By  on December 3, 2004

HONG KONG — China might have huge potential for luxury brands in the long run, but companies should take things at a slow, steady pace in entering the market, according to industry executives.

Christian Blanckaert, executive vice president in charge of international affairs at Hermès International, said the mainland should be entered over time in part because few cities are open to luxury items, even though the country is so vast.

“China is small for [Hermès] and we have a lot to do to try to touch the heart of the Chinese people,” he said during a speech on the second day of the International Herald Tribune’s conference, “Luxury 2004: The Lure of Asia.” It isn’t a market to be penetrated immediately, he continued. “I think we have plenty of time.”

Blanckaert sees the country as more of a key source of inspiration for Hermès than a market to sell its products. Even with the slower approach, “Hermès will succeed because it will remain Hermès,” he predicted.

Hermès has seven shops in Hong Kong and three in mainland China. It has a shop in the Peninsula Palace in Beijing as well as in the airports of Shanghai and Beijing, according to its Web site.

Francis Gouten, regional chief executive of Richemont Asia Pacific, said the Swiss group’s 15 brands have been in the Far East for 30-plus years. Currently, 12 of its brands are distributed in China with three others — Chloé, Van Cleef & Arpels and A. Lange & Sohne — joining soon. Its other brands include Cartier, Montblanc, Dunhill and Shanghai Tang.

For its business in the Far East, all markets have hit double-digit growth, with sales in the Asia-Pacific region alone rising to 360 million euros, or $479.5 million at current exchange, for the first six months ended Sept. 30.

The group’s advantage is having management and staff of the brands present in the market for many years, which brings knowledge and better management of the local situation, said Gouten. Richemont is focusing on developing its presence in the central cities of China.But Burberry surpasses even Richemont’s early presence in the Far East. The London-based company first had a wholesale business in Japan in 1920. Since then, it has expanded to hit sales of 1 billion pounds, or $1.93 billion at current exchange, in Japan alone, which is 80 percent of its Asian sales, for the first half, said Stacey Cartwright, chief financial officer at Burberry. Asia makes up 17 percent of the company’s revenues.

Thirty percent of sales from Burberry’s Hong Kong stores are attributed to mainland China customers, Cartwright said. In China, Burberry has 33 locations in 23 cities. It has doubled its selling space and sales in the past few years; its largest store outside of Japan is at Shanghai’s Sogo Store.

Ferruccio Ferragamo, ceo of Salvatore Ferragamo, said in Asia, Ferragamo supplies the company’s brand, know-how and product while relying on a partner to tell it what the market wants. It signs exclusive distribution agreements with local partners and does 50-50 ventures when the business justifies it, Ferragamo said, adding that all its joint ventures in Asia are profitable. Its Asia sales, excluding Japan, are 18 percent of net sales. The company has 26 points of sale in China.

Matteo Marzotto, chief operating officer of Valentino, said Asia represents 15.6 percent of the company’s sales, which total 500 million euros, or $666 million, at retail a year. Direct operations generated 36 percent of total sales, he said, predicting that Valentino’s sales in Asia alone will grow in double digits in coming years.

Marzotto admitted that taking over the fashion house was a “big bet” for the Marzotto Group because Valentino’s bottom line was as red as the dresses at the end of its shows. “We recognize it was not properly managed at the time,” Marzotto said.

Currently, he is working toward opening the accessibility of the brand and strengthening its distribution network through franchising stores. He also is considering selling to department stores as an option in Asia.

But one major hurdle any brand faces in entering the Chinese market is the threat of knockoffs or counterfeits. Tan Loke-Khoon, an international partner for Baker & McKenzie, discussed counterfeiting and said brands need to be proactive as opposed to reactive.He said it’s important to register a brand to protect its intellectual property rights, do research and hire investigators. He also suggested considering laws outside of international property, such as tax, consumer and labor laws, when combating counterfeiters.

Ralph Toledano, chairman and ceo of Richemont’s subsidiary, Chloé, shared some insight in his speech at the conference on how to attain — and maintain — success. His advice ranged from having a strong, coherent team, particularly on the design side, to allowing enough time because “a strategy needs at least five years to be fully implemented.”

In order to maintain success, Toledano said a brand must constantly reinvent itself and leave room for dreaming and anarchy while staying away from boring formulas.

Sir Paul Smith, designer and chairman of his namesake company, agreed that boring was bad as he pulled out a rubber chicken from his briefcase, showed random photos of his beloved English countryside and gave gifts to those who asked questions after his talk.

He instills this playfulness in his stores, as well, creating each distinct from the other. Smith has 200 shops in Japan that ring in 161 million euros, or $214.4 million, in wholesale sales; his collections are wholesaled to 35 countries worldwide. In the rest of Asia, sales are 61 percent higher than last year at 5.4 million euros, or $7.2 million.

Smith’s advice to the industry: “We’ve got to keep shaking off these tired, old formulas,” he said, adding that, if brands are “consistently unpredictable,” people will trust you to try new things.

The other designer on the schedule, Alber Elbaz of Lanvin, spoke with a similar playful tone as he rolled out anecdotes from the life of a designer. Elbaz said the late Geoffrey Beene, whom he worked under, taught him simplicity and modesty, both in design and life.

He recalled that at a fitting, Beene asked him what he thought of a simple piece. Elbaz replied he thought it was commercial. Beene’s face went red as he pulled Elbaz aside to tell him that he shouldn’t use the word commercial. Instead, Beene preferred “desirable.”

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