SHANGHAI — Dressy-casual remains a novelty in China, where flaunting status, however meager, is de rigueur and even construction workers wear suit jackets on the job, complete with labels still on the sleeves.

But as incomes rise in China, gentrified sports like tennis and golf are increasingly popular among a core of the upper middle class, who are starting to take dressy sportswear off the court and into the office.

That, at least, is what sportswear brands like Lacoste are banking on. The company has gone from being marginalized in the sporting goods section of department stores in China to high-visibility flagships and mall outlets. “In China especially, casualwear is the future,” declared Sandra Hu, chief executive officer of Lacoste China. “What we’re seeing is people wearing polo shirts under blazers, and more blousons. The dress shirt is slow moving, because it is too much trouble and has to be ironed. In the future, I hope they will come to like the crispy white shirt, but for now, it’s nice polos, like in silk, with casual jackets and nice-cut trousers.”

The French label opened its first store in China on Huaihai Road here in 1994, and has a strategy of steady expansion and regular events. In March, Lacoste showed its spring-summer 2006 collection in Shanghai’s historic Fuxing Park, site of the official Shanghai Fashion Week last fall. In December last year, Lacoste organized a party atop the Shanghai Art Museum auctioning off takes on the crocodile logo by local artists and celebrities to raise money for the Special Olympics. “We try to alternate shows and branding events,” explained Hu. “Next, in November, will be the Master’s Cup, which we have signed on as sponsors for the next five years. So there will be a tennis event, something different, maybe 1930s-themed.”

Lacoste currently has a total of 130 stores, of which one-third are freestanding, in 70 cities and 22 regions and provinces in the mainland, explained Hu. Outlets in Shanghai and Beijing are directly operated, while stores in second- and third-tier cities are mostly franchises. “Of the cities, our focus is more on Shanghai, because Beijing’s hardware is still developing, there are fewer shopping arcades and space is limited.”

This story first appeared in the May 3, 2006 issue of WWD. Subscribe Today.

An office staff of 32 oversees factories and warehouses employing a total of 400 local workers. Lacoste’s China factories manufacture polo shirts and T-shirts, while the remainder is outsourced. “Ninety percent of what we sell in China is made in China,” said Hu.

Lacoste’s China sales are nonetheless fairly small. Asia contributed only 13 percent of Lacoste’s global sales in 2005. China ranked third in the region, after Japan and South Korea, with sales in China only half of those in South Korea. “It’s a small amount, but it can grow. We’ve had direct operations for only two years, so there’s a lot still we can do.”

Hu, who has been in her position for almost two years, recounted the shift toward direct management along with controlling franchise partners as the brand’s main challenges in the China market. “China is so big, so it’s hard to get them to carry through instructions, plus conditions vary among different cities. We have over 30 partners, which is a lot for a brand,” she explained. “Changing bad habits is harder than finding new partners….Our image in the city, all the stores here, we control. But our partners shoulder their own losses, so we have to convince them to make changes,” such as introducing new designs for the stores and going beyond the established polo business.

Expanding from the polo business and beyond men’s wear is a focus of Lacoste’s China strategy. Men’s wear initially accounted for 85 percent of the company’s sales in China, but now represents only 50 percent of urban sales and 60 percent of sales in the provincial franchises. The company will soon open a women’s specialty store in Nanjing Road’s Westgate mall. Accessories contribute about 10 percent of revenues.

“The Chinese customer has become brighter and easier to find, and we’re attracting ever younger people,” said Hu. “Two years ago our customers were an average age of 45, now they’re between 16 and 55, averaging at 35. The age differs among locations: at Grand Gateway they’re 11 to 18, at Nanjing Lu they’re 28 to 30 and at the department stores, like on East Nanjing Dong Lu, they’re 40 to 45.”

Hu admitted that piracy is a “huge problem” for Lacoste, which has a special antipiracy team and employs a Beijing law firm to coordinate directly with France. “They’re doing a lot of raids at where they’re sold, and it’s getting worse. Even in the U.S. they’re seizing containers of fakes from China.”

Lacoste was embroiled for 25 years with a lawsuit against Hong Kong’s Crocodile label, which used a logo similar to Lacoste’s, as does the highly visible mainland brand Cartelo. “We can win in court,” said Hu. “The problem is that it’s confusing to consumers.”