By  on January 11, 2005

SHANGHAI — The world’s luxury brands have a new venue here in which to open up shop.

Bund 18, which launched in November, is the latest retail destination both in Shanghai and along the city’s historic waterfront, the Bund. It’s also further proof that, between its rising international profile, liberalizing markets and growing coterie of new rich, the eastern Chinese municipality of Shanghai is attracting ever-more luxury labels. Scores of retail outlets, including many a massive flagship, have opened in the past year, with many more planned, and high-end malls and boutiques are cropping up to meet the demand.

Mostly constructed in the Twenties and Thirties by Western banks and trading companies, the Bund — the curve of neoclassical structures — along the banks of the Huangpu River remains Shanghai’s signature cityscape. After decades of neglect under communism, the area remains mostly a tourist destination, and has been slow to develop the sort of consumer activity that has emerged in the downtown areas and across the river in the Pudong New Area. The seven-story Bund 18 complex is already home to two restaurants, a bar and Cartier’s China flagship, and once fully open, by April will add several other luxury shops, a cafe and an exhibition space.

The latest version of Bund 18 had its beginnings in late 2001 in Hong Kong, when managing director Janette Chang and some Shanghainese friends were lamenting the shoddy renovations of the city’s historic prewar architecture. Chang’s friends challenged her to do something about it, and in February 2002, she started looking at spaces offered by Jinsi Holding Co., the government agency that manages Bund properties. Chang and the Italian architect Filippo Gabbiani selected number 18. After submitting extensive proposals to convince the government, cautious with the highly limited and much-desired Bund properties, a 20-year lease was signed in November 2002.

Bund 18 Real Estate Development Ltd., the parent company for the project, derives its investment not from the usual real estate speculators but from Hong Kong Union Way Holdings, a commodity firm, and First Federal Banking Co. Both have shareholders interested in historic preservation, and were motivated by Bund 18’s unprecedented — for Shanghai — ambition to authentically restore an historic building for commercial use. Most of the other commercial projects in historic Shanghai buildings, such as Xintiandi and the neighboring Three on the Bund, totally gutted or even demolished and rebuilt the original structure, but Bund 18 has returned the building to much of its original form.Designed by the British architectural firm Palmer & Turner, also behind many other of the Bund’s landmarks, Bund 18 was built as the China headquarters for the Chartered Bank of India, Australia and China in 1923. With painstaking attention to detail, Gabbiani, of Venice-based Kokaistudios, dove into the historical archives and flew in teams of experts to roll back years of wear and neglect. “We believe that the commercialization of historic buildings is not opposed to preservation,” said Sylvia Lee, the project’s chief marketing officer. “From the beginning, we had the vision of merging proper renovation with increasing commercial value.”

Lee said the investment to date totals $14 million. Of that, 15 to 20 percent went into the restoration and interior design of the facility, and 70 percent on mechanical equipment. The company expects to take seven years to recoup the initial investment. The company itself will only operate a ground-floor cafe plus the Bund 18 Creative Centre, an 8,000-square-foot space on the fourth floor that will host art exhibitions organized by the company’s foundation, starting with a show in cooperation with London’s Victoria and Albert Museum in April as well as commercial events and parties. It has already played host to a Dior show, a Swarovski exhibition and a Chivas launch. The project derives 90 percent of its income from rent. Tenant contracts range from three to five years.

The main tenants so far are Cartier, which launched a 2,500-square-foot store there in December, and Zegna, which will soft open a massive three-story, 21,000-square-foot flagship — its largest in Asia — at the end of this month, with a grand opening in April. Boucheron will open an outlet in April or May, and five other high-end boutiques — Bund 18 declined to identify which brands, as details are still being finalized — will open in February. The fifth floor is home to Chinese restaurant Tan Wai Lou, the seventh to the DJ-driven Bar Rouge and the sixth to French restaurant Sens & Bund, run by Jacques and Laurent Pourcel. The restaurant is the first in China managed by Michelin-rated chefs.

The Cartier store marks the company’s second in Shanghai, after one opened in May 2001 in Nanjing West Road’s Plaza 66, one of the city’s largest luxury brand malls, and its eighth and largest in Mainland China. Cartier plans to launch another seven stores in China this year. Cartier’s general manager for China Josephine Chien said the company wanted a store in the area because “the Bund is the mark of Shanghai now because of the old buildings, and it has become a tourist spot, and all the luxury brands are looking to open places there.”Other luxury complexes are scheduled to open on the Bund over the next few years, including a branch of Hong Kong’s Peninsula Hotel on nearby Beijing East Road, and Louis Vuitton has plans for a store in the historic Peace Hotel. Cartier chose Bund 18 over its competitors because of its launch date and location, nearer to the heavily trafficked tourist stretch of Nanjing East Road than Three on the Bund, currently the only other complex opened on the Bund, which is home to an Armani flagship, opened last April.

While a popular destination and a prestigious Shanghai address, the Bund does brisker business in tourist trinkets for low-budget Chinese visitors than in high-end apparel. Both Bund 18 and its tenants, though, focus on the development potential of the famous waterfront. “The Bund is like a stage, for Shanghai, and for the whole of China,” explained Lee. “Brands are setting up here, not just for financial return, but to raise the prestige of their brand. It is not a mature shopping district yet, but it will be in the long term. However, the property is limited, and the brands have to get in now.”

Cartier’s Chien echoed her sentiments: “Bund 18’s commercial prospects are long term, as the shopping environment is not yet mature, it’s mostly tourists. But we foresee it will mature in a few years.” She cited government plans to turn the Bund into a luxury walking street in two or three years. While Cartier’s Plaza 66 store has sales exceeding 5 million renminbi, or $603,000 at current exchange, a month, she expects the Bund 18 figures to start below that.

“It’ll be more walking than luxury; no one ever goes into these stores,” countered Paul French, a director of business consultancy Access Asia.

French contended the challenge for outlets on the Bund is not low consumer traffic — a problem shared even on the brand-bedecked Nanjing West Road — as much as exorbitant rents. A widely cited South China Morning Post article reported that Zegna is paying 100,000 renminbi, or $12,078, a day for its forthcoming Bund 18 store. “There are no customers, either way; it’s all about the rents, which are phenomenally more than they should be. They aren’t going to clear it; it cannot be done.These rents are much more than comparable places in London and New York,” said French.Bund rental prices, he said, contrast with the Nanjing West Road malls, which have lured brands in with cut rates. “At Plaza 66, the stores aren’t paying anything, just a service charge, because they want the luxury brands in there at the street level. It’s cheaper than a billboard — those you have to queue up for; just stick in some purses and some girls. It’s good for the brands, free advertising plus a Shanghai store, they don’t care if anyone ever goes into them.”

“Luxury brands cannot be afforded by most Chinese, but are desired by them,” asserted Bund 18’s Lee, “so there’s great growth potential.” The brands are counting on that, despite the many stores that stand empty apart from their armies of attendants. Regardless of how sales fare, their ambitious expansion plans and optimistic China projections suggest that projects such as Bund 18 that cater to incoming international brands, no matter how high the rents, stand to do well.

French maintained that luxury brands shoot themselves in the foot by overexpanding. “The market is actually getting smaller, because they’re opening stores in second-tier towns like Dalian and Shenyang, so the rich people there who used to fly to Shanghai to buy these products now have it as much there as here.”

Regular buyers are more likely to head to Hong Kong, where they can avoid the 15 percent luxury import tax imposed on the Mainland. The government also is floating the possibility of levying an additional 5 percent luxury tax. “The brands have spread out their customer base,” said French. “They have a hard slog ahead, but will keep at it.”

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