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Andrew Keith: Success in China Takes Time

The president of Lane Crawford and Joyce made the point that in order to gain a foothold, companies need to create relationships.

Andrew Keith

U.S. companies hoping to reap the benefits of selling to China’s free-spending fashion-savvy consumers need to develop one virtue: patience.

Andrew Keith, president of Lane Crawford and Joyce, acknowledged that while China represents a huge opportunity for brands, gaining success in that country takes time. In order to gain a foothold, he said companies need to create relationships, find the right partner “with a history of execution,” and be willing to invest time and resources to learn how to best serve the Chinese consumer.

Keith detailed how China is home to 1.37 billion people and is the second biggest economy in the world, with 189 billionaires and 477 million Internet users. Some 55 percent of the population will be considered middle class by 2020. The people there are technologically savvy and embrace luxury brands. In fact, he said, luxury sales in 2011 are expected to exceed $16 billion.

Lane Crawford, which is the country’s leading multibrand fashion retailer, opened a store in Beijing in 2007, a city similar in ways to New York. He pointed to the creativity of both cities and said that while New York represents the American dream, the Chinese have “similar dreams of prosperity and success.”

Nevertheless, the Chinese embrace their own unique culture and don’t try to emulate the U.S. “China is modernizing, not Westernizing,” he said, pointing to the country’s unique language and nuances. Even within China, there are a variety of different dialects, climates and lifestyles. “It’s no longer one country with three tiers of cities,” Keith said. Instead, there are now nine large markets, two megacities, 25 developed cities and 620 emerging cities. “It’s as large and diverse as Europe,” he said. “And that’s just Mainland China.”

As a result, Lane Crawford, which has a 161-year history in that country, sees no reason to expand beyond its borders. “China is big enough and rich enough in opportunity to be our world,” Keith said. “But it requires a different way of thinking and a different way of doing business.”

He pointed to the example of Starbucks, which in China, replaced milk with soya, and offers moon cakes on its menu, all “to make an emotional connection to the customer” there.

Once companies take the time to understand the Chinese consumer, it can definitely pay off — even for companies whose histories in that country date back decades. Keith said in 2003, Lane Crawford underwent a repositioning to better serve the customer who reads one of the country’s 11,000 publications or uses one of its 800 million mobile phones. “Consumers are connected to each other and the world through the Internet.”

To better service this savvy new customer, the company made the bold move of closing three franchised stores, reopening three years later in Beijing with a markedly different assortment. In fact, Keith said the store moved away from the franchise model, changed 80 percent of its mix, partnered with some of the best-known luxury names in the world, and the result has been annual growth rates in excess of 20 percent. “Our customers really crave newness,” he said.

In the past month alone, Lane Crawford and its sister companies, which include Joyce and the Pedder Group, have opened 18 stores, including the first online store for Lane Crawford. Keith stressed that the online business was built especially for the Chinese consumer, who has gravitated to the site because she trusts the company, believes the product is authentic and knows its transactions will be secure.

The site started with 85 brands in women’s wear and the financial results have been impressive. The average transaction is 30 percent higher than in the store and there’s been no resistance to price points.

“Women drive our business in China,” he said, noting that they account for more than half the luxury sales in the country. “They have power and choice,” he said, noting that they also love exclusivity. But they also want to be treated as Chinese. “If they feel compromised, they won’t shop,” he said. “Our customers are Chinese and they want to be spoken to as Chinese.”

While the country is changing from a manufacturing hub to one that consumes goods, Keith said it also generates original ideas and thoughts in many areas, including art and fashion. “They’re moving from Made in China to Created in China.”

But capitalizing on that creativity takes a while and companies need to “take a long-term position.” Keith said Lane Crawford takes a “very measured approach to expanding in China,” and is expecting to triple its business there by 2015.