To the vendors in Shanghai's Xiangyang Market, he was just another likely target for a knock-off "designer" wristwatch. But the man who forked out US$20 for a "perfect" fake Emporio Armani watch was Giorgio Armani himself, in town to open his latest boutique and demonstrate what he called his "long term commitment" to the Chinese market.
Armani's Milan-based fashion group is one of a host of luxury brands opening stores in China, targeting the high-end sector of the world's fastest growing retail market. According to a recent Morgan Stanley report, it is a market sector that could one-day amount to more than 100 million consumers. The emphasis, though, is on the "could."
At present, the report's authors said, the sector now amounts to around 13 million consumers, with most current investment a long-term "brand-building exercise" and payback for the big brands still at least five years off.
Nonetheless, with sales soaring, many of the world's luxury brands seem confident that China is the next big opportunity. Armani, for example, saw sales rise more than 17% in the first quarter of 2004, compared to China's overall retail sales growth of 10.7%.
"The Chinese market is growing full steam ahead," Armani CFO Paolo Fontanelli told a Milan news conference in April. "The future possibilities are endless."
Another prestige label, Prada, saw sales grow even faster – up 70% year-on-year for Q1 2004. Last year, the chain opened its fourth Mainland outlet in Guangzhou, with plans for openings soon in Chengdu, Qingdao and Hangzhou.
Keeping precise earnings under wraps, Prada's Head of Communications, Jason Jacobs, said only that already for 2004 "operations in Mainland China will be EBITDA [Earnings Before Interest, Taxes, Depreciation, and Amortization] positive."
Growth in the luxury car market has been equally impressive. Bentley, for example, which entered China in 2002, saw sales rise by 69% last year with China becoming the number one market for its top-priced Arnage limousine, retailing at US$445,000 to US$1.12 million. But in a country where the average urban Chinese earns about US$1,000 a year, how sustainable can such growth be? Citing a growing number of wealthy Mainlanders the answer, according to manufacturers, appears to be: very sustainable.
BMW, for example, believes China is a market still in the early stages of growth. "We are just beginning to learn to walk in China," said company chairman Dr. Helmut Panke last year, referring to a market that is already the company's eighth most important.
Luxury product retailers see big profits in playing to the brand-savvy nature of Chinese people, and the country's huge fakes industry is not all bad news: brand awareness is surely a precursor to purchases.
Speaking after his visit to Shanghai, Armani said the existence of fakes confuses customers and undermines brand value, but he added, it also "means you are doing something right."
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