Saturday, February 11, 2006

previous entry | main | next entry | TrackBack (0)

The intriguing rise of Shanghai Tang

When I was in Hong Kong in December, the one store I was told I had to go to was a place called Shanghai Tang; other bloggers have apparently received a similar message.. The people telling me to do this were right -- I'm not much into clothes stores, but even I was impressed by the quality and style of their merchandise. I wound up buying lots of nice things for my wife, which almost -- but not quite -- made up for me leaving her alone with the kids for nine days. Rest assured, Americans do not need to jet to Hong Kong to sample the store -- there's both an online catalog, and a store in Manhattan.

I bring this up because Shanghai Tang is the topic of Linda Tischler's cover story in this week's Fast Company. The story strongly suggests that China will be moving up the global supply chain to luxury goods very soon:

If, as global market watchers from Wall Street to Tokyo have claimed, this is the China Century, then Shanghai Tang may just turn out to be that century's banner--China's first global, upscale brand.

For this exuberant and increasingly entrepreneurial nation, it would be a natural evolution--and a stunning one. As China enters the modern economic market, it has gone from being the low-cost factory for Wal-Mart to the purchaser of big-name brands (think Lenovo's recent acquisition of ThinkPad from IBM). The third stage will be for China to create brands of its own, becoming a center of design and innovation capable of fielding products that can compete in quality, style, and prestige with anything from Paris, Milan, or New York. "The opportunity for Shanghai Tang right now is huge," says David Melancon, North American president of brand strategy firm FutureBrand. "They could be the first big luxury brand out of Asia."

Out of Asia, yes--and in it, too. While the global luxury market is already big--$168 billion a year, according to Bain & Co.--and growing at a rate of 7% per year, "big" doesn't begin to describe the potential market for glitzy goods in China itself. A quarter of a century ago, there were no millionaires in China; by the end of 2004, there were more than 236,000, Bain says. And Patrizio Bertelli, the CEO of another fashion house that's hungrily eying the market--Prada Group--figures that China could overtake the United States as a market for luxury goods by 2020.

In the meantime, the profits China's homegrown brands earn at home will help finance their forays into the rest of the world. Add in the cheap labor close at hand (an edge over many Western luxury labels, which are made in Europe), and the Guccis and Armanis could be facing competition like they've never seen before.

As you read a bit more into the story, however, you begin to wonder just how you would categorize the nationality of the firm. First, you discover that Shanghai Tang is majority-owned by Richemont, a Swiss-based luxury-brands holding company. Then you discover the background of the top people at the firm:
It's no surprise, says le Masne de Chermont, that the company's principals have been recruited from the carpetbagging global creative class. The brand's founder, British-educated David Tang, is from Hong Kong, that most Western of Chinese cities. [creative director Joanne] Ooi is American; Camilla Hammar, the marketing director, is Swedish. [CEO Raphael] Le Masne de Chermont, who is French, honed his luxury branding skills at Piaget before being deployed by Richemont, whose portfolio also includes Mont Blanc, Chloe, Dunhill, and Cartier, to fix its ailing Shanghai Tang brand.

"We're a melting pot of multicultural people who work on the same vision: a Chinese lifestyle brand that's relevant," he says. As for native Chinese, he says, they're starting to understand branding and sophistication, too. "They are so eager to learn, you cannot imagine."

What's most interesting are the firm's expansion plans:
While the privately held Richemont is cagey about divulging numbers, le Masne de Chermont says that the Madison Avenue's store's revenue is up 50% in 2005. Overall, Tang grew 40% last year, mostly in Asia, home to 70% of its stores. And it's profitable, though not quite yet in the United States.

But while le Masne de Chermont has plans to roll out additional U.S. shops, he's not as obsessed as his predecessor was with making it in America. The red-hot future of his business, he points out, is in Asia. "Can you imagine 1 billion Chinese getting into capitalism?" he says with undisguised glee. "It's unstoppable!"

So even though Tischler's story is titled, "The Gucci Killers," this is less about the rise of a global competitor than the mergence of a Gucci-type brand -- created by Asians, Europeans, and Americans -- that can penetrate the Asian market.

A final note: I'm genuinely surprised the New York store is not yet profitable -- to my admittedly uncouth eye, the clothes and accessories are world-class and, compared to other luxury brands, very reasonably priced.

UPDATE: Reena Jana did a story on Shanghai Tang for Business Week last December that's worth checking out as well.

posted by Dan on 02.11.06 at 11:41 AM


$150 shirts are reasonably priced?

posted by: tom on 02.11.06 at 11:41 AM [permalink]

Compared to the $600 ones.

posted by: Robert Schwartz on 02.11.06 at 11:41 AM [permalink]

I don't find it surprising that the New York store is unprofitable. Shanghai Tang is still in the midst of building its brand name. Brand has nothing to do with the distinctive style itself. To illustrate this point, consider the Loius Vutton bag that became famous by using its LV logo all over the bag. Now, I'm not fashion expert by any stretch of the imagination, but that thing looks to be the ugliest bag around. Yet, women buy it like hot cakes. It's the ability to be seen as someone with status from a mile away (Apple has the same power with its white head phones). That's the strange nature of style, and until more Americans know more about Shanghai Tang, I doubt it will become more popular.

posted by: Wilfred Chow on 02.11.06 at 11:41 AM [permalink]

Uh...What's with the lines of dashes running through all but the first line of the comments?

posted by: lee on 02.11.06 at 11:41 AM [permalink]

Uh, in addition to that, it is strange that all comments are posted at exactly the same time. It is 7:53 PST now but I'll bet this comment will post almost 11 hours ago. Relativity might explain it.

posted by: lee on 02.11.06 at 11:41 AM [permalink]

Tangential, but I wish some of the European hipermarchés would open -- heck, in London, let alone in the US. Imagine half a supermarket aisle of whole Jamon Serranos, the other side of the aisle consisting of every sort of cured sausage imaginable. A Walmart sized isle of cheeses, a half an aisle of red wines, half an isle of whites, an aisle of turrones, toblerones, and other excellent sweets. Unfiltered cidre (alcoholic) sold in liter bottles! All at volume discounter prices.

Man, I miss the Continent.

posted by: Mitchell Young on 02.11.06 at 11:41 AM [permalink]

$80 for a freakin' t-shirt. You damn well better be a branding expert.

posted by: Chad on 02.11.06 at 11:41 AM [permalink]

This is what I get for buying all my clothes from LL Bean and Land's End. I thought Shanghai Tang was related to the Chinese space program somehow.

I hope Virginia Postrel isn't reading this, or she'll think I have no style, or no substance, or something.

posted by: Zathras on 02.11.06 at 11:41 AM [permalink]

I work on the manufacturing side of luxury products, and would like to share the following details. Although Richemont has many brands in several countries, its CEO and most of the brands' centers are in Paris.

We subdivide luxury brands in three main segments: Middle, Middle-high and High. Each brand makes manufacturing choices based on the segment in which it operates. This entails choices and trade-offs between volume and margin.

Therefore, part of the same luxury-good company there may be a very expensive brand with low volume, for which it makes sense to manufacture 100% in developed countries (i.e. Switzerland for watches, France for jewelry etc.); for another expensive brand with sufficient volume it may make sense to manufacture parts in the Far East and assemble them in Europe. For a less expensive brand it may make sense to manufacture and assemble everything in the Far East.

This is business logic that holds for all luxury groups: Richemont (owner of Cartier, Van Cleef & Arpels, Baume & Mercier among others), LVMH (Louis Vuitton Moet Hennessy), Gucci (owned by PPR). There are also decision elements tied to mass merchandising strategies: in the '80 Gucci embarked on a strategy of making their brand available to a much broader array of stores (to sell more of course!), but it backfired. The brand lost status and the strategy had to be reversed to regain its strength among status-conscious consumers.

I'm not a marketing specialist and can't pass judgement on what Richemont is doing with its Shanghai Tang brand of stores. However, what is high status in Shanghai may not have the same status in New York. As you wrote, "(Shanghai Tang) ... clothes and accessories are world-class and, compared to other luxury brands, very reasonably priced". But sometimes it is just the price level that makes a brand exclusive. Among the characteristics that make a consumer good a luxury good, there are not only superior quality, but also the fact of increasing it's owner image and self esteem.

We'll have to wait and see whether Shanghai Tang will be successful in New York in the long term.

posted by: Giovanni Ciriani on 02.11.06 at 11:41 AM [permalink]

I had occasion to see David Tang interviewed on HK TV a couple years ago when I was traveling through there. Tang may well be the coolest guy on the planet. Among his minor accomplishments is that he translated Roald Dahl's Charlie and the Chocolate Factory into Chinese.

posted by: alkali on 02.11.06 at 11:41 AM [permalink]

I recently went to the Shangahi Store - Hong Kong airport. Customer service is very important if you want repeat business. The sales lady looked me over, decided in her mind's eye that I can not afford anything in her store and promptly ignored me. She probably mistook me for a nanny rather than a business person who prefers to travel in my oldest, most comfortable pair of jeans, t shirt and worn out running shoes. I prefer to leave my hard earned money to somebody who will wait on me with interest and a bit of a smile at least. I will buy my clothes somewhere else.

posted by: vicky on 02.11.06 at 11:41 AM [permalink]

Customer service is important. Unfortunately, all over Asia I think it is not the priority we are accustomed to. In London I was treated with the utmost respect when trying on Galliano's collar in a Dior store on Oxford street. In the Dior shop on Rodeo Drive, Beverly Hills CA. I was treated rudely and all but driven out of the store. Funny thing is that I probably looked like I had more money than that day in London. But would I fly all the way to London if I were in CA? No. I just send my comments along to help people improve. Help Asia, send your poor service experiences and helpful suggestions to the management.

posted by: Ginger on 02.11.06 at 11:41 AM [permalink]

Post a Comment:


Email Address:



Remember your info?