Forecasting Luxe Growth in Asia

ROME — After a debilitating period marked by the SARS epidemic and terrorism, Italian fashion executives and leading Asian merchants and distributors spoke positively about 2004 during an Altagamma roundtable held here last week. <BR><BR>While...

ROME — After a debilitating period marked by the SARS epidemic and terrorism, Italian fashion executives and leading Asian merchants and distributors spoke positively about 2004 during an Altagamma roundtable held here last week.

While sales in the region are up, industry leaders stressed that future growth depended significantly on how well fashion brands understand the intrinsic challenges and needs of individual markets, whether in Japan or China, Singapore or South Korea.

Consumption of luxury goods throughout Asia registered double-digit growth in the first five months of the year, according to a new index compiled by Altagamma, the Italian consortium of luxe brands, and American Express. Sales rose 21.5 percent in Japan, 55.1 percent in Singapore and 56.2 percent in Hong Kong.

While the latest preoccupation is China, Bulgari’s Francesco Trapani said the Japanese were still the reigning consumers of luxury goods.

“Let’s not forget that Japan is still the largest luxury market,” Trapani said. “It’s an enormous market that in some ways is mature. It’s sophisticated and Japanese clients are not only buying products but really buying a concept, a lifestyle behind it.”

Japanese retailers and industry executives agreed that unlike the Chinese, Japanese shoppers were out to buy much more than a bag or piece of jewelry.

“Japanese consumers are creating their own lifestyle and really understand what is good for them and bad for them,” said Paul Tange, president and architect of Tange Associates.

At Isetan, a leading Japanese department store, management said its primary objective is to fulfill the need for beauty and culture that their consumers look for in products.

“The mood of consumers is changing,” said Nobukazu Muto, president and chief executive of Isetan. “It no longer depends on product and price but really the cultural background of a product.”

Muto said sales of Italian products were up 10 percent this year compared with 2003, but hedged when it came to predicting next year’s growth. “It’s difficult to make a forecast, but there’s real hope growth will continue in the long term,” Muto said.

Trapani, upbeat for the remainder of the year, also expressed moderate optimism for 2005. “The market is definitely more dynamic and fluid in the U.S. and Asia,” Trapani said. “Of course everything also depends on terrorism and the war [in Iraq]. With such factors it’s difficult to give good, precise guidelines.”

This story first appeared in the July 16, 2004 issue of WWD.  Subscribe Today.

Tod’s chairman Diego Della Valle, who warned colleagues not to abandon Made In Italy just to improve balance sheets in the short term, said signs for ’05 were positive. “We’re mobilized for future growth next year,” Della Valle said.

If Japan is the most mature market in Asia, then South Korea and China provide new revenue opportunities.

“Korea is much smaller [than Japan], yet there’s a strong foreign presence and it’s becoming an increasingly interesting market,” Trapani said. “There are huge growth rates in Korea, whereas in Japan growth is much smaller and really to increase growth there you almost have to rob market share.”

In-Won Lee, president and ceo of Lotte department stores in South Korea, said luxury goods sales were “bucking the general downtrend this year.”

Lotte’s sales are down 7.3 percent this year, yet luxury goods sales rose 2.3 percent. “In the near future we forecast a significant increase in the number of luxury consumers,” Lee said.

With a population of 1.2 billion, China’s potential remains enormous. While sales of consumer goods have grown at meteoric rates over the past two years, Chinese merchants at the conference said there would be no slowdown.

“The steam will continue in China,” said Balbina Wong, president of ImagineX Group, a leader in high-end retail partners for international brands with boutiques throughout China, Hong Kong and Taiwan.

Roy Ho, director and general manager of Shanghai’s Plaza 66, said, “Men’s wear is increasing in larger percentages than women’s wear,” and that young, thirtysomething consumers were propelling both men’s and women’s wear sales.

Plaza 66 opened in 2002 with sales of $180 million. Ho said revenues are expected to reach $600 million in 2005.

While most fashion brands are just beginning to conquer Beijing, Shanghai and Hong Kong, both Wong and Terry Sio, founder and president of the Macau-based Rainbow Group, said China’s 75 other cities with a population of one million or more should not be overlooked.

“A fashion company’s strategy alone could be to focus on China’s secondary cities,’’ said Sio. The Rainbow Group has opened franchise stores for Ermenegildo Zegna and Max Mara, among other brands, throughout China.

China may offer many opportunities, but merchants agreed that styles and needs vary from region to region.

“Market segmentation must be understood,” Wong said, noting the extreme climate difference between northern and southern China.

Although China is also becoming more important for sourcing, panelists said affluent Chinese don’t want to buy Made In China.

“Chinese recognize craftsmanship and quality,” Wong said. “They’re buying a product that is a status symbol and they want to buy luxury products: Made In Italy; made outside of China.”