MT In China: Silk route to success

Fashion retailer Shanghai Tang could be the first big luxury brand out of Asia, appealing to China's newly rich as well as to Western tastes.

by Linda Tischler
Last Updated: 06 Nov 2012

It's 9.50 on a dark night in a 1,300-year-old Confucian temple in Shanghai, and if the weather is any indication, Confucius is fed up. October is usually a dry month in this part of eastern China. Indeed, yesterday was sunny, and tomorrow is predicted to be glorious. But a steady rain has been falling since late afternoon and shows no signs of letting up. Journalists from three continents, local bigwigs, style-obsessed Chuppies (Chinese yuppies), and even three athletes from China's 2002 World Cup soccer team - certified national heroes - are huddled under umbrellas in the wings, drinking champagne, waiting for a fashion show to begin.

A red-lacquered catwalk, slick with puddles, rises three feet above the temple's paved floor and runs the length of the open courtyard. It's a personal-injury lawsuit waiting to happen. But Raphael le Masne de Chermont, CEO of the Chinese luxury lifestyle brand Shanghai Tang, seems unconcerned. Despite the fact that he's about to watch a $49,000 hand-embroidered, chinchilla-lined silk coat that took four months to make come sloshing through the rain, he's as charming and chipper as if this were a cosy tent in Hyde Park. If courage is grace under pressure, le Masne de Chermont deserves a medal.

The lights go up, the throbbing beat of Soft Cell's Tainted Love fills the temple, and a parade of gazelle-like Chinese models starts to totter through the mist on high-heeled wedgies. On display is an array of sumptuous stuff: brocaded parkas with fur-trimmed hoods, silk jackets topstitched in cloud patterns, tweed skirts festooned with crystals in a dragon-scale design, and cardigans embellished with jade are among the 46 outfits skittering through the rain.

When the last outfit, a full-length shearling coat encrusted with Swarovski crystals, makes it safely back to home plate, the crowd bursts into relieved applause. 'Confucius is a very tolerant man,' sighs le Masne de Chermont, before leaping to the stage with his creative director, Joanne Ooi, for a triumphal lap ...

The glitzy event was a high-stakes gamble for the brand, which has had a rocky history since its launch 11 years ago, including an embarrassing flame-out in New York in 1999. But now the new team, led by le Masne de Chermont and Ooi, believe that Shanghai Tang's moment on the world runway has arrived. If, as global market watchers from Wall Street and London to Tokyo and Taiwan have claimed, this is the China Century, then Shanghai Tang might just turn out to be that century's emblem - China's first global premium brand.

For this exuberant and increasingly entrepreneurial nation, it would be a natural evolution. As China enters the modern economic market, it has gone from being the low-cost factory for Wal-Mart to the purchaser of big-name brands (for example, Lenovo's recent acquisition of ThinkPad from IBM). The third stage will be for China to create brands of its own, becoming a centre of design and innovation capable of fielding products that can compete in quality, style and prestige with anything from Paris, Milan or New York.

'The opportunity for Shanghai Tang right now is huge,' says David Melancon, North American president of brand strategy firm FutureBrand. 'They could be the first big luxury brand out of Asia.'

Out of Asia, yes - and in it, too. Although the global luxury market is already big - $168 billion a year, according to Bain & Co - and growing at a rate of 7% per year, 'big' doesn't begin to describe the potential market for glitzy goods in China itself. A quarter of a century ago, there were no millionaires in China; by the end of 2004, there were more than 236,000, according to Bain. And Patrizio Bertelli, the CEO of another fashion house that's hungrily eyeing the market - Prada Group - believes China could overtake the US as a market for luxury goods by 2020.

In the meantime, the profits that China's new domestic brands earn at home will help finance their forays into the rest of the world. Add in the cheap labour close at hand (one up on many Western luxury labels that are made in Europe) and the Guccis, Armanis and Pradas could be facing competition like they've never seen before.

The winds of fashion seem to be blowing in Shanghai Tang's direction, too. By one estimate, in a decade, as many Americans will be visiting China as will travel to Europe. And just as, 20 years ago, Americans brought back a taste for things French and Italian from trips abroad, now they're likely to embrace the next cool thing: Asian chic.

'Asian fusion is the top of the style wave,' says Michael Silverstein, global practice area leader of the Boston Consulting Group and co-author of Trading Up: The New American Luxury. 'Design is flowing across markets.'

That puts Shanghai Tang in a fashion sweet spot. Much as Ralph Lauren, a garmento from the Bronx, created a brand translating the look of the landed gentry into fashion and a decor that could look at home anywhere from Shaker Heights to Pacific Palisades, so too does this company aspire to be the bridge between East and West. (It helps that it is majority-owned by Richemont, a Swiss-based luxury-brands holding company.)

'What Shanghai Tang does is translate two cultures,' says le Masne de Chermont.

Until now, the company has been proceeding cautiously, focusing first on satisfying the growing Chinese demand for prestigious labels at home, with five stores in Hong Kong and four on the mainland. Global footprint has been limited to 10 outlets in world cities like London, Paris and Bangkok. But now it's embarking on an ambitious expansion plan to launch five stores a year in the world's swankiest markets. As it emerges onto the worldwide stage, it must pull off a delicate balancing act: to create a look that's both Chinese and international, authentic and sophisticated enough for a global audience. Too much Asian kitsch and it's dead.

It's a hazard that the 42-year-old le Masne de Chermont knows all too well. Walking through the company's flagship store on Pedder Street in Hong Kong's Central District, he points out the range of merchandise. Sure, there are rows of colorful qi paos (the traditional Chinese Suzie Wong-style dresses beloved of Hong Kong tourists), and silk-lined velvet 'Tang' Mao jackets for men so decadent they could get you exiled to a rice paddy for a re-education in proletarian values. But, he says, most of the clothes show their Chinese heritage with far more subtle touches. Men's shirts are made from striped and plaid fabric that would be at home in Pinks or Brooks Brothers, but sport mandarin collars or knotted buttons that hint at their more exotic pedigree.

The women's line features cashmere cable-knit fishermen sweaters lined with Chinese-patterned silk. Other garments wear their parentage more boldly, with luxurious touches such as peony-bedecked brocade, braid twisted into eternity knots, and beaded dragon designs, or with cheeky plays on Chinese history, such as buttons featuring tiny pictures of the late Dowager Empress Cixi.

It's no surprise, says le Masne de Chermont, that the company's principals have been recruited from the international carpetbagging creative class. The brand's founder, British-educated David Tang, is from Hong Kong, that most Western of Chinese cities. Ooi is American; Camilla Hammar, the marketing director, is Swedish. Frenchman le Masne de Chermont honed his luxury branding skills at Piaget before being deployed by Richemont, whose portfolio also includes Mont Blanc, Chloe, Dunhill and Cartier, to fix the ailing Shanghai Tang brand.

'We're a melting pot of multicultural people who work on the same vision: a Chinese lifestyle brand that's relevant,' says le Masne de Chermont. As for native Chinese, they're starting to understand branding and sophistication, too. 'They are so eager to learn, you cannot imagine,' he enthuses.

Learning is a skill much prized in the Richemont organisation. 'You can make a mistake,' Johann Rupert, the company's South African chairman, told le Masne de Chermont, 'but you can't make it twice.' Shanghai Tang sorely needed that indulgence in 1999, after it had to close its glitzy, 12,000 sq ft showplace on Madison Avenue when sales of qi paos and Mao watches couldn't keep pace with Manhattan rents.

Tang, the son of a wealthy Chinese businessman, had launched the brand in 1994 in Hong Kong as a custom-tailoring business, marshalling the talents of Shanghai tailors who had fled Communist China in 1949. In 1996, anticipating a robust market selling Chinese souvenirs to well-heeled tourists attracted by the British handover of the city in the following year, he expanded into ready-to-wear. On 21 November, 1997, Tang, who had already succeeded in selling the lion's share of the company to Richemont, was ready to colonise New York. At precisely 6:18pm - a time chosen by his feng shui master - he threw open the doors of his palace on a posh stretch of Madison Avenue just across the street from Barneys, welcoming the city's glitterati for a bash that featured roast suckling pig, lion dancers and Fergie, the Duchess of York. It was such a hot ticket that many partygoers were stuck outside in the rain as the NYPD, citing the city's tough fire codes, turned people away at the door.

The fashion world seemed mystified as to whether Tang was launching a new era of global fashion or peddling Chinese gewgaws more suited to end-of-the-pier market stalls. Nineteen months later, it was clear that Tang had miscalculated the US appetite for expensive Chinese costumery, silver rice bowls and painted lanterns.

'It was not the ideal way to start a business,' concedes le Masne de Chermont. 'But unlike Europe, America is tolerant of mistakes as long as you learn. And we have learned from this huge mistake. We needed to be more modern.'

The lessons of the Madison Avenue meltdown were clear: to compete in the high-end fashion business, you need a continuous array of fresh merchandise to keep customers coming back. You need clothes that are wearable and relevant to modern lives, not stagey designs. And you need to know your market before you take a big gamble.

The company moved to smaller New York premises and withdrew to rethink its strategy. Back at HQ in Hong Kong, things weren't going so well either, thanks to the Asian financial crisis. By the time le Masne de Chermont was hired in 2001, revenue was stagnant. Then SARS hit in 2002, effectively shutting down business in Hong Kong for six months.

Meanwhile, rivals were starting to steal some of Shanghai Tang's cultural thunder. One of them was Joanne Ooi, who, after various jobs in the Hong Kong fashion industry, had opened her own store across from the Shanghai Tang flagship. China was chic, and international fashion editors were going wild for qi pao dresses. 'I thought I'd launch my own ready-to-wear line based on the idea of innovating this iconic symbol,' says Ooi, an Asian-American whose own fashion taste runs to jeans and T-shirts. 'To underscore my point, I even made one qi pao out of African kente cloth and put it in my window. I thought I would eat Shanghai Tang for lunch.'

That brash self-confidence is quintessential Ooi. Born in Singapore, the 37-year-old grew up in Cincinnati, the eldest child of two doctors. Her childhood was a classic tale of Chinese upbringing. 'I could do anything I wanted as long as I got good grades,' she says. She regularly played hooky, showing up only for exams. She got kicked out of class for calling her anatomy teacher a 'fat cow' and was suspended for accusing the school orchestra conductor of raging mediocrity. 'I did really obnoxious things,' she says with little apparent remorse.

Still, her grades were good enough to earn her admission to New York's high-flying Columbia University. After a postgraduate stint at Smith Barney, she gained a law degree from the University of Pennsylvania with the intention of practising corporate law. That didn't feel right, though. 'I realised I didn't want to be the handmaiden to business,' she says. 'I wanted to be the entrepreneur. I wanted to make the creative ideas.'

She followed a corporate lawyer boyfriend (whom she later married) to Hong Kong in 1993 and took a job at a garment trading office. She fell in love with Hong Kong. 'It had this crazy kinetic energy of people going nonstop.'

She also embraced her own Chinese heritage. She taught herself Mandarin and began cramming Chinese history and culture. But by October 2001, she was at a crossroads. Her marriage was faltering and she was looking to make a clean break.

Le Masne de Chermont met Ooi through a headhunter friend. They quickly realised that they shared a passion for an authentic Chinese luxury brand that recognised the primary imperative of the fashion industry: constant innovation. Le Masne de Chermont asked Ooi to walk around the flagship store and write up her thoughts. Her observations were unsparing: 'It's an overpriced Chinese emporium that has no credibility with local Chinese people, let alone with fashion people. Its very narrow market is high-end tourists. It's a once-in-a-lifetime destination shopping experience, a kind of fashion Disneyland. Plus, it's unwearable and eccentric.' Le Masne de Chermont made her an offer.

Ooi joined the company as marketing and creative director, and the two set to work re-designing what Shanghai Tang might be. It had to be modern and relevant; it couldn't be kitsch. It had to be luxurious, since prestige is even more important in the Asian market than creativity. They decided to focus on women's ready-to-wear, since that was likely to be the highest-profile part of the line. But for a year they launched collections that overcorrected their original problem. The clothes were still out of touch with the market - rigid little suits that could have come from a Paris designer's atelier. 'The brand had no depth, no sincerity, no differentiation,' Ooi now concedes.

Then she hit on an idea: each collection would reflect a China-related theme. 'I decided it was really, really imperative to create cultural roots for every single product,' she says. The autumn/winter 2003 collection, inspired by the traditional costumes of a Chinese minority group called the Miao, came first. Sales took off and a strategy was born.

Ooi now roams China, visiting antique markets, art galleries, museums and historic sites, making notes, sketches and lists. 'If I lost my notebook, I would be lobotomised,' she says. She reads voraciously in Chinese history and stays in tune with Chinese pop culture. Then, twice a year, she defines a theme for the next season's collection and e-mails a brief on the concept to 16 designers and consultants around the world. It specifies the collection's intellectual underpinnings and suggests elements that should be incorporated into the season's designs.

The theme of the autumn/ winter 2005 collection, for example, was Beijing's Forbidden City, the former imperial seat. Design elements included symbols from the emperors' robes - the sun, the moon, the five-clawed dragon - the colour yellow and embellishments fit for an imperial court: brocade, jade, lapis and fur.

Although the garments are luxurious, Ooi has a strict standard for their wearability. 'Every item should transport the wearer to someplace exotic in terms of time and region,' she says, dressed in well-worn denim for breakfast at Hong Kong's posh Mandarin Oriental hotel. 'But it's also important that every piece we make is able to be worn with a pair of jeans. If it can't be, we're not succeeding. That's the nature of modern dressing.'

Once the brief has been distributed, Ooi controls the creative process like a circus ringmaster, gathering sketches from designers in London, Paris, New York and China and sending them out across the network. 'I allow the designers to pollinate themselves,' she says. Her job is to distil, disseminate and then unify.

'The trick is to make it look like it all came from the same person,' she says. Given multiple time-zones, nationalities and egos, it's a 24/7 job, keeping her on the phone and exchanging e-mails long after she has tucked her six-year-old son Sam into bed.

The theme for the spring/summer 2006 collection is contemporary Chinese art. Ooi commissioned well-known Chinese artists to create designs and, in turn, asked students at China's most prestigious art academy to create artworks based on fabrics from the collection. She's currently gathering ideas for a collection based on Shanghai in the 1930s, when the city was known both as the Pearl of the Orient and the Whore of the East.

Early signs are that her approach is working. Although the privately held Richemont is cagey about divulging numbers, le Masne de Chermont says that revenue at the Madison Avenue store was up 50% in 2005. Overall, Tang grew 40% last year, mostly in Asia, home to 70% of its stores. And it's profitable - though not quite yet in the US.

But while le Masne de Chermont has plans to roll out additional US shops, he's not as obsessed as his predecessor was with making it in America. The red-hot future of his business, he points out, is in Asia.

'Can you imagine one billion Chinese getting into capitalism?' he says with undisguised glee. 'It's unstoppable!'

LITTLE RED BOOK OF BRANDING

Home-grown brands are becoming a source of pride within the People's Republic and a badge of its emerging self-confidence. 'Five years ago, the top 10 brands in China were American,' says Kevin Swanepoel, marketing director of the One Club, the international organisation of advertising pros. 'This year, the only US brand in the top five was Coke.'

But brand-building is a slow game and the stultifying Cultural Revolution left the country with little strength in bourgeois skills such as marketing, advertising and customer service. The One Club has been holding advertising seminars in China for four years to feed the vast creative labour demand that's developing as multinational ad agencies establish beachheads in the country and local shops ramp up.

The students' eagerness to learn is impressive, but their execution often falls short. 'We usually get a Chinese version of an American pop poster,' Swanepoel says. 'We say: "Guys, you've got to own your own history".'

So too with Chinese fashion designers, says Shanghai Tang's creative director Joanne Ooi. 'They're very Western-looking. They don't have the confidence in their own cultural roots.'

But there are positive signs. Huang Hung, CEO of China Interactive Media Group, a Beijing producer of lifestyle magazines and TV shows, says a crop of young designers is now springing up who manage to signal their heritage without descending into kitsch.

Attitudes among Chinese consumers to brands have changed dramatically. Four years ago, her company found that 'flaunting your status' was the priority in choosing a brand. This year, it's design.

(C) 2006 Mansueto Ventures LLC, as first published in Fast Company magazine. Distributed by Tribune Media Services.

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