By  on November 9, 2006

SHANGHAI — Calvin Klein last week took its show on the road to China, already one of the company's most important markets and growing fast.

Calvin Klein Inc. president and chief operating officer Tom Murry led a group that included Francisco Costa, creative director of Calvin Klein Collection for women; Italo Zucchelli, creative director of Calvin Klein Collection for men, and Kevin Carrigan, creative director of ck Calvin Klein and Calvin Klein, to throw a massive party introducing the company's spring collections to the Chinese market.

The party, dubbed "The World of Calvin Klein" and held Friday at a warehouse in Shanghai's northern Zhabei district, was the company's largest event this year and its largest ever in Asia. Instead of a fashion show, more than 80 models posed in Calvin Klein Collection, ck Calvin Klein, Calvin Klein Jeans, underwear and eyewear on elaborate sets on nine stages. Among the 1,500 guests were rising movie stars Xia Yu and Li Bingbing, Hong Kong film stalwart Louise Koo Tin-Lok and model Du Juan.

The event indicated the importance of the market to the brand. Calvin Klein has enjoyed a fairly unique position in China as an accessible, midprice brand with global cachet. Calvin Klein Jeans, launched in Beijing in 2001, is the leading American jeans brand in China. While jeans have the highest turnover and the most numerous outlets, Murry said, underwear and apparel are also performing strongly.

Murry also gave the keynote address at this year's China Luxury Summit on Nov. 2, describing Calvin Klein's experience as distinct from the traditional luxury brand. "Certain sectors of the Chinese population, notably a new and growing middle class, are enjoying tremendous income growth, even if most Chinese have modest average monthly incomes," he said during his speech. "According to China's National Bureau of Statistics, the average monthly per capita disposable income in Beijing and Shanghai is roughly $200, while the same figure for rural households is dramatically less."

Later, Murry told WWD: "Our core client here is middle class, aged 25 to 35. Ours is a segmented business, and in China we are focusing on the middle range. In March, we'll open our first Collection store in Beijing, hopefully following with additional locations. There is a growing affluence in China, it can support luxury, but so far, no one is making money yet in luxury goods."The company's global sales break down as 50 percent from the United States, 30 percent in Europe and the Middle East and 20 percent in Asia, of which Japan and greater China represent roughly 15 percent and 5 percent, respectively. "We envision the next five years as a major shift. In time, the mainland will surpass everything, but for now, Hong Kong represents most of our greater China sales," said Murry.

In his Luxury Summit address, Murry said the company anticipates retail sales of more than $50 million in China, representing 13 percent of total Asia sales volume, within the next few years.

Calvin Klein has 42 freestanding stores in China, a mixture of franchises and directly owned stores, and more than 100 shop-in-shops. Of these, CK Jeans counts 28 freestanding stores and more than 40 shop-in-shops. "In the U.S., shop-in-shops are more open, but here, they usually have walls and are more like actual stores, and see significant sales," said Murry.

Additionally, apparel, eyewear and jewelry have over 1,000 points of sale in China. Many of Calvin Klein's China stores are managed by one of two licensees, their global partner Warnaco and Club 21, a major fashion emporium based out of Singapore. The company is advertising heavily in China, and according to Asia-Pacific managing director Edith Chen, this year spent $10 million, triple the budget of four years ago, on print, outdoor and events advertising.

While Calvin Klein has shops in 22 cities in China, Murry stipulated the focus was on five: Shanghai, Beijing, Guangzhou, Shenzhen and Hangzhou. "Shanghai is our strongest market, but we see huge potential for Hangzhou and Wenzhou," both in Eastern China's Zhejiang Province. "We have a strong presence in those two cities, and there is significant spending power there. Several of our top 10 stores are there."

Murry delineated the necessity for a regional approach to selling to China. "While one country, China is like multiple countries in terms of its spending and purchasing patterns," he said. "Beijing and the north are more sophisticated, less brand-conscious and quality driven. In the south, including Shanghai, customers are very aware of trends, brands and prices. Plus, the climate is different further south, you have a perpetual spring-summer market."Along with China, Calvin Klein has 20 freestanding stores in Hong Kong. "Hong Kong is very savvy, sophisticated, a global fashion hub," said Chen. "Hong Kong is the opinion leader, while China is a follower. The mainland is more conservative, it is an emerging market still. Prices in China are 20 percent more than Hong Kong, but with the World Trade Organization, those will come down."

He stressed the need to be responsive to local sensibilities in China. "Calvin Klein is about a global identity with regional specialization. China is more conservative, we cannot use certain images here. But the same holds true in southern parts of the United States."

Calvin Klein Underwear is the top performer in China, in the black and gray markets, that is. Roughly 90 percent of pirated underwear in China bears the Calvin Klein logo, and shops selling dozens of varieties of fake CK underwear are ubiquitous in subways, markets and street fronts. Calvin Klein is working with Baker & McKenzie to combat the piracy, and while Murry claimed the situation was improving, market availability suggests otherwise. About 20 percent of the brand's production is sourced in China.

Beyond piracy, Murry echoed a common industry complaint about China. "Finding good store locations is the main problem, as demand is above the supply, but a lot of new malls are coming in." The company anticipates annual 13 to 20 percent growth in China, he added. "We're ambitious, but cautious."

"With its massive population, China offers tremendous opportunities to brands like Calvin Klein," Murry elaborated in his Luxury Summit address. "But those companies that want to build a significant presence here must take a cautious, pragmatic and long-term approach. This new Chinese consumer and the consumer economy have emerged through decades of a very different sociopolitical culture. The parents and grandparents of the younger generations who are enjoying increasing disposable income, newfound affluence and more liberal spending habits are witnessing something dramatically new."

To WWD, Murry clarified that "in the short term, there will be a luxury glut, but that is part of the normal supply and demand pendulum. Even now, there's perhaps too many stores here, but it will balance out."Still, he expressed optimism about China's growth. "The hype is accurate and it's well-deserved, China has long been a sleeping giant, and now there's real traction in sales, and productivity is very high."

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