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Strategies & Market Trends : China Warehouse- More Than Crockery -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (3809)	12/2/2004 7:13:52 PM
From: RealMuLan	Read Replies (1) \| Respond to of 6370

Business ; Luxury goods makers dream of China profits 12 Hours,46 minutes Ago Business News, HONG KONG, China may be the "in thing", but it's not a sure thing for luxury brands. Companies ranging from LVMH to Giorgio Armani and Tod's are rushing in to build a presence, putting down large investments on glossy new shops full of logo-covered handbags, silk ties and diamond encrusted watches. Most have yet to make a profit in China, the world's fastest growing major economy. "For the next 3 to 4 years China is an investment," said Diego Della Valle, president and chief executive of leather goods maker Tod's, which plans to open up to 20 stores in China over the next 5 years. "We knew it was a long-term gamble," said John Hooks, group commercial director at Giorgio Armani on the sidelines of a luxury goods conference in Hong Kong. Hooks said Armani's two high profile stores in China might make a profit within 3 years. So far, only about five luxury goods makers have managed to make money in China, most notably handbag and clothes maker Louis Vuitton, which began investing in China over a decade ago, consultants said. LVMH, which owns Louis Vuitton along with nearly 50 other luxury brands ranging from Fendi to Moet Champagne, concedes it could take up to a generation to make significant profits in the region. But the potential is growing in China. China has at least 236,000 millionaires, according to a Merrill Lynch/Capgemini report, about a 10th as many as in the United States, but rising at a 12 percent annual clip. LIST OF HEADACHES Producers, distributors and marketing agents cite a list of challenges associated with doing business in China including a lack of understanding of consumer spending patterns, varying regional consumption habits and poor communication between employees. "It's a big headache. When you really start digging into it there is no easy money to be done in China for the time being," said Patrick Bouchard, managing director of Spanish firm PUIG Asia Pacific, which sells and distributes European perfumes. British designer Paul Smith, who successfully tapped the Japanese market in the 1980s, is set to open a second mainland store in Beijing in February. "There will be many casualties," Smith said. While his company's Asia profits outside of Japan have risen by 61 percent in the past year, the region accounts for a tiny portion of its global earnings. Paul Smith's Asia sales outside Japan amounted to 5.4 million pounds (US$10.47 million), compared to 161 million pounds in Japan. "We know it will probably be quite tough," Smith said. WORTH THE RISK Most European luxury goods makers have been enticed by the potential of long-term profits in an increasingly wealthy nation of 1.3 billion consumers hungry for a taste of western luxury and globally recognised logos. China's emerging middle class is increasingly travelling abroad and taking cues from fashion magazines and television programmes at home despite an annual urban per capita income which averages just US$1,000 per year. Roughly 11 million mainland tourists are expected to visit neighbouring Hong Kong this year thanks to liberalised travel restrictions. Many come to shop for designer handbags, watches and electronic goods, with spending averaging $800 on two-day shopping trips, according to Husband Retail Consulting. "The mainland Chinese want modernity. They want to be at the forefront," said Paul Husband, who consults for luxury goods makers on retail opportunities in the region. Luxury goods makers sell the same range of goods in their Shanghai boutiques as they do in Hong Kong or Paris, although luxury tariffs in China mean an item typically costs 30 percent less in Hong Kong than the mainland. Husband said the China shops serve as a billboard to entice consumers into Hong Kong and European stores when they go abroad. "Our offer and the way we present our product is seen worldwide," said Sydney Toledano, CEO of Christian Dior . "The customer wants the allure. If it's a trend in New York or Paris, Shanghai would be similar." keralanext.com