Richemont’s Shanghai Tang to Double Chinese Stores as Luxury Demand Climbs

Shanghai Tang, the fashion boutique brand owned by Cie Financiere Richemont SA (CFR), plans to almost double its stores in China, its fastest growing market, as demand for luxury goods rises.

“China is the number one luxury market in the world,” Executive Chairman Raphael le Masne de Chermont said in an interview in Hong Kong.

Chermont plans to open a flagship Shanghai store next year to expand sales of China-inspired fashions including silk kimonos for $470, men’s washed denim shirts with mandarin collars at $235 and travel umbrellas at $60. The brand also aims to increase its Chinese shops to 30 within the next two years from the current 17 as rising wages in the Asian country drives up demand for luxury goods.

The focus in China is also a recognition that consumers there are driving demand for fashion brands worldwide, including LVMH Moet Hennessy Louis Vuitton SA (MC), Chermont said yesterday.

“Who do you think will queue for LV in Paris?” he asked rhetorically. “Not Westerners.”

The proportion of Shanghai Tang customers from mainland China buying at the boutique’s 42 locations worldwide grew to 18 percent from 2 percent the same time three years ago. Chermont expects this number to surpass the sales contribution from U.S. customers -- at about 22 percent -- in the next 18 months.

“Shanghai Tang has done a fantastic job of building brand equity and has become a genuine luxury brand in Hong Kong and the West,” said Matt Marsden, director of consumer and retail research at Daiwa Capital Markets. “This will help give it credibility and increase the chances of success as the company expands in China.”

Location, Location

The retailer had its flagship store housed in Hong Kong’s Pedder Building since it was founded by David Tang in 1994 and had been paying HK$3 million ($385,000) a month in rent. With Western brands trying to flock to Hong Kong’s Central shopping district, the city’s real estate market went “totally out of control,” Chermont said.

Shanghai Tang will be moving to a 20,000 square-foot (1,860 square meter), four-storey building -- to be called Shanghai Tang Mansion -- about 1,000 feet (320 meters) from its current store by March next year, Chermont said. He declined to provide the exact location, explaining that the company will be having a guessing competition online.

The herald of U.S. retailers Abercrombie and Fitch Co., which is taking over Shanghai Tang’s store space, and Gap Inc. to Central has made the area more mass-market, Chermont said.

The company does not expect the move to affect sales because it is setting up a pop-up store in Hong Kong’s Pier Four in November and December this year.

“We have been buying the same way as if we were trading normally,” Chermont said. The company will be building Mongolian Gers, or huts, in the harborfront location to coincide with its Mongolian Christmas collection.

Shanghai Tang plans a Paris store in 2013 and to reopen in Tokyo’s Ginza shopping district in 2014, Chermont said.

To contact the reporter on this story: Natasha Khan in Hong Kong at nkhan51@bloomberg.net Frederik Balfour in Hong Kong at fbalfour@bloomberg.net

To contact the editor responsible for this story: Jason Gale in Singapore at j.gale@bloomberg.net

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