Looking East

The scale of Giorgio Armani’s ambitions in China is reflected in the size of his Hong Kong complex, Chater House. At 30,000 square feet, the store is second in size and scope only to his Milan flagship.<br><br>The opening of Chater House last...

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The scale of Giorgio Armani’s ambitions in China is reflected in the size of his Hong Kong complex, Chater House. At 30,000 square feet, the store is second in size and scope only to his Milan flagship.

This story first appeared in the February 20, 2003 issue of WWD.  Subscribe Today.

The opening of Chater House last November was only the latest of many signals that the luxury world’s next target is the world’s largest population. China and Russia — countries once associated with communism, the restraint of individualism and want of worldly goods — now are emerging as two of Italy’s most important new markets, thirsty for luxury, designer labels and the Western lifestyle.

The potential of China’s massive population and the wealth of Russia’s nouveaux riches are a major draw to all Italian luxury goods groups from Gucci, Prada and Versace to Armani, Gianfranco Ferré, Krizia and Missoni. These markets offer an alternative to saturated and exploited markets and often help counterbalance faltering sales in Europe, the U.S. and Japan. They also offset the political turmoil of South American countries, the religious instabilities of the Middle East, the uncertainties of a few Far Eastern countries such as Indonesia and the Philippines, and the poverty of India.

While China is already an established market for some Italian firms such as Ermenegildo Zegna, with its 30 stores and a presence there that goes back a decade, most fashion houses entered that country only in the mid-Nineties. Now they are banking on China’s relative social stability and exponential economic growth, investing in the opening of freestanding boutiques around the country.

“China has an excellent growth potential for the luxury goods sector,” said Domenico De Sole, chief executive of Gucci Group. “The growth of the economy, the formation of a new management class, the money-saving mentality of Chinese consumers, and especially the great attention to high quality, ‘Made in Italy’ products make it an emerging market, yet to be fully developed.”

Accordingly, De Sole said the group is gradually strengthening its presence in China. There are currently four Gucci stores in China, one in Beijing, one in Guangzhou and two in Shanghai.

Patrizio Bertelli, chief executive of Prada Group, said he plans to open four sales points in China in the first six months of 2003, which will add to the 10 existing Prada and Miu Miu stores there. Bertelli said China was a priority for the group. “In a five-year period range, China has a strong potential,” said Bertelli. “The Chinese market is still very young, but we see the same potential we noted in Japan 20 years ago.”

“Yes, China could become the new Japan,” concurred Krizia’s Mariuccia Mandelli, who first showed there in 1997. Back then, Mandelli said she was “surprised” by what she saw. “I expected the people would be indifferent to anything superfluous.”

On the contrary, professor Stefania Saviolo, co-director of the Master in Fashion, Experience and Design Management program at Milan’s Bocconi University, believes the Chinese are extremely receptive to fashion. “The Chinese mentality is closer to that of the Italians than one would believe,” said Saviolo. “The way they look, the impression they make, the ‘bella figura’ is essential to them, and they are tradespeople who need to look the part.”

But while designers are eager to expand in China, they are less optimistic about the near-term future of the nation with the world’s second-largest population: India. “I think it’s almost immoral to sell our clothes in India [because of the poverty],” said Mandelli, who does not have any business there. “I would rather bring work than open boutiques there.” According to NCAER, an Indian assessment association, 1.5 percent of the population has an income above $35,000 in India. This figure is expected to grow to 5 percent in 2006.

Other entrepreneurs, such as Bertelli, are less discouraged. “We are still studying India,” said Bertelli, who plans to enter that market in the short or medium term. “India has a strong potential and especially a tradition and a sensitivity for fashion and luxury that is deeply rooted in the history of this country and its people.”

So, for the moment, the focus is on the Far East, Russia and the former Communist countries of Eastern Europe. In 2003, the Italian Trade Commission (ICE) will schedule events and promotional activities in China and Russia to boost communication, exchanges and information between these two countries and Italy’s fashion, jewelry, accessories and cosmetics industries. China and Russia are ICE’s main targets, following the U.S., which absorb 30 percent of the association’s total spending power of more than $100 million this year.

“There are about 100 million Chinese that have our same spending power,” said Ugo Calzoni, general director of ICE, based in Rome. Calzoni said it is no longer enough to transmit the Italian lifestyle, the pleasure of creativity and taste. “We need to convey the technology and reliability of our products and to show how we do business, our way of trading.” (For a full interview with Calzoni, see page 16.)

However, Guido Corbetta, co-director of the Master in Fashion, Experience and Design Management at Bocconi University, urges Italian companies to work on structuring a more international management. “Often, Italian companies are family-owned: Who in the family will go and live in Guangzhou, for example? Or they are too small to hire managers who will,” said Corbetta. “You need presence and continuity to build your business abroad.”

Together with the Italian Chamber of Fashion and Sistema Moda Italia, a national consortium of textile and fashion firms, ICE also is organizing a series of events and a fashion show in Saint Petersburg, Russia, in May, to mark the 300 years of the city. Later this year, Gianfranco Ferré will open a boutique there.

“Russia is a great market for our product,” said Francesco Dalla Rovere, a board member of SINV Holding, which controls Sportswear International and Neo Res, licensees for Voyage Passion, See by Chloé, Krizia Jeans, JPG Jean Paul Gaultier Jeans, Gabriele Strehle Jeans, Moschino Jeans and DKNY Jeans for Europe, Asia, the Middle East, Australia and New Zealand.

“The Russians are very up-to-date, they travel a lot, and are open to such well-defined clothes as the ones we produce,” said Dalla Rovere. The company lists between 40 and 50 clients in Russia. Dalla Rovere said that, led by Russia, the former Eastern European countries such as the Czech Republic, Poland, Rumania, and Bulgaria are becoming increasingly important.

“Within the next five years, Poland, Hungary, Rumania, and the Czech Republic will be important new markets for Italy,” agreed Corbetta. These markets are already significant producers for many Italian companies, such as clothing and textile manufacturer Marzotto. “They are gradually evolving from producers to consumers,” said Corbetta.

Giorgio Armani and Versace are both aiming at an expansion in Eastern Europe. A Versace spokesman said that, while in the process of expanding its business in China through freestanding boutiques and shop-in-shops, Versace also is moving into Eastern Europe. “This represents an area which has great potential for us; the former Baltic republics are a market which we have been keeping a close watch on,” said the spokesman.

“Moscow’s wealth will trickle down [to other surrounding countries] in five to 10 years,” said Robert Triefus, Armani’s executive vice president for worldwide communications, who added that Armani already is looking at Slovakia, Hungary and Poland.

But while some brands look at regions of the globe and countries, for Vittorio Missoni, the world is made of simply cities. Although his family’s company is expanding in China as well, where it will open a boutique in Beijing at the end of the month and one in Shanghai in September, Missoni believes a company should invest wherever there is potential — regardless of whether an overall region or country is in difficulties.

“While the South American market is difficult, if there is a good store in Sao Paolo or Rio, we should be there,” said Missoni. “We work well with one retailer in Athens and Salonicco, Greece. For us, it’s a good successful market that is worth as much as our business in Zurich or Brussels.”

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