The top rated city for luxury goods

My friend Andrea (not her real name) sends a link to What China Should Learn From Hong Kong’s Luxury Malls and I know you’re thinking, “so what does that have to do with me?”. A lot -particularly in the context of a recent post from Iconoculture called Fury Over Fakes. Before I get to that, were you aware of the controversy of fake Apple stores in China? The case -which was discovered by a traveling blogger– has spurred international attention and fear among commercial enterprises. The summary of international discussion is that if Chinese businesses are ballsy enough to open fake Apple stores so convincing that employees thought they worked for Steve Jobs, what hope is there for any brand’s integrity?

But back to Iconculture’s Michael McCune who says:

…while US consumers are familiar with China’s fake iPhones and Fendi bags, fewer likely know that Chinese brands suffer the same fate. More important, Chinese consumers themselves are hurt when their children are at risk from toys with lead paint or their milk is tainted with melamine.

When national pride, health and their hard-earned yuan are on the line, Chinese consumers demand the genuine article. According to a China Market Research Group survey, the “overwhelming majority” of consumers said that their biggest fear in life was buying products that could harm their health (, 28 July 2011). The masses of angry consumers who’ve stormed the copycat stores and joined class-action lawsuits are an even better testament to how fed up they are over being duped.

Meaning, Chinese citizens are -surprise, surprise- your unlikely partner in maintaining your brand’s integrity because it serves their best interest. Which circuitously returns us to the matter of luxury malls in mainland China vs those in Hong Kong because dontchaknow, Hong Kong is ranked as the world’s best city for luxury shopping and by extension, a place you want to sell stuff.

For background, I started reading Maosuit’s Are Luxury Malls in China Successful? and was struck by unintended analogies to DE producers targeting the same. Consider (emphasis is mine):

These developers [of shopping malls]…have little or no notion of what the luxury retail business is about. All they know and believe is ‘money talks’ and think that by throwing cash at the brands they will be happy to open big flagship stores in every mall on offer.

…One major disconnect between the government developers and luxury brands is on shopping mall management. Chinese developers simply don’t have the experience or know how to manage a luxury atmosphere, create tasteful PR and marketing campaigns, attend to VIP customers and monitor CRM programs, all of which are at the forefront of the luxury brands’ minds and demands.

My first point is that many DEs don’t understand luxury well either (I certainly don’t) and think a premium product is a combination of high pricing and the IKEA effect (it must be good since you made it) which is really no different from the mainland Chinese mall developers idea of throwing money at the problem. Returning to the link I opened with that Andrea sent me, Maosuit says:

…many Chinese developers are state owned entities and there is simply a lack of planning and consultation done prior to building the mall. The government will designate a piece of land for development and someone will just decide it will be a luxury mall. Ask any shopping developer in China and chances are their dream is to build a luxury mall. The way they think is: “if Chanel opens a store in my city, it shows we are modern, successful and have status”. Often these mall developers will rush out and contract architects then design and build a mall before even talking to a luxury brand, consulting retail experts or ever taking into consideration what criteria is needed for a luxury mall to succeed.

Maosuit says that mall developers in Hong Kong go about it differently. They hire consultants to conduct planning on mall design as well as “what composition of retail, residential, office and hotel facilities would be needed for the mall to succeed in that given city or location.” You can approach this problem from so many levels both micro and macro in that it applies to the development of your operation, what you sell and where you aspire to sell. Sure it’s complex and heady stuff and maybe you don’t intend to shoot so high but analogies abound.

There’s also the option of a short cut to planning retail location that is used by Lowe’s and CVS (analogous to what you could do). Lowe’s wants to be located as close to Home Depot as is possible, preferably on the same lot. CVS does much the same; they’re usually right across the street from Walgreens. Since Home Depot and Walgreens spend a lot of money on location selecting, Mr. F-I and I often ponder the (minimally) chagrin of these two entities in light of their free-riding competitors.

Summary: if you’re interested in luxury goods, exporting and intellectual property, it’s worth subscribing to Maosuit.

Related: What to do if a competitor in Asia orders your product

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  1. Mark Miller says:

    I read the McCune quote (and your post), and the immediate question is….if all these Chinese consumers are appalled or disatisfied with knock-offs, why do they persist in such tremendous volume and accross such a broad spectrum of products? I believe it is because statements like McCune’s amount to much posturing by the Chinese. Like that scene in Casablanca….”gambling in here? I am shocked!” Yes the Chinese too are “shocked” wink wink. I read once that 80% of the Wilson tennis balls sold in China are fakes. When we see the Chniese government make raids on factories making fakes and then have the big news conference it is posturing….and likely the result of politics, or a competitors tip off. (reporting your competition to the police is ONE way to get rid of them in a highly competitive market).

    That being said….I don’t think either McCune’s statement or My opinion can paint an entire country, consumer class or way of thinking….

  2. Jay Arbetman says:

    It is “front pages” like these that make Fashion Incubator such a special read. I agree with most everything Mark Miller says except that I am not nearly as optimistic. In my opinion, Wal Mart and others are complicate in this lie about the Chinese manufacturing culture. Americans and Chinese alike have been cowed into thinking that there is some goodness in the hearts of Chinese government officials and international business interests.

    I actually think the entire situation is worse than we can imagine. If faking tennis balls is so lucrative imagine how many i-pads and even appliances are a bunch of junk with a fancy label.

  3. Mark Miller says:

    Thanks Jay, you are the first person (maybe ever) to thing that my outlook is optimistic!
    Rather I agree with you almost entirely. Large box stores are notorious for squeezing price for pennies (or fractions of). In order to get the deal the representative says yes, yes sure we can. Then they turn around to one of their factories or contractors and say, do it and I don’t care how, and I don’t want to know.

    There is no simple answer no black and white, more like a thousand shades of grey. Our company which manufactures clothing in the USA, now sources certain components in China. Why you ask, well for one there is a declining infastructure within our own borders…and at times when we can find the component available by a US company the quality, quantity, price or selection make it undesirable. Not everything that comes out of China is bad and that is the point that I was making is that it is inaccurate, if not insulting to paint any country, culture, religion or so on with a giant brush. There are many very responsible busniess people in China and they want to do things the right way….just like there are some in the USA. As for iPads with Fancy labels that are junk, don’t look at China…look to Coopertino…Apple has figured out how to make a product that has a tremendous profit margin in it…and they don’t even try to make it anywhere else but in Asia.

  4. Elle says:

    Mark, having translated a batch of Chinese consumer surveys commissioned by a major US company, I think I can attest that what Michael McCune said is true — Chinese consumers want the genuine luxury goods, real food.

    True… that is on paper… since that’s what they all wrote down.

    Only one girl admits that she might succumb to the fake version of that expensive handbag she’s been craving for a long time. Secretly, I think way more people are faking it till they make it but just weren’t comfortable admitting it.

    Plus the pressure to own an expensive handbag from those few French Houses are unbelievable, say for an urban white collar worker in China; so some people would pool all their resources just to get one genuine item (but everything else they own could be cheap or fake). One woman wrote down that she personally doesn’t like to wear gold jewellery but she has to in order not to be look down by her clients (It wasn’t that explicitly stated, but you could read between the line); the same mentality exist for handbags. It’s posturing in a way, like you said.

    I think McCune is seriously neglecting the Chinese tendency to project their better selves to the public, especially to foreigners (the surveys I translated were pretty clear which US company it was commissioned by and as a result everyone is a big fan of that said company). I think people are discouraged from admitting to their worries or inner most desires to strangers because it can be seen as a weakness perhaps. At least I think I was seriously trolled when one guy wrote down “the establishment of a communist society in China” as his life’s dream… yeah right.

    As to Maosuit’s article on Luxury Mall in Hong Kong: My personal experience is that not all luxury malls started out as luxury malls, except for a few like Landmark , Pacific Place and IFC. A lot of them slowly evolve from mid-range malls with the mom-and-pop stores first to go, followed by the lower-priced clothing chains and supermarkets; they are slowly replaced by all the luxury brand names you see in the magazines, the management would fix up the lighting, upgrade the public bathroom, give the name of the mall a new twist and after five or six year of this process of transformation, it becomes a bona-fide luxury mall!

    So there’s always been incredible foot traffic at these kinds of mall, even back when they were just mid-range mall, because of the office towers above and subway station below. It’s good city planning back then, but it wasn’t for the sake of luxury retail (the sad truth is nowadays a lot of city planning is indeed done to accommodate luxury retail). But the difference then and now is, before the average people could still buy things from the mid-range stores, whereas now a lot of these malls are just air-conditioned tunnels that you passed through to get to the subway day in day out. For me personally, I find it depressing to walk by windows of clothing, bags and shoes that you know well would cost more than your monthly wage. This is the only misgiving I have if (a big IF) I ever start a high-end fashion label, that all-consuming envy that you can sometimes evoke in people… just feels morally wrong to me.

  5. Miracle says:

    Since Home Depot and Walgreens spend a lot of money on location selecting, Mr. F-I and I often ponder the (minimally) chagrin of these two entities in light of their free-riding competitors.

    I feel the same about Anthropologie and the Apple store. If a location has both, then it’s really REALLY good.

    .if all these Chinese consumers are appalled or disatisfied with knock-offs, why do they persist in such tremendous volume and accross such a broad spectrum of products?

    That’s a disingenuous question when you consider that a large deal of those counterfeit goods are exported and consumed (en masse) by people from other countries, including this one. Just as much as you can blame the chinese government for not closing down these factories, you could also finger-point at US Customs for not cracking down hard on the import on counterfeit goods, especially by the smaller companies that fly under the radar. Or you could also look at the US government for not restructuring the laws against selling such goods online AND taking swift actions to eradicate it.

    As much as people get up in arms, the truth is there is a market for those goods and also, there is sometimes a bit of “you got it coming” attitude amongst consumers that the brands deserve to get ripped off because of the misconception that all premium brands have insane profit margins (even seen above in reference to the iPad/Apple).

    his is the only misgiving I have if (a big IF) I ever start a high-end fashion label, that all-consuming envy that you can sometimes evoke in people… just feels morally wrong to me.

    If I had the resources (access to high end factories and capital) to do it, I would do it in a heartbeat. Even if it meant I only made one style of one thing to start. The hardest part about selling a luxury brand is selling to retailers, which is why often luxury brands become retailers, so they can control the brand experience and merchandising.

    [steps on soapbox]

    I think sometimes a feeling of “economic guilt” gets people out of a market they truly should consider. Most DEs can really only handle small run production and when coupled with the wrong price point, they end up creating companies/brands that are largely financially unsustainable.

    The benefit of selling luxury is first and foremost it transcends borders, which is really hard to do in the bridge, moderate, better, etc. price points. There are a lot of DEs who struggle with taking their high quality fabrics, etc. and high quality construction and making the product “affordable” when they probably should take another route.

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