Eastern promise: Luxury retailers seek their fortunes in Asia

Prada and other brands are listing on the Hong Kong exchange, sure that they will get more for their shares as demand soars. Laura Chesters reports

Impossibly beautiful women in banana skin print dresses and finely chiselled men in bright coloured jackets sashayed and strutted down the mirrored catwalk. Miami Vice and Farewell My Concubine star Gong Li looked on under a mop of curly dark hair and above a plunging neckline.

Miuccia Prada's decision to send her models down this catwalk in Beijing in January was a big statement of intent: it was the first time that her Italian fashion house's mainline collection was shown outside its homeland and the reason was commercial. Prada is planning a ¤1.6bn (£1.4bn) flotation in Hong Kong this summer.

Usually one to start rather than follow trends, Prada is in fact following French upmarket fragrance company L'Occitane en Provence which listed in Hong Kong last May. Jimmy Choo, the private equity-owned women's shoemaker, could be next, with reports on Thursday suggesting that a listing off the coast of China could value the company at £650m.

The Hong Kong stock exchange is becoming the place to be for Western consumer and luxury goods companies. They are looking to tap into the vast wealth of the fast-growing South-east Asian markets and the dedicated followers of fashion who have emerged.

Most importantly, the high demand for flashy fashion and expensive brands means that luxury groups should get top dollar for their shares in Hong Kong. This should be particularly true for the next few years, as names such as Prada and L'Occitane will stand out among the listed firms.

Kate Calvert, a retail analyst at Seymour Pierce, says: "The reason these luxury goods companies are looking at Hong Kong is that they hope to get a higher price and valuation than in Europe. Scarcity value will help Prada as few global brands are listed in Hong Kong and aspirational brands are adored by the Asian market."

The share pricings reflect that these are European luxury brands. Calvert says that similar Asian luxury goods groups in Hong Kong achieve prices comparable to those European brands get in, say, Milan or London's exchanges. Domestic players do not have star quality in their own territories, so while L'Occitane shares have soared 30 per cent in Hong Kong, it's unlikely they would have done so well in Paris.

Hong Kong and China's luxury goods craze started booming about 15 years ago as they grew as financial and industrial powerhouses and the middle classes blossomed. Soon, the Chinese will be the best-dressed, best-accessorised people in Asia.

Mark Henderson, deputy chairman of Savile Row tailor Gieves & Hawkes, has seen the growth first hand. A Hong Kong-based investor first invested in Gieves & Hawkes in 1990, Henderson says: "There is colossal growth potential in China. Japan is by far the largest luxury goods market but China is biting at its heels. We have two or three shops or concessions in every major city and this is the way for most European luxury goods brands. Given the financial strength of Hong Kong it doesn't surprise me that people are choosing to list there."

This is just the beginning, Henderson argues, as per capita earnings are nowhere near the level of Japan. "I have no hesitation it [Chinese demand for luxury goods] will grow for the next 20 years." All this potential and the Shanghai Stock Exchange is still not fully open to overseas firms and investors. Limited changes to the protectionist rules started in 2008 and canny consumer goods groups spy a major opportunity for lucrative listings in mainland China.

Chris Swift, a partner at lawyer Allen & Overy, says: "Some companies take the view that when access is opened up to mainland China, those companies listed in Hong Kong will have an advantage and may get preferential treatment. The ability to move up to China is some way off and there is no timescale, but it is a strategic gamble. And quite a number think it is worth taking. But the immediate draw for brands to list is that they have always proved a hit in Hong Kong."

However, there are risks and luxury brands would do well to look at other industries that have had problems trying to crack China. For example, earlier this year toy-maker Mattel closed its six-storey Barbie toy store in Shanghai amid tough competition and poor sales, while US electrical retailer BestBuy shut all its branded shops in the country.

Guy Salter, deputy chairman at British luxury brands trade body Walpole, says: "Expanding into China is difficult and many have got it wrong – look at Mattel. Local Chinese companies launch look-a-like brands to undercut the established original European version. This happened with Barbie here."

Salter also believes that the Chinese economy is in danger of becoming overheated. "Inflation, the property bubble, the expansion of home grown brands could all affect how companies perform there."

Some luxury groups are heeding these warnings. Salvatore Ferragamo, Italian shoemaker to Hollywood greats, is plumping for Milan over Hong Kong for its long awaited ¤1.5bn flotation. Ferragamo is believed to have considered Hong Kong. It had to: the Chinese took over from Americans as the number one shopper of Ferragamo products last year. This meant that the group still needed to beef up its ties to the region. So the Florence-based company sold an 8 per cent stake to Hong Kong property entrepreneur Peter Woo and his family, who have helped to distribute the brand in China, Taiwan and Macau for two decades.

So, if luxury groups aren't floating, they are finding other ways of taking on China. This year Polo Ralph Lauren said it is committed to increasing its number of stores in Beijing and Shanghai and also plans to enter China's "second tier" cities.

Its chief executive Roger Farah told investors: "In the China territories, we are beginning to see improvement in our sales velocity as we become more astute with our planning and tiering of merchandise, especially as customers are exposed to our more premium labels and products." Last month, Burberry launched its all-singing, all-dancing Beijing flagship store, with its huge LED screens and the brand's biggest childrenswear section.

Opening shops, though, is far less of a commitment to China than listing company shares there. If L'Occitane's success continues and Prada shares are snapped up by starstruck investors, other luxury goods brands are sure to consider moving to the Hong Kong Stock Exchange.

Suggested Topics
PROMOTED VIDEO
Life and Style
techCould new invention save millions in healthcare bills?
Sport
David Moyes gets soaked
sport Moyes becomes latest manager to take part in the ALS challenge
Voices
A meteor streaks across the sky during the Perseid Meteor Shower at a wind farm near Bogdanci, south of Skopje, Macedonia, in the early hours of 13 August
voicesHagel and Dempsey were pure Hollywood. They only needed Tom Cruise, says Robert Fisk
News
peopleEnglishman managed quintessential Hollywood restaurant Chasen's
Life and Style
food + drinkHarrods launches gourmet food qualification for staff
Arts and Entertainment
Michael Flatley prepares to bid farewell to the West End stage
danceMichael Flatley hits West End for last time alongside Team GB World champion Alice Upcott
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Life and Style
Horst P Horst mid-fashion shoot in New York, 1949
fashionFar-reaching retrospective to celebrate Horst P Horst's six decades of creativity
News
Members and supporters of the lesbian, gay, bisexual, transgender (LGBT) community walk with a rainbow flag during a rally in July
i100
Life and Style
Black Ivory Coffee is made using beans plucked from elephants' waste after ingested by the animals
food + drinkFirm says it has created the "rarest" coffee in the world
Arts and Entertainment
Jamie T plays live in 2007 before going on hiatus from 2010
arts + entsSinger-songwriter will perform on the Festival Republic Stage
Life and Style
food + drinkThese simple recipes will have you refreshed within minutes
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

C#.NET Server Side Developer (C#, XML, WCF, Unit Testing,SQL)

£30000 - £40000 per annum + benefits+bonus+package: Harrington Starr: C#.NET ...

Junior Database developer (SQL, T-SQL, Excel, SSRS)

£20000 - £30000 per annum + benefits+bonus+package: Harrington Starr: Junior D...

Business Analyst - Banking - London - £550 - £650

£550 - £650 per day: Orgtel: Business Analyst - Traded Credit Risk - Investmen...

Data Centre Engineer - Linux, Redhat, Solaris, SAN, Puppet

£55000 per annum: Harrington Starr: A financial software vendor at the forefro...

Day In a Page

All this talk of an ‘apocalyptic’ threat is simply childish

Robert Fisk: All this talk of an ‘apocalyptic’ threat is simply childish

Chuck Hagel and Martin Dempsey were pure Hollywood. They only needed Tom Cruise
Mafia Dons: is the Camorra in control of the Granite City?

Mafia Dons: is the Camorra in control of the Granite City?

So claims an EU report which points to the Italian Mob’s alleged grip on everything from public works to property
Emmys look set to overhaul the Oscars as Hollywood’s prize draw

Emmys look set to overhaul the Oscars as Hollywood’s prize draw

Once the poor relation, the awards show now has the top stars and boasts the best drama
What happens to African migrants once they land in Italy during the summer?

What happens to migrants once they land in Italy?

Memphis Barker follows their trail through southern Europe
French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

The ugly causeway is being dismantled, an elegant connection erected in its place. So everyone’s happy, right?
Frank Mugisha: Uganda's most outspoken gay rights activist on changing people's attitudes, coming out, and the threat of being attacked

Frank Mugisha: 'Coming out was a gradual process '

Uganda's most outspoken gay rights activist on changing people's attitudes, coming out, and the threat of being attacked
Radio 1 to hire 'YouTube-famous' vloggers to broadcast online

Radio 1’s new top ten

The ‘vloggers’ signed up to find twentysomething audience
David Abraham: Big ideas for the small screen

David Abraham: Big ideas for the small screen

A blistering attack on US influence on British television has lifted the savvy head of Channel 4 out of the shadows
Florence Knight's perfect picnic: Make the most of summer's last Bank Holiday weekend

Florence Knight's perfect picnic

Polpetto's head chef shares her favourite recipes from Iced Earl Grey tea to baked peaches, mascarpone & brown sugar meringues...
Horst P Horst: The fashion photography genius who inspired Madonna comes to the V&A

Horst P Horst comes to the V&A

The London's museum has delved into its archives to stage a far-reaching retrospective celebrating the photographer's six decades of creativity
Mark Hix recipes: Try our chef's summery soups for a real seasonal refresher

Mark Hix's summery soups

Soup isn’t just about comforting broths and steaming hot bowls...
Tim Sherwood column: 'It started as a three-horse race but turned into the Grand National'

Tim Sherwood column

I would have taken the Crystal Palace job if I’d been offered it soon after my interview... but the whole process dragged on so I had to pull out
Eden Hazard: Young, gifted... not yet perfect

Eden Hazard: Young, gifted... not yet perfect

Eden Hazard admits he is still below the level of Ronaldo and Messi but, after a breakthrough season, is ready to thrill Chelsea’s fans
Tim Howard: I’m an old dog. I don’t get too excited

Tim Howard: I’m an old dog. I don’t get too excited

The Everton and US goalkeeper was such a star at the World Cup that the President phoned to congratulate him... not that he knows what the fuss is all about
Match of the Day at 50: Show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition

Tom Peck on Match of the Day at 50

The show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition