LVMH says China Is Fashion Retail’s Future

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While China still has much PR work to do restoring confidence in its exports, fashion houses like LVMH, Paris, are wide-eyed with the prospects its 1.3 billion consumers suggests.

“If the economy continues at the same rate, 25 years from now China will be the greatest global economic power, which means [it] will have a potential comparable to the United States today,” chairman Bernard Arnault told Women’s Wear Daily in a report today. “It things continue at this rhythm, China will be the most important country on the economic agenda for a business like ours.”

And those aren’t just empty words. Just last week, the brand staged a $10 million runway extravaganza on the Great Wall for its Fendi brand. Leaving no subtlety to its statement, the brand marched its collection across the 2,000 year-old structure, while its interlocking F logo was projected onto nearby mountains. The label already controls 10 boutiques in China, and has plans to add five more in 2008.

The flagship Louis Vuitton brand controls 18 stores in the country, and plans to add another 10 through 2008. So far, those locations in Beijing and Shanghai are posting revenues comparable to major fashion centers, including New York, Paris and Rome. In fact, last year, revenues from the Asian market, excluding Japan, reached $19.23 billion, at average exchange rates, making up roughly 17% of the house’s global sales. An additional 13% came from the Japanese market.

Of course, Arnault’s recent comments should come as no surprise. After all, the company was one of the first to enter the Chinese market—with a Vuitton boutique in the basement of Beijing’s Palace Hotel in 1992—and now nearly every luxury brand has rushed to occupy the space. Arnault contends that China could soon overcome the U.S., Japan and Europe as the top global market for luxury goods.

“The level of consumption in China will increase, the quality of life will improve,” he said. “Are we going to have profits continuously over the next 25 years? Are we not going to have ups and downs? That remains to be seen, but currently, China is going very strong.”

Arnault’s comments are particularly keen, given the recent fears over a slowdown in U.S. retail sales. In an earnings release yesterday, Coach said that it was concerned about lowered traffic in its North American stores, and as a result, its stock took a nearly 12% tumble at the end of trading yesterday. The company indicated that growth would come from its investments in the Asian market, particularly in Japan, where sales have grown 17% on a currency-neutral basis.

For LVMH, the China play isn’t only about getting imports on the country’s consumers, but also about building up domestic Chinese brands. In May, the company purchased a 55% stake in the Wen Jun Distillery, a Chinese manufacturer of premium spirits. Through his own investment firm, Groupe Arnault, Paris, the LVMH chairman has also ponied up considerable cash in Chinese footwear retailer Belle International Holdings, investing an estimated $30 million.

“We think we have the know-how which can be very interesting in a country like China,” he said of the company’s store construction and branding efforts to drive sales with Chinese consumers. “Instead of doing a group of look-alike buildings, we try each time to do something creative that creates a reason for the consumer to visit a luxury store. China is probably the country with the most construction projects of this type.”

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