the streets. They also point out that fake goods appeal to a different clientele than authentic products, and do not affect company revenue.
“Piracy doesn’t affect us,” said Brunschwig, “but we fight it with all our energy in order to protect our customers. It does indirectly impact our image, and we do a lot of work on the ground, like daily cooperation with the authorities to find the sales points, the distributors, etc. It will be eliminated sooner than people think. China’s future is in branding. It will evolve from mass into branding, which goes with protection. You can see how the 2008 Olympic logo is being well-protected.”
Added Zanardi-Landi, “We don’t talk about what we specifically do, but I do think the situation has improved. It’s not perfect, that’s for sure. Overall, we think the government is moving toward understanding the need to solve this problem, and we’ll support whatever efforts they do to make that happen, but it’s not just talk anymore. Now, there is a lot of cooperation. It’s a very active situation at the moment.
“People need to understand what it is to buy counterfeit goods,” he continued, “It’s not only a question of whether you’re stealing our intellectual property, a concept that might be hard for some to understand, but they should understand what is behind piracy, that it is a criminal activity. And it is linked to other criminal activities…that people would think twice before supporting things they may not be comfortable with.”
Rather than piracy, the company claims its chief challenge is keeping pace with the constantly changing China market. “Because there are pioneers here, we must shape the retail scene,” said Delage. “But we never had anything that was a real challenge at the end of the day, and we are confident that…we will continue that way.”
Part of that shaping, clarified Zanardi-Landi, is working with the changing nature of retail property. Until recently, simply finding A-grade retail space was difficult; now, “at any one time in China, you have 300 shopping centers under construction.”
However, problems remain “in the software: how they’re run, how they’re managed. Then, you can have all three – the right environment, the right place, people who understand luxury – but then you can’t control the area around the shopping center. We spend a lot of time working on this; for every new store, we visit the city and site a lot, at different times of day. Every new store is a collaboration of many people and angles, many sets of eyes.
“Wherever you go, each city is moving at different paces, they all have their own separate characteristics, so we need to look at every city individually, to understand it,” he continued. “It’s not just a question of moving always forward, opening in new cities…but to make sure that the cities you’re already in, which are also changing very dynamically, that the store you built three years ago is not suddenly beginning to look like you need to expand or grow or change or whatever, because what we see in each city is constant change in that respect.
“Sometimes, that is very hard for luxury goods companies to understand, because we’ve been around a long time…and we’re used to, when you build a store, having a sense of solidity and that it’s going to be there for a very long period of time,” he said. “Whereas in China, in its very transitional stage at the moment, you can build a store which, when you build it, it’s the right place, the right thing, the right time, but you can look at it five years later, and want to expand dramatically, be in a different location. The city’s moved – virtually anything can happen.”
This approach, Zanardi-Landi continued, has been the foundation of Vuitton’s success in China. “That’s really how we approach the market, with a sense of having to be extremely flexible, ready to take a completely different view the next day…The real challenge is to constantly question ourselves, and never get comfortable with where we are. We are a strong player in the market, but can’t get complacent. We’re driven by our quest for perfection, and take a lot of interest in the details.”