July 27, Global luxury brands are moving onwards with their China strategies by setting up joint ventures (JV) or chain stores in the country, abandoning their Chinese franchise partners in the process, the Beijing Business News reported Tuesday.
German brand Hugo Boss AG (ETR:BOS) has signed an agreement with Macao-based fashion retailer Rainbow Group to co-establish a JV in the second half of 2010. Hugo Boss will own a 60% stake in the JV, according to foreign media reports.
On July 17, Burberry Group Plc. (LON:BRBY), the UK’s largest luxury retailer, said it would take control of its franchised stores in China for 70 million pounds from franchise partner Kwok Hang Holdings Ltd.
After 20 years of operations in China, Burberry said it would add 10 direct stores to the existing 50 franchised ones, all of which would be taken care of by Burberry’s Asia-Pacific team.
Prior to Burberry’s announcement, a number of global luxury retailers had replaced their Chinese franchise partners with direct operations, including pen and watch maker Montblanc International GmbH and fashion house Giorgio Armani SpA, which set up a JV in China in 2007.
In 2008, lifestyle accessories maker Coach Inc. (NYSE:COH) acquired Coach China from Imaginex Group, while London-based Alfred Dunhill Ltd. also gave up its franchise partners in Wenzhou, Ningbo and Hangzhou, the report said.
China’s luxury goods consumption has been growing despite the financial crisis. Last year, luxury goods sales in China grew 12% to $9.6 billion, accounting for 27.5% of the global market, according to the latest report by Bain & Co.
The Bain report said that within the next five years, luxury goods sales in China could reach as much as $14.6 billion, making it one of the biggest luxury goods markets in the world.
The ever-growing domestic demand for luxury products is attracting an increasing number of global luxury brands, including family-owned Prada SpA, which set up four new stores in Shanghai this year and will open another four in other cities in the near future.
Around 80% of the world’s leading luxury brands have a presence in China, with Beijing alone playing home to some 90% of the world’s top 100 brands, the paper said.
In addition to taking direct control of stores in China, luxury brands are hoping to boost profits by tailoring new product lines to the meet local consumer tastes, and moving their manufacturing bases to China or other Asian countries with low labor costs.
In mid-July, iconic French luxury goods maker Hermes International SCA (EPA:RMS) announced it would launch a dedicated Chinese luxury brand, Shang Xia, in September.
