FashionMag.com, 16 July 2016: It’s time to invest directly into Asia
After the opening of La Perla branch in 2006 in Singapore, which he assisted until 2013 opening more than 40 stores in Asia, Andrea Bonardi founded the consulting company Texere Advisors whose targeted clients are European companies with a turnover of 20-30 million and which aim at expanding in the Asian markets; and for these companies Texere operates as a local branch. Among Texere Advisors’ clients, Fabiana Filippi, Frette the home linen brand and the furniture design companies Moroso and Potocco.
Andrea Bonardi, based in the Singapore office as well as in the Milanese headquarter, explains to FashionMag the current market situation in Asia, focusing on opportunities to seize, but also on traps to avoid.
FashionMag: Is this a good period for fashion and luxury brands to invest in Asia?
Andrea Bonardi: This is the appropriate time to invest directly into Asia!
First of all, there is a lot of rentable space in department stores since luxury brands have reduced their sales areas. Chinese consumers travel a lot on an international scale and have consequently gained an expert knowledge about luxury products, urging malls to innovate and to look for new labels. Moreover, rent are negotiated under better economic conditions. Paradoxically, nowadays entering the Asian market with a direct branch is easier than the past, when distributors were preferred.
AB: Market has changed. Nowadays, in this sector the main players are funds which have invested in fashion houses. Since they only aim at gaining a fast ROI, they are not so interested in building up the relationship of trust which usually is established between a company and its distributor. Furthermore, additional costs have to be considered as well as the problem in price differences in comparison with Europe. Distributors are no longer willing to invest 100% of their financial resources in just one brand which one year later may buy back the business directly.
FM: Which are the essentials conditions in order to enter and expand into Asia?
AB: Only well-known brands are ready to do this, especially in fashion and in the jewellery sector. Department stores frequently ask us if the brand has a boutique in London. For emerging markets, a brand must have a shop in London to be part of the fashion sector. Instead, for the furniture and design sectors everything is easier. Lifestyle is the new “must have” in Asia. This sector is growing very fast; for example, a client of mine has tripled its turnover in just two years.
FM: Why London and not Paris?
AB: London is the new point of reference for luxury retail in the fashion and accessories sector. Paris is more important for jewellery.
FM: What are the most interesting markets in Asia?
AB: Japan and South Korea, which are growing a lot in these years. Generally, local consumers are more similar to Western ones. Compared to China, there are a lot of channels to sell products, from retail to department stores and multibrands. Finally, those are very open market.
FM: What about the situation in Hong Kong for luxury brands?
AB: Luxury brands had a 5% turnover decrease in Hong Kong shops. However, Hong Kong is still an important market place since it’s a fundamental entry door for China. Entering Hong Kong market requires investments which are not as huge as those necessary for Chinese market, since there are no import duties.
FM: Nevertheless, a lot of Italian luxury brands have reduced their shops in Hong Kong…
AB: True. But this is because they expanded too much. In the past, these brands used to have a 30% growing rate, but nowadays most of them are reducing their sales areas to 700 m² shops from the previous 1.500 m² shops or also from 4 storeys to 2 storeys shops. Instead, niche brands and new innovative labels, whose strategy is not exposed to market fluctuation, have good performance.
FM: What about China?
AB: It is the last market I would try to invest in! It’s the most demanding market for investments and, at the same time, it’s the least profitable market in Asia. Moreover, to make an impact in the luxury Chinese sector a brand should open at least 10-15 shops. Chinese legislation is constantly changing, negotiations with local intermediaries are more and more difficult and import duties combined with local VAT on imported goods represent about 40% of the final price. Although opening a company in China requires a planning process of about 9 months, the most difficult phase is to keep them opened since the Chinese market constantly needs investments.
FM: What do you mean?
AB: For example, rent agreements in department stores have a three-years duration. After this period of time, if the brand has not enough performed, it can renew the rental contract or leave the commercial space. Beyond the money factor, companies coming into China have to be well-structured in the legal, commercial and logistic fields.