Are Small European Brands Too Late to China?

on April 22 2013 | in Retail Trends | by | with No Comments

While the huge European luxury brands like Prada, Louis Vuitton, Hermès, and Gucci were sinking time and money into Asian markets, smaller labels like Damiani were hanging back. Although the Italian jewelry maker did try to break into the Chinese market almost a decade ago – it had no luck finding a retail partner there – CEO Guido Grassi Damiani has finally announced his brand’s foray into the nation, the Wall Street Journal reports. “We should have launched in China much earlier, but we waited until we were strong and brave enough to do it ourselves,” Mr. Damiani said.

Right now, Damiani is in need of a little help. The brand once created wedding rings for America’s power couple Brad Pitt and Jennifer Aniston, but the brand’s heyday – like that ill-fated romance – feels like it’s years in the past. The company posted a net loss of €4.7 million ($6.1 million) in the nine months ended December while sales fell 9 percent.

It’s not just Damiani that’s struggling. With the European economic crisis in full swing, no Western brand is immune to at least some repercussion. According to Italy’s fashion association, sales of domestic brands dropped almost 20 percent last year and could go even 18 percent lower this year. Overall fashion sales there dropped 8 percent last year, and fashion sales in Spain dropped 5.3 percent.

China seems like the obvious place to turn profits. A Bain survey found that luxury sales in China rose 19 percent last year, and that they have tripled since 2007.

Even outside the country, Chinese are driving sales; more than half of luxury shoppers in France and Italy are foreign, and a majority of them are Asian. But there is one caveat to their willingness to spend money: “Asians abroad only buy brands they can recognize,” said Tim Brasher CEO of La Perla, an Italian lingerie brand. That’s good news for powerhouses like Prada and LVMH, who have been investing in the region for almost two decades.  But how can small brands like Damiani muscle in?

Damiani already plans to invest as much as €5 million into their China debut, after they drain it from the closings of unprofitable European stores. Movie star Sophia Loren, a longtime client, will be featured in an Asian marketing tour this year.

But it may take even more. Faith Hope Consolo, head at Douglas Elliman Retail group, says that flagship stores in China can cost as much as $40 million. She says that Italian menswear group Ermenegildo Zegna sank $34 million into their Shanghai mega-store in 2010, although the brand did not confirm. Considering the fact that Prada already has 25 stores in China, and Hermès has 21, the prospects of smaller brands can seem hopeless.

However, niche brands like Damiani could find success by running counter-culture to the big brands: if they can use their tiny size to promote the exclusivity of their products and the amount of individual attention they give customers, they may become China’s next darlings. Having patience and realistic outcomes will be useful, too. “Expanding in China is a medium- or long-term investment,” said Gianluca Brozzetti, CEO of Roberto Cavalli. The brand’s first store in China opened in 2009. “We expect to wait three to five years for a real return,” he said.

photo credit damiani

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