Growing economy lifts demand for int'l brands
Valentino, Ferragamo, Gucci, Buccellati are all Italian names that symbolize style and luxury, but still remain out of the reach of most Chinese people apart from a small privileged elite.
But growing prosperity in the world's most populous country means that this situation will gradually change over the next few years.
"Fashion has become a great thing in China," said Balbina Wong, President of ImagineX Group, a high-end retail partner of international brands in China.
The population base is already attractive, said Wong, adding that Chinese youth like quality products and the nation has a growing proportion of wealthy entrepreneurs. Although general consumption power currently remains limited, the Chinese market will be the most promising one in the future for many luxury goods manufacturers.
"Every body is talking about China," said Michele Norsa, chief executive officer (CEO) of Valentino, pointing out that the greatest opportunities will exist in the Chinese market over the next five to 10 years.
The number of customers for luxury products will grow substantially along with the nation's prosperity, he said.
Indeed, the momentum of the Chinese economy, with a staggering 9.7 per cent growth rate last year, has made China outperform practically all other global markets.
In the past, most international fashion companies would only regard China as a production base, but now see it more as a consumer market, he said.
Norsa just visited China to promote Valentino's new strategy in China and Asia.
The Italian fashion company is planning to acquire a textile firm in China and the deal is likely to be secured by the end of the year, he said.
"China's development happens so fast," said Leonardo Ferragamo, chairman of Altagamma, an association of Italian companies in the high-end market.
The importance of the Chinese market also made it one of the main themes of the Altagamma's 2004 annual conference, which was held early this month in Rome, attracting many leading Italian companies and their Asian partners.
When French and German companies are very active in China, Italian companies need to improve their position here, said Luca Cordero di Montezemolo, chairman of the Italian industrial conglomerate FIAT.
They have to set priorities regarding business expansion and the Italian Government should also help them prepare this strategy, he said.
As a non-governmental organization, Altagamma has been actively promoting Italian brands in overseas markets.
It is now planning to open a representative office in Shanghai, which will be the association's only office outside Italy.
The office may be launched next year, said Leonardo Ferragamo.
"We have to move with the economy," he said.
"China is very important," he added.
Ferragamo himself is also a direct participant in China's development. He helps run the family business of Ferragamo, a leading global luxury brand.
The company is expected to open another seven boutiques in China in the next few years, in addition to the 25 shops it already has on the mainland and Hong Kong, he said.
Although the Chinese market's positive prospects seem to be offering lucrative business opportunities, how to efficiently develop this market is a big challenge.
"Partnership is the key," said Ferragamo.
Like many foreign companies, Ferragamo has been very selective in choosing "creditable" Chinese partners, including local producers, distributors and retail stores.
More homework needs to be done by those who are unfamiliar with the Chinese market before they make a full-scale entry.
Steve Top of Driadestore, an Italian furniture company that is interested in the Chinese market, said that entering a new market is an important decision, with much discussion required of the strategy to be taken.
Distribution is obviously a big concern, said Top.
Other issues to be resolved include finding the right partners and people to run the business locally, and whether to launch a manufacturing base in China, he said.
It normally takes about six months to open a new boutique for a new brand in China, said Terry Sio, President of Rainbow Group, a Macao-based distributing company that brings more than 50 famous international brands to China, many of which are Italian.
The time is much shorter to open new stores for brands that are already in the market, she said.
"Top-class Italian clothing is generally of outstanding quality, cutting and design. And they are often very practical in use," said Sio.
But to enter the Chinese market, they will need to find the right partners, she said.
Companies like Rainbow Group in Macao and Hong Kong have linked leading international brands with the mainland over the past decade.
As the mainland is expected to open up the wholesale distribution business in the near future, foreign retailers and wholesalers will have wider access to the business and take a bigger slice of the market.
That is expected to lower overall distribution costs, which, together with an expected decline in duty, will ultimately cut the prices of luxury goods in China.
Currently, many such products sold in China have prices that may be even higher than the mature markets, which has led domestic consumers to make their purchases overseas and affected domestic sales to some extent.
But it may no longer be the case in the future, according to Valentino CEO Michele Norsa. The prices of high-end goods will gradually fall if more shops open and distributors become more efficient, he said.