Armani Is Starting His Long March To China

The designer has ambitious plans for China, but profits could take a while

Perhaps not since Marco Polo has an Italian visitor created such buzz in China. With hundreds of fashionistas, and stars such as Michelle Yeoh and Mira Sorvino in attendance, designer Giorgio Armani on Apr. 17 unveiled his latest collection in Shanghai. The clothes, however, were only part of the show. The real attraction seemed to be the 69-year-old Armani himself. As the bronzed and buff fashion legend made his way through the crowd thronging the catwalk, a dozen bodyguards stood by while scores of journalists and various fans and wannabes swarmed around him.

That's the kind of reception Armani is hoping his products get as he plots his invasion of the mainland. Never mind that it hasn't been that long since the only politically correct fashion was inspired by Mao Zedong. Armani is betting that China's nouveaux riches are ready to drop thousands of their hard-earned yuan on his designer beachwear, sequined dresses, and tight-waisted jackets with Dick Tracy-style padded shoulders. "The dimensions of this country are so enormous," Armani says. "It will create demand and potential for somebody like me."

To tap that potential, Armani is planning an ambitious expansion. The fashion show marked the opening of an 1,100-square-meter store in an imposing 1919 building on Shanghai's historic Bund. The sumptuous boutique and adjacent Emporio Armani store are his second and third outlets in China, after a smaller shop in Beijing launched in 1998. Armani plans to open an additional half-dozen units this year and as many as 30 by 2008. He's also eyeing Shanghai as a location for one of his new Armani-brand hotels, launched in collaboration with Dubai-based Emaar Properties.

The question is how quickly China will embrace Armani's power suits and designer jeans. Sure, there's no shortage of wealthy Chinese these days, but the average annual income even in prosperous coastal cities such as Shanghai and Guangzhou is only about $5,000, which wouldn't buy you much more than a strapless cocktail dress or two men's suits at Armani's store on the Bund. And Armani is a bit late getting to China. Rival Ermenegildo Zegna has been in the mainland since 1991 and has 29 shops, and Louis Vuitton and Prada today each have nine stores in China. Still, even if it takes time before he sees significant profits in the country, "considering Armani is such a powerful name in Europe and only has one store in Beijing, it makes sense for him to accelerate his plans," says Morgan Stanley (MWD ) analyst Claire Kent.

LOGO-CONSCIOUS. Armani says he's in no hurry to turn his Chinese operation into a moneymaker. "This is a long-term investment," he says. "We are not expecting to make returns immediately." Even so, Armani expects accessories such as $180 canvas handbags and $1,000 suitcases to do well. The reason: Unlike Armani's clothing, his accessories sport a logo, an essential accoutrement in status-conscious China. The downside of China's affection for logos is that products plastered with them are widely faked. For a designer, says Armani, counterfeiting is flattering "because it means you are doing the right thing." But he knows it's a problem -- fake Armani watches are especially popular -- and adds: "We have to take action."

As he expands on the mainland, Armani is aiming downmarket (or as down as Armani ever aims). His next stores in China will be lower-priced Emporio Armani, Armani Exchange, and Armani Jeans outlets, where a pair of sunglasses can be had for the relatively modest sum of $240, and canvas belts go for a rock-bottom $130. The key for Armani is to offer the cachet of his luxury brand at prices that enough Chinese customers can afford. If he can do that, he'll remain a star attraction for some time to come.

By Frederik Balfour in Shanghai

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