The intriguing rise of Shanghai Tang

When I was in Hong Kong in December, the one store I was told I had to go to was a place called Shanghai Tang; other bloggers have apparently received a similar message.. The people telling me to do this were right -- I'm not much into clothes stores, but even I was impressed by the quality and style of their merchandise. I wound up buying lots of nice things for my wife, which almost -- but not quite -- made up for me leaving her alone with the kids for nine days. Rest assured, Americans do not need to jet to Hong Kong to sample the store -- there's both an online catalog, and a store in Manhattan. I bring this up because Shanghai Tang is the topic of Linda Tischler's cover story in this week's Fast Company. The story strongly suggests that China will be moving up the global supply chain to luxury goods very soon: If, as global market watchers from Wall Street to Tokyo have claimed, this is the China Century, then Shanghai Tang may just turn out to be that century's banner--China's first global, upscale brand. For this exuberant and increasingly entrepreneurial nation, it would be a natural evolution--and a stunning one. As China enters the modern economic market, it has gone from being the low-cost factory for Wal-Mart to the purchaser of big-name brands (think Lenovo's recent acquisition of ThinkPad from IBM). The third stage will be for China to create brands of its own, becoming a center of design and innovation capable of fielding products that can compete in quality, style, and prestige with anything from Paris, Milan, or New York. "The opportunity for Shanghai Tang right now is huge," says David Melancon, North American president of brand strategy firm FutureBrand. "They could be the first big luxury brand out of Asia." Out of Asia, yes--and in it, too. While the global luxury market is already big--$168 billion a year, according to Bain & Co.--and growing at a rate of 7% per year, "big" doesn't begin to describe the potential market for glitzy goods in China itself. A quarter of a century ago, there were no millionaires in China; by the end of 2004, there were more than 236,000, Bain says. And Patrizio Bertelli, the CEO of another fashion house that's hungrily eying the market--Prada Group--figures that China could overtake the United States as a market for luxury goods by 2020. In the meantime, the profits China's homegrown brands earn at home will help finance their forays into the rest of the world. Add in the cheap labor close at hand (an edge over many Western luxury labels, which are made in Europe), and the Guccis and Armanis could be facing competition like they've never seen before. As you read a bit more into the story, however, you begin to wonder just how you would categorize the nationality of the firm. First, you discover that Shanghai Tang is majority-owned by Richemont, a Swiss-based luxury-brands holding company. Then you discover the background of the top people at the firm: It's no surprise, says le Masne de Chermont, that the company's principals have been recruited from the carpetbagging global creative class. The brand's founder, British-educated David Tang, is from Hong Kong, that most Western of Chinese cities. [creative director Joanne] Ooi is American; Camilla Hammar, the marketing director, is Swedish. [CEO Raphael] Le Masne de Chermont, who is French, honed his luxury branding skills at Piaget before being deployed by Richemont, whose portfolio also includes Mont Blanc, Chloe, Dunhill, and Cartier, to fix its ailing Shanghai Tang brand. "We're a melting pot of multicultural people who work on the same vision: a Chinese lifestyle brand that's relevant," he says. As for native Chinese, he says, they're starting to understand branding and sophistication, too. "They are so eager to learn, you cannot imagine."What's most interesting are the firm's expansion plans: While the privately held Richemont is cagey about divulging numbers, le Masne de Chermont says that the Madison Avenue's store's revenue is up 50% in 2005. Overall, Tang grew 40% last year, mostly in Asia, home to 70% of its stores. And it's profitable, though not quite yet in the United States. But while le Masne de Chermont has plans to roll out additional U.S. shops, he's not as obsessed as his predecessor was with making it in America. The red-hot future of his business, he points out, is in Asia. "Can you imagine 1 billion Chinese getting into capitalism?" he says with undisguised glee. "It's unstoppable!" So even though Tischler's story is titled, "The Gucci Killers," this is less about the rise of a global competitor than the mergence of a Gucci-type brand -- created by Asians, Europeans, and Americans -- that can penetrate the Asian market. A final note: I'm genuinely surprised the New York store is not yet profitable -- to my admittedly uncouth eye, the clothes and accessories are world-class and, compared to other luxury brands, very reasonably priced. UPDATE: Reena Jana did a story on Shanghai Tang for Business Week last December that's worth checking out as well.