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Cashing in on luxury brand cachet

Wealthy young Chinese are willing to spend a fortune on foreign luxury branded fashion, even if they don't know much about the labels. Now Chinese and other firms are signing licensing agreements with boutique-style luxury brands to design and produce fashion in China, or even buying perpetual rights to a label.

While licensing is becoming a trend, some other companies are trying to take made-in-China brands global.

Whatever their approach, they are trying to cash in on the cachet of foreign luxury brands and Chinese consumers' passion for imported labels. The licensed fashions they produce are still pricy, to keep up with the luxury-brand image.

They learned a lesson from French couture designer Pierre Cardin who two decades ago licensed his namesake brand to more than 20 Chinese companies to produce low-priced items - which greatly "tarnished" the brand image. These are very different.

Last year China overtook the United States to become the world's second-largest luxury market, accounting for 27.5 percent of total global sales.

"The growing number of rich people in China determines the growing need for luxurious, branded fashion goods in the country," says Li Shujun, founder of Trustbridge Partners, a venture capital investment company.

Li's firm has worked with Shanghai-based Eve NY, the company that produces and distributes Badgley Mischka in China, and two other local investment funds to buy perpetual rights to use the trademark in China from Iconix, the holding company of Badgley Mischka. They spent about 100 million yuan (US$14.7 million).

An example of a consumer with a big appetite for luxury - but not the knowledge to match - is 27-year-old Shanghai shopper Shen Fei, looking for a dress to wear to a wedding.

At the newly renovated Hong Kong Plaza on Huaihai Road M., her eye is caught by the glittering two-story flagship store of Badgley Mischka - and fancy, beaded evening gowns and cocktail dresses inside. An evening dress costs more than 10,000 yuan (US$1,466). She has never heard of the brand but the store is right next to Cartier and Tiffany in the same mall - so it should be one of the best.

The salesman confirms her choice: Badgley Mischka is a top American designer label chosen by countless Hollywood celebrities for red carpet occasions.

Thrilled, Shen picks up two dresses to try on. What she doesn't know is that the dresses she holds are not exactly the same as those worn by the stars - they are actually made in China.

She is one of many people willing to spend a fortune on luxury goods, even if they know little about them.

While the company that produces and distributes Badgley Mischka in China has bought perpetual rights to the trademark within the country, it's much easier for local entrepreneurs to sign a licensing agreement with an established international brand and develop it, than to create a brand from scratch.

For licensing they choose mostly boutique-style couture makers catering to a niche clientele, and not present in the Chinese market. The brands have allure but not the financial backup to take them worldwide.

Another case is Balmain, a renowned couture house founded by Pierre Balmain in 1945. It was forced to file for bankruptcy, but investors revived the house in 2005 and brought on designer Christophe Decarnin. He took the label - once known for lavish, elegant evening attire - in a different, edgier direction - a tough, chic look for trendsetting French party girls. It became extremely popular with fashion magazines and celebrities.

The clothes are famously expensive - a pair of jeans is 1,000 euros (US$US 1,272), for example.

Balmain recently opened its first store on the Chinese mainland in the new IFC Mall in Pudong, Shanghai's latest luxury landmark.

Brand owner Alain Hivelin has been studying the Chinese market for almost 20 years and says any brand that wants to go international cannot take the market for granted.

"Our statistics show more and more Chinese customers buying Balmain throughout the world - in Paris, London and Moscow, everywhere," he says. "We think it's time for them to buy in their own country."

However, those who know the brand find that the Shanghai store only carries a limited number of pieces under the prestigious "Balmain" label. More than two-thirds carry a different label, "Pierre Balmain."

It is a new line designed specially for the Chinese market, Hivelin says. It features well-known details of the first line, such as exaggerated shoulder designs and sparkling beads, but they are designed and manufactured in a Shanghai-based joint venture between Balmain and Hu Yan, a private Chinese investor.

Nothing says "Made in China."

Just like the fancy evening gowns from Badgley Mischka, clothes from Pierre Balmain are pricy. Tags for the brand's best-selling jackets range between 8,000 yuan and 20,000 yuan.

But few Chinese customers - if they are not sophisticated fashion industry insiders - are able to tell the difference between the two labels.

When they shop in the lavishly decorated, 18th-century French aristocrat style-inspired store, they will likely go the made-in-China pieces that cost less - although still quite expensive.

"If we only brought the first line into the market, I'm not sure if it's necessary to open more than one shop or two," Hivelin says.

A Balmain flagship store carrying both labels will be launched in Beijing in October. A store for the less-expensive Pierre Balmain line is under construction in the Grand Gateway department store in Xujiahui.

The joint venture plans 10 more shops in China next year, in first- and second-tier cities.

Besides the deal with Badgley Mischka, Shanghai-based Eve NY also designs, manufacturers and markets high-end clothing and accessories for women under its own Eve NY brand in China. Established in 2001, the company operates more than 200 retail stores in 21 provinces.

"Our strong positioning in China will allow us to bring the prestigious brand to more Chinese consumers," says Shen Hong, CEO of Eve NY, adding the company plans to open as many as 170 free-standing stores and shop-in-shop stores for Badgley Mischka in five years.


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