By  on July 2, 2008

BEIJING — Legation Quarter, a hyped luxury destination project here, flexed its fashion muscle last month by hosting Shanghai Tang's fall fashion show. But between sips of free-flowing Champagne, guests and industry insiders mused over the controversial restoration project and the validity of its business model.

"It's a risky area for us here in terms of traffic," said Raphael le Masne de Chermont, executive chairman of Shanghai Tang. The group is currently in negotiations with Legation Quarter over retail space. De Chermont admitted that price was also a factor, but maintained the rent was still a bargain compared with costs in Shanghai and Hong Kong.

Legation Quarter sits in the city center, right next to Tiananmen Square. The project is billed as an "integrated lifestyle development," a place for China's growing number of wealthy consumers to dine, shop and be cultured amid the recently restored colonial buildings and its central quadrant of lush green lawn — a rarity in China's capital.

Still, the development has been piecemeal as retailers are hesitant to commit to the location. Two of the five buildings remain empty and another one was shrouded in large construction sheeting, an eyesore among the glitter and sparkle of the Shanghai Tang show, the venue's first fashion event. Legation Quarter's gallery and bar bowed with a soft opening late last month.

"There is no place like China for luxury," said Ian Cerruti, who heads the Cerruti luxury brand's furniture interests in China. When questioned on the irony of the location, he noted, "In Italy it was the same, after the Fifties, you had historical buildings that were in ruins, bombed in the war. And next door, luxury shops were opening."

Legation Quarter lies just north of a recently demolished hutong, a traditional Beijing alleyway neighborhood.

Most people at the Shanghai Tang event on June 19 agreed the area is unique. It once housed the American Embassy to the Qing Empire, was later the Dalai Lama's residence during the Fifties, and even hosted secret meetings between Henry Kissinger and Premier Zhou Enlai in 1971.

Despite the intriguing history, retailers remain hesitant, which is a point of frustration for Handel Lee, the Chinese-American developer behind Legation Quarter. "Everyone is talking about how big China is, about the luxury market here. But where are they? Where's Gucci?" he said from the sidelines, gesturing at the colonial buildings around him. Lee also backed Shanghai's successful Three on the Bund, which boasts Armani and Boss shops on the first floor.Part of the reluctance is rooted in Beijing's shopping culture. "In Beijing, people like to shop in malls," said de Chermont.

The recent deluge of indoor shopping complexes here underscores his point. In the last year, Shin Kong Place and Seasons Place opened their doors to Beijing shoppers. The first floors of these malls house high-end retailers such as Marc Jacobs, Chanel, Louis Vuitton and Dior.

Lee doesn't buy the claim, though. "The shoppers, the ones buying Prada and Louis Vuitton, they don't shop in malls and hotels," he said.

There is some truth to his statement. Retailers cater to exclusive client groups here, not all of which are based in Beijing, and arrange private, off-site appointments to show them new products when they arrive. The result is that stores in high-profile malls often act as mere showrooms.

At the moment, Patek Philippe stands alone among a sea of food and beverage destinations. Knight Frank, a retail services firm, confirmed that groups like Lane Crawford, Imaginex Group and multibrand retailer I.T. have expressed interest. Some retailers that did not suit Legation Quarters' profile were reportedly turned down, though the firm declined to identify them.

"It's important to get the right mix and have it as a destination location," said John Southall, Knight Frank's manager of retail services. "Though of course [the buildings] can't stay empty forever."

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