CORRECTED – CORRECTED-Luxury brands wrest back China mkt, eye smaller cities

(Corrects attribution for figures on China’s luxury goods
market in bullet and 7th paragraph to World Luxury Association,
instead of Bain. Corrects market size to $9.4 billion, not $9.6
billion. Removes reference in same paragraph to 12 pct sales
growth rate)

* Luxury brands taking control of China sales networks

* China seen as world’s top luxury market in 5 yrs – WLA

* Brands eyeing smaller, inland cities for growth

By Donny Kwok

HONG KONG, Aug 6 (BestGrowthStock) – Top global luxury brands like
Burberry (BRBY.L: ) and Coach (COH.N: ) are pouring funds into
China’s multi-billion dollar luxury market, wresting control of
their brands from Chinese partners as they swoop back into a
market set to become world No.1.

Many piled into China over the last decade, pairing with
re-sellers and joint venture partners, but with so much at
stake, they are severing these ties and bringing their own
considerable financial and marketing muscle as well as
expertise to China.

In July, Burberry said it plans to buy its network of 50
China stores in 30 cities, now operated by its franchisee, for
70 million pounds ($107.5 million), a deal seen as adding up to
20 million pounds to its 2011-12 operating profit.

French handbag maker Longchamp has decided to buy out its
Chinese distributor, and has assembled a Chinese team to take
care of administrative tasks. Polo Ralph Lauren has also bought
back China distribution right from Dickson Concepts (0113.HK: ).

“This is definitely a trend for luxury brands to operate in
China themself,” said Marie Jiang, retail analyst from Pacific
Epoch, a China focused advisory firm.

“Its a booming market and is in a period of high growth at
least in the next 3 to 5 years,” she said, adding she expects
to see about 30 percent sales growth in luxury brands each year
in the coming few years.

China is now the world’s No.2 luxury goods market, with
sales in 2009 of $9.4 billion, accounting for 27.5 percent of
the global market, according to the World Luxury Association.

The figure is expected to grow further to $14.6 billion in
the next five years, making it the world’s top luxury market.

“Many of them gained experience after more than a decade of
operation in the mainland, and are ready to roll over to the
next phase of development of operating on their own, so they
can reduce the distribution cost and raise the operating
margin,” said William Lo, an analyst at Ample Finance.


Story on China’s domestic luxury wannabes: [ID:nnTOE66R04Q]

Reuters Insider on Chinese fuelling luxury goods demand:

Reuters Insider on Chinese tourists buy Japanese

Reuters Insider on Bally steps into Inner Mongolia

Chinese smash auction house records:

Ferrari drives to smaller China cities:



With its growing economic muscle, China has become an
increasingly important contributor to the bottom lines of
makers of luxury goods, as such brands appeal to many keen to
show off their newly acquired wealth.

Earlier this week, Coach said its China business could
reach $250 million by fiscal 2012, and double from that by
fiscal 2015 — a sizeable contribution for a company expected
to post about $4 billion in total revenue for its current
fiscal year.

Lamborghini, the Italian luxury sports car maker owned by
Volkswagen (VOWG.DE: ), said its sales more than tripled in China
to 86 cars in the first half of 2010, making the market its
second-largest after the United States, even as its global
revenues fell 2.6 percent with 674 cars sold during the period.

To keep their China expansion alive, many of the global
players are expected to move into China’s second- and
third-tier cities in the coming years to tap demand there.

The largest cities in China’s coastal areas now form the
main sales base for most luxury goods makers, but are home to
just 5 percent of the population, leaving huge room for growth
inland and in smaller cities, said Selina Sia, a retail analyst
at Mirae Asset Financial Group.

“Just like a newborn baby, it’s in infancy stage,” Sia
said. “You have to get the quantity and at the same time you
have to build and protect your image.”

Swiss luxury goods maker Bally said earlier this week it
plans to expand into lower-tier Chinese cities in coming years
and has started opening boutiques in Hohhot in Inner Mongolia.

Analysts said rapid development of high-end shopping malls
and retail spaces across the country should help the domestic
expansion of luxury groups, especially as mall operators could
offer attractive terms to land a big-name brands.

“Luxury brands don’t like to spend a lot of money, its all
about branding generally,” said Steve Yi, chief strategy
officer of Grey Group, a global market communications agency.
“They will depend on family and friends’ opinion” to appeal to
(Editing by Doug Young and Valerie Lee)

CORRECTED – CORRECTED-Luxury brands wrest back China mkt, eye smaller cities