Ralph Lauren May Open Up to 15 China Stores Yearly (Update3)
Aug. 31 (Bloomberg) -- Polo Ralph Lauren Corp., designer of Chaps and Club Monaco clothing, plans to open as many as 15 stores annually in Hong Kong and China as U.S. sales slow.
“We were going to come at this business aggressively anyway but now it’s even more of a reason as the businesses in the U.S. and Europe have flattened,” George Hrdina, president of Ralph Lauren’s Asian business, said in an interview in Hong Kong. “We do more Ralph Lauren business on the island of Manhattan, New York, than we do in Hong Kong and China.”
Demand for luxury goods in China, the world’s most populous nation, remains unabated, according to a survey published last month by consultants Ruder Finn Asia. New York-based Ralph Lauren, with 12 stores and 35 retailing counters in Hong Kong and China, is changing its strategy to move away from department-store sales to compete with brands such as LVMH Moet Hennessy Louis Vuitton SA and Gucci owner PPR SA.
“The Chinese market for luxury products is still growing very well,” Shaun Rein, the Shanghai-based managing director of China Market Research Group, said in a phone interview today. “The consumers in China are still spending money, although some are hit by the financial crisis.”
Ralph Lauren has gained 46 percent this year in New York trading. The stock fell $2.34, or 3.4 percent, to $66.38 at 4:20 p.m. in New York Stock Exchange composite trading.
“We’re probably a little behind the other luxury retailers in entering this market,” Hrdina said. The company’s new stores in China will probably be in Beijing, Shanghai and surrounding regions, he added.
“I don’t think they did a very good job at marketing, positioning and store development for the China market, and they also probably were hit fairly hard by piracy,” Rein said. “The problem for Polo, people don’t know what’s real and what isn’t.”
The clothier is taking back the Asian distribution rights for its Polo and Ralph Lauren brands from Dickson Concepts (International) Ltd. on Jan. 1. The move is part of the company’s efforts to retool its image in Asia, moving away from selling products in department stores to focus on setting up its own retail outlets.
“Our goal on a freestanding basis is to open 10 to 15 stores annually,” Hrdina said.
“So we will now control the product, the quality, the branding” as the company seeks to change the perception of Polo and Ralph Lauren from casual sportswear labels to luxury brands, Hrdina added. The brand has also been hurt by piracy, he said.
Ralph Lauren has 10 stores, a factory outlet and three shops in shops in Hong Kong, Hrdina said. It has one store and 32 shops in shops in mainland China.
China Retail Sales
Luxury brands, facing aging populations in Europe and North America are turning to Asia, Joe Wong, managing director for PPR SA’s Gucci Group in Hong Kong, China and Macau, told an industry meeting on Aug. 28.
“Asia, particularly China, is possibly the solution,” Wong said. “China has a very big base of consumers and lots of up- and-coming young executives and middle class.”
China’s retail sales gained 15 percent in the first half. While the growth in the sales of consumer goods slowed to 11.6 percent in February, it has since accelerated to 15.2 percent for July.
The level of spending among U.S. consumers with an average income of $208,000 was “pretty weak” in the second quarter, according to a survey by luxury-market research firm Unity Marketing. Wealthy Americans curbed purchasing even as confidence rebounded as indicated by Unit’s Luxury Consumption Index, which jumped 18.6 points to 74.3 in the three-month period ended in June.
“Ralph Lauren ought to be cautious about growing too fast because they don’t have the brand positioning,” Rein said. While Chinese consumers are still buying luxury goods, “they’re looking for better value, they’re starting to buy products like bags that can be used everyday rather than a shirt that can be worn once a month,” he added.
Ralph Lauren on Aug. 5 posted first-quarter profit and revenue that exceeded analysts’ projections, helped by overseas sales. Net income fell 19 percent to $76.8 million in the three months through June 27 and revenue fell 8.1 percent to $1.02 billion.
“The sense is that there is a demand for the elevated brand that they’ve not seen in this market place,” Hrdina said. “Here, we definitely feel that we’re going to continue to invest aggressively.”
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