By  on October 14, 2010

HONG KONG — With two new shops in two days and high-profile visits by executives and the brand’s creative director, Calvin Klein put on a show of strength and ambition in Hong Kong.

Ck Calvin Klein officially opened its eighth ready-to-wear store in the city, a two-level, 4,000-square-foot flagship in Central that is its largest in the region. Calvin Klein Inc. president and chief executive officer Tom Murry said the company has been looking for the right site for its flagship for a number of years.

Adding additional arsenal to the expansion of the brand in the region, Warnaco Group Inc., which owns the license for Calvin Klein’s jeans and underwear businesses, opened a combined Calvin Klein Jeans and Calvin Klein Underwear shop at Elements, the sprawling Kowloon mall that targets Mainland Chinese consumers. It is the first time that Calvin Klein Underwear and Jeans are sold in one store in Asia.

Warnaco president and ceo Joe Gromek expects the dual-concept to be successful here. “Our Jeans stores have always been very productive and our Underwear stores have always been very productive, but when you try to combine the two in a smaller footprint, the women’s product suffers a little bit. I think it’s a privacy thing. The dream is to have wide frontage and separate entrances,” said Gromek, who said the 3,810-square-foot Elements store is big enough to provide both the privacy women require in the Underwear store and the openness required in the Jeans store.

“We do have several of these in the planning stages and some in operation in Europe. It should work well here, too,” said Gromek, who added that rolling out further two-in-one shops is a matter of real estate, not concept. “I’m confident that it will work. I’m not confident that we can get the space — that’s the bigger issue,” he said.

Gromek said the new Underwear-Jeans shop is expected to generate sales “north of $1,000 per square foot,” a figure Murry said applies to the ck Calvin Klein flagship as well. “That’s the kind of production we expect in a major market and in these locations,” said Murry.

Calvin Klein began operations in Greater China about 15 years ago. Murry said the brand started with jeans “but it took us awhile to get some traction. Then, with Warnaco as partners, we really ramped it up in the past five years.”

Currently, Warnaco operates 20 Calvin Klein Underwear and 13 Calvin Klein Jeans stores in “well-penetrated” Hong Kong, but Gromek said there is room for more. If the right locations can be secured, another eight to 10 stores will open in the city over the next two to three years. Still, those numbers pale in comparison to the number of Jeans and Underwear shops in China — 100 doors directly operated by Warnaco and another 250 run by third-party partners. The company also has four directly operated commercial centers (in Shanghai, Beijing, Guangzhou and Shenzhen), which handle distribution in China.

“We are projecting for 2011, an increase in sales [in China] of about 40 percent,” said Gromek. “For Warnaco’s Calvin Klein properties, Asia represents just under 20 percent of the revenue, and it’s growing dramatically. This [China] will be our largest single country outside the U.S. for us, and it will get there within 18 months. We just have great opportunities. The Mainland Chinese folks love the brand, it seems to suit their lifestyle.”

Murry echoed his enthusiasm, describing China as “my favorite thing to talk about.” He predicted that sales in China will “continue to grow from 25 to 35 percent, perhaps even more” for all Calvin Klein businesses combined. He also forecast growth across all product categories.

Gromek attributed the brand’s high profile and rapid growth in China to effective marketing and advertising over the past 40 years. “What’s unique for us is that any city or territory we move into, the people already know the brand and they aspire to the products that the brand represents,” he said.

Murry concurred, adding that it’s not just the amount spent on advertising — $2 billion over the last four decades — but also the consistency of the message. “Whether it’s jeans or underwear or fragrance, which is our biggest ad span, it helps create a brand image that we enjoy on a global basis. It’s a big responsibility to have products that execute — that live up to that identity,” said Murry.

In China, Warnaco typically enters a market via a Jeans store, to be followed later by Underwear, which has to be marketed carefully. “We have to be discreet. What we can do outdoors has to be appropriate to the guidelines in China. But internally — in our own doors, we can do pretty much what we want,” said Gromek. In 2009, Warnaco’s Calvin Klein business reached $1.5 billion in revenue; Jeans alone represented $923 million in revenue.

The only difficulty either ceo sees is in real estate. “Demand is ahead of supply, particularly in terms of finding appropriate places to put stores,” said Murry.

But China’s newfound power as a consumer makes it that much more expensive as a source of materials and manufacturing. Gromek said, “China represents about 40 percent of our source product at this point. We are looking at other geographies but also within China itself, further afield.”

Murry echoed his sentiments. “We can source in China, but everyone is feeling the pressure. Everyone wants to reduce margins. It’s a problem for us. Prices are going to slowly go up, there’s no way around it,” he said. “The good thing for us is that with the Calvin Klein brand there is some price elasticity. And our customers have the wherewithal to withstand the change in pricing.”

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