French high-end department store Galeries Lafayette said it will open a flagship department store in Beijing - and its first in Asia - by 2013 on account of rising demand for fashion on the mainland and relatively lower operating costs.

"We are considering Beijing first because we are confident about their spending power," Galeries Lafayette Executive Chairman Philippe Houze said Thursday. "We see a lot of Chinese tourists visiting our Paris stores and we want them to come back to our Chinese stores as well."

Lafayette's first Asian store will be a 50-50 joint venture with Hong Kong-based fashion group I.T Group, which is investing HK$150 million in the project prior to its opening, according to an announcement filed to the Hong Kong Stock Exchange earlier.

The store will be located at Beijing Financial Street, a prime commercial district developed and managed by Shenzhen-listed developer Financial Street Holdings.

Negotiations for a first store in Shanghai are also underway, according to the group. Houze added that if the first store in Beijing is successful, Lafayette will consider opening an additional 10 to 15 stores in other major mainland cities in the future, including some second- and third-tier cities.

Paul Delaoutre, Galeries Lafayette chief executive officer, told China Daily that the group is not considering opening stores in international financial and fashion centers such as London, New York and Tokyo as the fashion store segment is already very crowded and rents are very high.

"For the same reason, we are also not giving a thought to Hong Kong," said Delaoutre.

Lafayette, which was established a century ago, is well-known among affluent Chinese tourists keen on shopping for luxury goods at its 10-story flagship store in Paris. In 2009, the brand - which has 61 department stores - reported total retail sales of 2.55 billion euros, with an average daily traffic of 1 million customers.

However, Delaoutre said the positioning of Galeries Lafayette on the mainland will differ from its upscale European business.

"We will offer a range of goods from luxury to the more affordable, and we expect our better layout and fashion designs to stand out from other Chinese merchandisers," he said.

However, analyst Forrest Chan of Hong Kong-based CCB International said the plans will be a challenge for the I.T Group, as it has barely any experience in running a department store.

And past setbacks in Asia also bring in other uncertainties. Lafayette entered the Asian market in the 1990s but failed in most of its locations, including Japan and the Republic of Korea. Its business in Beijing also ended in failure, closing in 1998.

"But the mainland market nowadays is not anything like that of 12 years ago," said Chan. "I.T has posted very significant business growth on the mainland recently, and we can't deny the potential demand for trendy fashion," he added.

I.T now operates more than 350 stores in Hong Kong, Taiwan and the mainland, which reported a turnover of almost HK$3 billion in the financial year ended 2010.

The share price of the Hong Kong-listed I.T Group has more than tripled this year. Its stock closed at HK$6.72 Thursday, up 336 percent from HK$1.54 per share it traded at on January 4, 2010.

China Daily

(HK Edition 11/26/2010 page3)