China Consumer

Serve the (rich) people

Chanel opens Shanghai flagship store, betting on China’s luxury market

Lagerfeld: it's "the most refined luxury boutique ever"

It’s not often you hear Mao Zedong compared to Coco Chanel. But in Shanghai last week, fashion designer Karl Lagerfeld did just that. The German told local journalists that Coco and Mao were fashion bedfellows since both were “historical icons who established their personal style with jackets.”

Deep. But Lagerfeld, who is Chanel’s art director, was in Shanghai for two serious style events.

The first, held by Chanel on a barge tethered to the Suzhou Creek by the Bund, was to showcase the firm’s Spring collection. It’s called ‘Paris-Shanghai’ and Lagerfeld has tried to absorb Chinese influences – such as the use of ‘emperor yellow’.

Chanel’s first China-inspired range was timed to coincide with the opening of its flagship boutique in Shanghai’s new Peninsula hotel. According to Lagerfeld it is Chanel’s “most refined boutique ever”.

Clearly he hopes an 18th century French limestone fireplace, an exhibition of prized jewellery and an Yves Klein acrylic table encased with 3,000 sheets of scattered gold leaf will entice high-spending Shanghainese sophisticates.

But Lagerfeld wasn’t the only fashion guru in Shanghai last week. John Galliano was also in town to shoot Dior’s new ad campaign at Broadway Mansions, an art deco hotel built in 1934.

None of this should come as any great surprise. China is the biggest growth market in the luxury goods industry, and is growing at 20% a year – in spite of the financial crisis. UK-based consultancy OC&C forecasts sales will hit $12 billion next year, taking China past Japan as the top consumer of luxury products. In September, Boston Consulting Group also reported on China’s high-end consumers as “an oasis of hope and possibility in a recession battered world”. Little wonder, BCG said, when you consider that China’s “high-net-worth population” is now bigger than that of Britain and France.

But despite the industry’s hopes of a crocodile-skinned nirvana, BCG has reached some more sobering conclusions. It reckons that the luxury market could have reached “saturation point” in some key cities. Shanghai and Beijing now have as many luxury “point-of-sale locations” per capita as New York.

So time for a change of direction? BCG noted that some brands – such as Dunhill and Burberry – had pushed into second tier cities such as Shenyang and Harbin.

But while opening boutiques is still thought to be one of the best means for building local brand awareness, these sales channels are not without their own challenges. For one thing, it’s tough to find (and retain) decent sales staff who can convey ‘the luxury experience’.

BCG also noted that 53% of China’s luxury goods boutiques have opened in the last three years. The speed of this expansion has inevitably led some stores to be opened in the wrong locations and even in the wrong cities. More market research is needed, as is the understanding that tastes can vary widely between cities. Meanwhile 70% of Beijing and Shanghai luxury shoppers still prefer to buy outside China.

BCG’s verdict: many of the opportunities in China are not quite as expansive as the challenges in capitalising on them. Presumably that’s the cue to pick up the phone and call a BCG consultant for their advice.

At the other end of the scale, China is proving a lure for mass market international brands too.

It was reported this week that Burger King has opened its 12,000th restaurant on the planet: and it was in Beijing. The fast food chain’s CEO said that not so long ago one of his Whoppers would have been considered a luxury in China too.


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