By Susan Fenton
HONG KONG (Reuters) - European and American fashiondesigners feeling the pinch from the credit crisis can look tothe growing ranks of China's nouveau riche to boost sales.
China's millionaires' club is expanding rapidly and manynew members are women who don't even blink when asked to pay acool $10,000 (5,000 pounds) for a cocktail dress from a topinternational designer.
"The Chinese are the newcomers to the global market," saidSebastian Suhl, Asia-Pacific chief executive of Italian fashionhouse Prada, which has nine stores in China.
"They're very hungry to learn about fashion. Fashionrepresents obviously status, but luxury is also a kind ofbridge to the modern world for them."
As the Chinese economy surged more than 10 percent annuallyover the past five years, the country boasted 345,000 U.S.dollar millionaires by the end of 2006, a third of whom werewomen, according to a report by Merrill Lynch and consultancyCapgemini.
Some 5,000 mainland Chinese had assets exceeding $30million, accounting for a third of Asia-Pacific's super-rich.
Even affluent Chinese women, without millions in the bank,are willing to spend their savings on designer fashions, seenas the ultimate status symbol in a communist country that isincreasingly becoming preoccupied with the trappings of wealth.
Elegantly dressed Chinese manager Zhang Ning, 30, has neverbeen to France but she likes to wear Hermes which she says isthe epitome of style.
"I like its simplicity, it makes me feel elegant," saidZhang, who works as a manager at an electric power company inthe southern Chinese city of Guangzhou.
"France for me is elegance: good fashion and wines."
While luxury goods makers such as Louis Vuitton havebenefited from booming demand from Chinese keen to show offtheir newfound wealth by wearing clothes and accessoriesemblazoned with prestigious logos, Western couture houses suchHermes are now tapping into the more discreet tastes of thesuper-rich.
"The mainland Chinese market is still very accessoriesoriented but we believe that will change," said Alex Bolen,chief executive of New York-based couture house Oscar de laRenta, whose sleek cocktail dresses retail for up to $10,000,while its evening gowns approach double that.
"There's definitely a market for the cocktail dress. Butwhat has surprised us, pleasantly, is how rapidly the customerhas also adopted our daywear."
ASPIRATIONAL MARKET
Leading the charge is upmarket Hong Kong department storeLane Crawford which is bringing designers to China who are seenas being on the cutting edge in the West but are not well-knownin China.
The opening of Lane Crawford's first store in Beijing lastOctober has expanded the China presence of British designerssuch as Alexander McQueen and Stella McCartney and heralded thearrival of more niche designers including Dries Van Noten,Hussein Chalayan and Rick Owens.
Buyers from Lane Crawford now take prized front-row seatsat fashion shows in Paris and Milan, alongside buyers fromhigh-end U.S. retailers Saks and Nieman Marcus.
Meanwhile, Chinese fashion editors, headed by Vogue China,have become an influential presence on the European fashionscene.
China's ongoing transition to a more market-orientedeconomy after decades of strict communist rule is producing aconstant stream of newly rich.
Their purchasing power and the growing sophistication of amore established wealthy clientele is creating a very diversemarket for fashion, says Angelica Cheung, editor of VogueChina. The magazine was launched in 2005 and it has 320,000readers.
"It's very different from the West, there are a lot ofentrepreneurial opportunities and there are wealthy peopleemerging all the time," said Cheung.
"A young woman who might now be on a monthly salary of5,000 yuan (362 pounds) could next year be running her ownbusiness. So it's a very aspirational market. Her first luxuryproduct might be a Louis Vuitton bag but within a few years shemight move on to something more niche such as Marni."
Chanel is the most preferred high-end fashion brand foraffluent Chinese followed by Giorgio Armani, according to areport by MasterCard.
Oscar de la Renta says China is central to a strategy forAsia which it hopes will account for 20 percent of its saleswithin five years, up from 5 percent at present, helped by itsburgeoning accessories' business.
Luxury brands can easily sell their perfume and cosmeticsin local department stores. But when it comes to ready-to-wearfashion, they are all competing for space and customers in ahandful of luxury malls such as Plaza 66 in Shanghai and LaneCrawford in Beijing where rents are sky high.
"They're overpaying (on rent) but they're looking at Chinaas an investment," said Marcel Braun, Hong Kong-based executivevice-president of Swiss company DKSH, which advises luxuryfirms on market expansion.
"Fifteen years ago brands came and left. Now they can't dothat anymore, China's too important."
Rampant copying of accessories brands remains a problem forluxury goods firms in China, but it is much less evident amonghigh-end apparel.
Yet nevertheless high-quality copies of designer handbagscan be purchased across Beijing and Shanghai for just apittance of the retail price of the originals.
FINDING THE RIGHT MODEL
China's luxury market is still in its infancy and luxuryretailers are experimenting to find the right model and get thesales strategy right, analysts say.
Lane Crawford has pieces of modern art on display in itsspacious Beijing store, aiming to offer a new concept inshopping. It sells more than 600 high-end fashion brands, butvisitors to the store say shoppers are often scarce.
Lane Crawford says its Beijing store is the first stage ina long-term plan for China and other stores will be rolled outin the future.
Retail analysts say that having a flagship store ratherthan being among dozens of brands carried in a high-classdepartment store is the best way to achieve brand recognitionand exclusivity in China.
However, it is difficult and expensive to find good sitesfor boutiques in China due to exorbitant rentals in high-endareas.
Reaching out beyond Beijing and Shanghai is the next step.The southern boom city of Shenzhen replaced Chengdu in 2007 asthe city with the highest average spending on luxury goods,according to Credit Suisse, while the size of the luxurymarkets in Shenzhen and Wuhan doubled.
Braun says fast-growing northeastern cities such as Dalianoffer better opportunities for expansion than southern cities.
Zhang Ning from Guangzhou heads to Hong Kong to shop atHermes because there is no sales tax and luxury items are 30percent cheaper than on the mainland.
A long-established market for luxury goods, Hong Kong alsooffers a much wider choice of designers.
Neighbouring Macau, a former Portuguese enclave, is alsobecoming a shopping hub for affluent mainland Chinese followingthe arrival of U.S. casino operators in the past few years.
Prada's edgier offshoot Miu Miu earlier this year stagedits first fashion show in Asia in Macau, flying in the CrazyHorse cabaret revue from Paris to perform in front of localglitterati at the ritzy Wynn Macau casino resort, which housesPrada and Chanel boutiques in its ground-floor lobby.
"I believe Macau will be comparable to Hong Kong in termsof sales in the next few years," said Prada's Suhl.
Miu Miu, which sells at Lane Crawford in Beijing, plans toopen its first independent mainland China store in Shenzhenthis year. Meanwhile, Hermes is preparing for the opening of a500-square-metre store in Beijing before the Olympic Games inAugust.
China sales will help offset a long-term decline inbusiness in Japan, aggravated by its rapidly aging population,it says.
(Editing by Megan Goldin)
