- The Washington Times - Sunday, May 22, 2005

SHANGHAI — Forget about Paris and New York. Chinese dying for haute couture gowns or the latest luxury bags can shop right at home.

Makers of luxury apparel, liquors and other goods increasingly are looking to China, India and other developing countries for growth that they won’t find in older, established markets in Europe.

To meet soaring demand for Asia’s newly affluent, venerable names such as Prada and Giorgio Armani are setting up stores as quickly as they can — and even are considering making some of their products here.

“China is certainly the most prominent and most important market we have in front of us,” Paolo Fontanelli, chief financial officer for Giorgio Armani SpA, told a conference on luxury brands held last week in Shanghai.

Although China, Taiwan and Hong Kong together account for only a tiny fraction of Armani’s sales, the fashion group is quickly adding stores in the country, both in major cities such as Shanghai and in lesser-known ones, such as Shenyang in the northeast and Chengdu in the south-central part of the nation.

And although the company led the way in setting up a flagship store on Shanghai’s riverfront Bund, just about all the big names now have boutiques in the trendy districts of Shanghai and Beijing.

China is the latest, biggest frontier in the luxury goods market, with India and Russia close behind, said Melanie Flouquet, luxury goods industry analyst for JP Morgan.

“Emerging markets are not only not insignificant but they are critical for growth going forward,” Ms. Flouquet said, adding that China accounts for 5 percent to 6 percent of sales of European luxury goods, with Russia at about 3 percent and India at 1 percent, she said.

Chinese travelers have also joined the Japanese — long notorious for their love of name brands — as an important clientele for luxury shops in Paris, New York and Hong Kong.

“These days, we need to have Mandarin speakers in our shops, for not all our customers speak English,” Mr. Fontanelli said.

Although shopping in Paris, Milan or Hong Kong still carries a certain cachet, buying overseas is no longer the only way for shoppers to dodge the fakes that are rampant here.

“Now they can happily shop in their own territory and be confident they are buying the real products,” said Raphael le Masne de Chermont, executive chairman for Shanghai Tang — a fashion house founded in Hong Kong that bills itself as China’s first homegrown luxury brand.

With so much potential growth at stake, Chinese consumers, especially the wealthy ones, have become the focus of intense analysis — as are those in India and Russia.

“When we speak of luxury consumers, we’re not talking about the same people we spoke of before,” said Patrizio Bertelli, chairman of the Prada Group.

Until recently, men accounted for more than two-thirds of spending on luxury items in China. But that’s changing as women with rising incomes splurge on ladies’ wear, luxury cosmetics and fashion accessories, Ms. Flouquet said.

Conspicuous consumption is in. The pages of Shanghai’s fashion magazines are plastered with shots of society belles in Dior and Versace.

Research shows that Chinese tend to buy luxury products without a lot of study or research, while many in Europe and Russia tend to focus on the “genuine value” of what they buy. Japanese tend to be rather discreet about their purchases, the Chinese less so, said Paul McGowan, chief executive for Added Value, a unit of WPP, the world’s second-largest advertising and marketing conglomerate.

“China is still in its infancy, and it’s still status and show that are the main market drivers,” he said.

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