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The experience of a market veteran

Kate Huang is currently the Deputy General Manager of O’Blu International and has over 15 years of experience in Chinese luxury fashion market. She also holds an MBA from the University of Hertfordshire.

The company is a franchisee of the Armani Group, and partner for MCM, Dsquared2, Jill Sander, and True Religion. Kate oversees the entire cooperation with all the brands under O’Blu International, which currently has 60 stores across China.

You have been working in the men’s luxury fashion sector in China for over 10 years, how have the market and consumers changed over that time?

The change has been significant, as you might expect. 10 years ago, not many men could afford luxury products compared to the number now. Over this time, brands have educated them and told their stories. In the past, clothing with big logo’s sold very well because consumers could display their success easily, but over time, these consumers have learned the differences between brands and are now quite selective, certainly in tier one cities.

I would estimate that consumers in tier two or three cities are three to five years behind those in tier one cities, in terms of knowledge and taste, which of course makes buying and stocking a challenge for all of us. Also in these cities, society is more male dominated, so by comparison women’s fashion does not sell as well as men’s.


What’s your view on where the market will go in the 2013 and the near future?

My feeling is that we will see market growth that differs across the country. In tier one cities, growth will be steady and not as fast as it was in and before 2011. Actually in 2012, many brand performances dropped down in tier one cities compared to 2011. Consumers are better educated and have more chances to go abroad and purchase overseas. Also, many brands have opened their stores in tier two and three cities, which results in the market becoming more diluted. However, in tier two and three cities, growth will be good, and much better than that in tier one locations.

One major issue for all brands was opening stores too quickly, and as we have seen brands like LV have announced that they will stop all their expansion in tier two and three cities to avoid over exposing themselves. For us as a franchisee, our principals are always pushing us to expand, but we have to make sound financial decisions, and find the right locations. It’s a fine balancing act. As far as 2013 is concerned, the first quarter has been good for us.


Younger Chinese consumers prefer more personalised and individual products. How can a brand satisfy this need, yet still service their older consumer group?

This challenge has affected many of the male fashion brands that have in the past sold to older consumers. As young people come into the market, they want to find new brands, and not necessarily the ones they see older people buying. We have seen brands like Zegna, MaxMara and others start to focus on their secondary lines, like Zzegna or SportMax that consist of more young fitting and trendy clothing for this particular group.

Most luxury brands are having to change, although I have met some who basically say that this group of customers is not theirs, and accept they cannot sell to them. There are a lot of young men in their late teens and early twenties who have a great deal of money, and spend a lot. We all want to sell to this group.

There is also another phenomenon that we see here, where we have local brands situated on the 4th floor in a department store or mall (demonstrating a lower status). Their prices are in fact quite high, and the gap between what they charge and a comparable product from luxury brands on the 1st and 2nd floors is becoming smaller, because of increased labour costs, logistics and the RMB exchange rate appreciation; more consumers therefore tend to choose the international brands.


Working as a franchisee with luxury brands to develop the retail network in China for 15 years, what would be your advice to any brand wanting to find a suitable partner here?

There are some very important considerations in my view. Firstly, the two organisations must fit with one another culturally, this may sound obvious, but the challenges are big in China and we don’t want to make them any bigger. The incoming brand should look at the potential distributors portfolio; they need to be strong in all the areas of retail in China, distribution, the culture of the sector, consumer demands and expectations, and store openings.

I would suggest that smaller European brands find a Mainland Chinese partner, rather than an Asian one; they must be flexible and easy to communicate with. As the China partner, perhaps our biggest challenge is that the incoming brand often wants to deliver exactly what it does elsewhere in the world, and because the market is quite different here, we will need them to make some adaptations that can be difficult to achieve.

For example, it took us a long time to convince an Italian brand to make men’s shirts with short sleeves, because this isn’t done in their home territory. Culturally men will wear short sleeve shirts here, and in time the principal changed their mind as a result of having learned to trust us, our knowledge of the market and respect the consumers’ needs and not their traditional attitudes.


What business model should an international brand use when working with a local partner in China?

There are three commonly used models of cooperation adopted here; all require commitment and investment from the brand. The first involves the distributor buying wholesale, paying for stores and staff. They also pay a marketing fee and royalties to the principal; this is adopted by big brands, and in fact is our model. The principal pays for international advertising, but for us to be successful we to must invest a lot of time and money into educating our customers.

The second is often used by some brands that want to participate in the local retailing market directly, where they employ their own small team in China to build brand awareness. They also engage a good local partner to help them get proper store locations, and employ the local staff. Their partner typically charges a management fee and takes commission on sales; but the principal pays for the store decoration, the stock and even the rental. They sign the lease for the retail space directly with the landlord.

The last is a true JV, in which both parties invest in the brand together.


What are the most important practical issues to ensure a new store is successful and also be able to generate a profit?

This is not an easy question to answer of course, but obviously location is the number one issue. There are now so many malls or retail spaces available, and quite honestly there is no way to guarantee success other than using sound experience. My starting point would be to look at the brand mix planned for the mall, who are the neighbours going to be, and are they suitable? I would speak with the managers of the brands that are likely to be my neighbours and see what they think of the mall and the space. By talking and cooperation we can help each other to be successful.

In addition to the new malls, there are older department stores and malls that have or are being renovated. These are a little easier to evaluate because they have a history, but there are relatively very few of this type. In simple terms, we need to speak with the mall owner/operator to get guarantees of co-located brands, and verify with these neighbours their plans and opinions of the site.

For any new brand entering China, certainly in the fashion sector, they need to open in Shanghai first and Beijing second because they will make the right statement to the market and connect with a more open consumer group. Mall operators will look more favourably on a brand or their distributor if they have a track record in Shanghai even if the store is not large, and may subsequently then offer more space in a better location in their malls in other cities.


How have you grown your team capabilities over the last few years and what have been the biggest challenges and greatest successes in this area?

Ten years ago, the sector was very new and there were very few professional staff available, so staff churn has been very common. In our case the most difficult role to fill is that of a buyer, because there are no graduates in this subject in China. We look for those who have learned the skill internationally from say Italy, as we need people with international experience because it’s so important to our success.

One very important issue for us is placing trust in our staff, something that some people in China find difficult. We need to give them development opportunities and chances to grow in experience, so we allow them to travel and see new things, visit international showrooms etc. In a relatively small organisation like ours, we offer them the freedom that they might not otherwise have.

A good example of people growing in the job is a woman who joined us as a receptionist, as a person she loves fashion, and showed interest in learning. She is now one of our best buyers because we gave her the opportunity, and she showed a passion.


Could you please provide an example of the most difficult issue you have faced, that afterwards made you smile?

When we first partnered with a famous brand we had an interesting challenge. The brand positioned itself as a department store brand; they took space in a department store and nowhere else. At that time, there was very little choice in department stores, and we could not find the right place for the brand. We then found retail store space in a famous shopping mall in Shanghai in Nanjing Road, a prestigious location, but not a department store.

When we first proposed this space, the principal rejected it. So we invited senior executives of the brand to come to China to see it, and when they did, they agreed that it was ideal. Since this time, the brand has changed its policy because they have learned to listen to us, and trust our better knowledge of the local needs. Relationships and flexibility are very important for success.


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