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Ferragamo Marks Decade in China Market

Even by China standards, Salvatore Ferragamo SpA is on a roll on the mainland.

BEIJING — Even by China standards, Salvatore Ferragamo SpA is on a roll on the mainland.

Ferragamo, which has been in the Chinese market for a decade, has had a 38 percent upswing in sales in the Asian giant in the first half of 2005 alone, 48 percent if newly opened stores are factored in. Ferragamo plans to have 30 mainland China stores by the end of this year, with seven new ones added this year, and will add another six in 2006.

“One-third of our new stores worldwide are in China,” said Ferrucio Ferragamo, the company’s chief executive officer.

Unlike most international brands, Ferragamo considers piracy and distribution as smaller challenges in China than managing its growing sales network and maintaining a high brand profile.

Ferrucio Ferragamo joined other company executives, including vice president Fulvia Ferragamo, Holdings vice president Giovanna Ferragamo and the head of women’s leather goods, James Ferragamo, in Beijing late last month for a gala party and show of the company’s spring 2006 collection. Held in the Taimiao Ancestral Temple section of the Forbidden City, the party was described as the capital’s best bash of the year, and was attended by Hong Kong film stars such as Tony Leung, Karen Mok and Gigi Leung.

“I was last in Beijing one year ago, and Shanghai six months ago,” said Ferrucio Ferragamo. “China is fantastic, there are not words to say how it is moving, accomplishing … There is such a big future, opportunity.”

The main change he has witnessed is that “the consumers are becoming sophisticated. They know what they want, don’t wait for suggestions, but know what they like, so we don’t have to propose ideas to them. Plus, the number of consumers is growing tremendously.”

“China is more of a men’s market; men spend more here,” observed Asia-Pacific manager Raymond de Malherbe. He specified that in mainland China, men’s wear constitutes 45 percent of Ferragamo’s sales, while shoes represent 40 percent, which parallels their global trend. Ferragamo, however, estimated that the breakdown of men’s to women’s wear sales in the company’s China shops is one to three. De Malherbe added that its male clients are businessmen and entrepreneurs aged 35 and up, while women’s wear attracts “fashionable young ladies” starting at age 25.

Ferragamo operates in China with a mixture of directly owned stores and partnerships with local enterprises, explained de Malherbe. “We directly own stores in Beijing and Shanghai, and now in Guangzhou and Shenzhen, and then have partnerships in the provinces, since they know the market better.”

The partnerships are comprehensive brand agreements, he continued, “to open shops, follow image guidelines, handle everything, and come and buy the inventory.” Along with a greater China joint venture with Imaginex, Ferragamo maintains four other partnerships to cover the regions of north, east, southwest and west China. “Most are local companies with established retail success, but in west China, our partner is also the regional distributor for Budweiser.”

The relative independence of the partners facilitates Ferragamo’s aggressive strategy of opening stores in China’s second- and third-tier cities. The company has three shops in Shanghai, two each in Beijing, Shenzhen, Wenzhou and Hangzhou, and one each in “all the other major cities,” said de Malherbe. The best-performing stores are in Shanghai, Beijing, Chengdu and Dalian.

“Dalian has a tradition as a fashion city, and in the north people spend more money because of the climate. Chengdu is the real surprise, for a wealth of reasons, plus our partner there is very good.

“I just came back from Urumuqi,” capital of the interior Xinjiang Province, he added. “There’s a lot of oil money. Already, Cartier is there, plus two Zegnas and a Mont Blanc [store].”

The company sees its strongest performance in the Chinese tourist market, both locally and internationally. Ferragamo estimated that mainland tourists account for 7 to 8 percent of total tourist customers in the company’s shops worldwide. In its Hong Kong shops, added de Malherbe, mainland shoppers contribute 30 percent of the total business “and it’s increasing, because of the price difference, plus mainland Chinese travel to shop; it’s part of their leisure style.”

Also, duty-free shops in the Shanghai and Beijing airports generate sales as much as 50 percent stronger than Ferragamo’s downtown shops, three times as strong if measured by meterage, de Malherbe added.

Ferragamo’s biggest Asian market remains South Korea, said de Malherbe, and attracts the youngest clientele, with male customers starting in their 20s. While the Chinese market remains smaller than Japan’s for the brand, it is growing faster, and he predicted that it would take only five to six years for China to catch up. Ferragamo will enter the Indian market at the end of this year; its first three shops are opening in the next two months.