by Dana Thomas
By 2003, Mauritius textile and clothing manufacturing export sales amounted to roughly $1.5 billion. The sector employed about 40 percent of the country’s workforce and contributed 12 percent to the gross domestic product. As a result, Mauritius had the highest per-capita gross domestic product in sub-Saharan Africa. There’s evidence of the prosperity in Mauritius everywhere you turn: new European cars, restaurants, shopping centers, and housing construction. “Textile manufacturing is a main pillar of our economy,” trade chairman Gopal told me.
But that may be headed the way of the dodo. On January 1, 2005, the World Trade Organization eliminated the thirty-year-old textile quotas that gave birth to thriving manufacturing centers in developing nations such as Mauritius, Bangladesh, Madagascar, and Sri Lanka. Mauritius was perhaps the worst hit, according to apparel industry consultant David Birnbaum of Third Horizon Ltd. in “Winners and Losers 2005,” a study of the economic impact of the phase-out of twenty-eight key garment-producing countries. In 2003 and 2004, Mauritius lost thirty companies employing fifteen thousand apparel and textile workers. And Birnbaum reports that textile shipments from Mauritius to the United State in 2004 were down 17.5 percent from 2003. Not surprisingly, the majority of producers have moved their manufacturing to China. “The Chinese work seven days a week, twenty-four hours a day, they live in the factory and are paid pennies an hour,” Michel Mayer told me. “How can we compete with that?”
IN THE NORTHERN AREA of Hong Kong called the New Territories—far from the banking towers, the grand hotels, and the luxury shopping malls—is an old industrial area of tired warehouses and rundown factories that until a decade ago was the pulsating heart of the region. For thirty years, this section of town turned out everything from plastic dolls to cashmere sweaters with the “Made in Hong Kong” label. In the fall of 2005, I walked into the parking garage of an old factory on a crummy street, stepped into a beat-up elevator, and went up to the modern, well-appointed offices of Fang Bros., a forty-year-old manufacturing company that today specializes in knitwear. Kenneth Fang, the company’s chairman, is a distinguished Chinese gentleman who speaks the Queen’s English and displays impeccable manners. When we met, he was in a tailored hay-colored suit and cheerful cashmere vest in a pastel argyle pattern, his silver hair neatly combed back, his hands perfectly manicured. His card boasts that he is a commander of the British Empire (CBE), an honor just below knight bestowed by the queen. Fang’s main business is knitwear manufacturing. He also owns Pringle, the luxury Scottish cashmere knitwear company, which he bought in 2000 and is trying to revitalize.
In 1949, when Mao Tse-tung established the People’s Republic of China, Fang’s family fled Shanghai to British-ruled Hong Kong. “Hong Kong back then was a small fishing port,” Fang remembers fondly. His father set up a business to continue what the family had done in China: spinning cotton yarn. In the 1960s, the company started weaving cotton fabric, which was exported to the United States and Great Britain to be made into clothes. In 1956, Kenneth was sent to North America to study. He took a bachelor of science in chemical engineering at the University of Michigan in Ann Arbor and a master’s at the Massachusetts Institute of Technology, and in 1966 returned to Hong Kong to join and expand the family business. One of his first initiatives was to move the company into knitwear.
Back then, Hong Kong was a manufacturing center of lightweight goods such as toys, plastics, wigs, and inexpensive clothing. One-fourth of Hong Kong’s economy was manufacturing, and 40 percent of Hong Kong residents worked in factories. From the late 1970s to the mid-1980s, Hong Kong’s manufacturing quality had improved enough to lure high-end brands such as Ralph Lauren, Calvin Klein, and Max Mara. Fang Bros. became one of Ralph Lauren’s biggest Polo shirt manufacturers.
In 1978, China opened its doors, “inviting investment with cheap land and cheap labor,” Fang explained. Many Chinese refugees in Hong Kong, like Fang Bros., returned to the mainland to open factories, primarily in the Pearl River Delta of Guangdong, the southeastern province that abuts Hong Kong. Most were in and around Shenzhen, a border town about an hour north of the Hong Kong port by car or train. By the mid-1990s in the Shenzhen region, more than six million workers were employed in thirty thousand factories owned and run by Hong Kong manufacturers—as many as the entire population of Hong Kong. Like Hong Kong two decades earlier, the product manufactured in Guangdong was cheap in quality and price.
As China’s manufacturing base grew, Hong Kong’s shrank. Chinese workers’ skills improved and production quality increased, yet costs remained low. Soon high-end and luxury brands began to relocate their clothing manufacturing from Europe, the United States, Hong Kong, Mauritius, and elsewhere to China. As with accessories production, few brands admit to it. In a matter of days in the fall of 2005, I heard from manufacturing and industry sources in China that several prestigious Italian brands manufactured ready-to-wear and knitwear there in pieces and had the items assembled in Italy to carry the “Made in Italy” label, and Christian Lacroix had knitwear made there. Fang said, “We do a lot for Ralph Lauren and a small amount for Donna Karan,” which, since 2001, has been an LVMH brand.
Burberry’s chief financial officer, Stacey Cartwright, told me at a luxury conference in Hong Kong in December 2004 that the British-based company produced “a small bit of luggage in China. It’s experimental, tiny, tiny.” A day later, a source who worked with Burberry at the time told me, “Burberry’s production in China is more than experimental. It is big quantities,” and said it was primarily leather goods and accessories. Some of the lower-priced Burberry Blue Label, a licensed line that is produced by the Japanese firm Sanyo Shokai Ltd. for the Japanese market, is manufactured in China as well. I remembered the Burberry trench my husband tried on in Xi’an and thought to myself, “Maybe it was real.” In September 2006, Burberry announced it was shuttering a factory in South Wales that had been in operation since 1939 and produced polo shirts, leaving three hundred out of work, and moving the production to China. In November, Welsh actor Ioan Gruffudd, who had modeled in a Burberry ad campaign, protested the closure, and the Times of London reported that Prince Charles contacted Welsh government ministers to “ask if there was anything he could do” to stop the move. Peter Hain, Britain’s secretary of state for Northern Ireland and Wales, asked Burberry CEO Angela Ahrendts to rethink the move and the Church of England, which has a $4.9 million stake in the company, requested a formal explanation. “We found the costs of producing the polo shirts offshore were substantially lower than the coasts in Wales,” Michael Mahony, Burberry’s director of commercial affairs, said at the time. “In fact, they were less than half.”
The only luxury designer I heard openly embrace manufacturing clothing in China was Giorgio Armani. “The ‘Made in Italy’ label is very important for the top line because it suggests a certain specialization,” he said during his visit to China in 2004. “But to manufacture some of our other lines in China…as long as we control the quality, then why not?”
Today, there are more than thirty thousand apparel and textile companies in Guangdong Province, employing more than five million people. China’s textiles and apparel industry is worth more than $100 billion a year; meanwhile, Hong Kong’s is nearly extinct. By 2002, manufacturing made up only 5 percent of Hong Kong’s economy and only one in ten Hong Kong residents worked in factories. Instead, banking, trade, tourism, and real estate were the primary businesses. “Most manufacturers have their headquarters, and some design and marketing in Hong Kong,” Fang said, “but assembly has moved to China.” Fang Bros. continues to produce a small amount of knitwear in its Hong Kong factory, but most of its manufacturing is done in China, where the company has four knitwear factories and ten thousand employees at one-third the cost of Hong Kong. Average garment and textile factory wages in Guangdong Province are $50 to $100 a month. (Pringle’s cashmere sweaters are still made in Hawick, Scotland, but some of the ready-to-wear is now produced in Fang’s factories in China.) The liv
ing standard in Hong Kong has increased so much in the last forty years, making it one of the most expensive and cosmopolitan cities in the world, that “most young people do not want blue-collar jobs.”
Fang sees manufacturing in China quickly evolving into a more sophisticated and costly market, like Japan and Taiwan before it. “Everybody goes through the same track,” he said. At the moment, he explained, “the Chinese are brand-contracting.” But soon, he believes, “manufacturers will start to promote brands. I expect more oriental brands to emerge in the next decade, especially for the Chinese market. The Chinese government has been supporting this: there are now fashion shows in Beijing, Shanghai, and Guangzhou. And manufacturers will pay more attention to quality and consistency. You have high-quality, well-built factories. China has well-skilled labor. In ten years it will be a different market.” However, Fang doesn’t believe that luxury brands will ever open their own factories in China. “Why should they,” he asked, “if they can have someone produce for them and guarantee the quality?”
The exponential rise in manufacturing in Guangdong province has caused a host of environmental and labor problems. In late 2005, health and environmental experts stated that the factories and population in Guangdong were drawing too much fresh water out of the Pearl River, allowing seawater to flow upstream and taint the local water supply, forcing Guangdong and Macao residents to use only bottled water for drinking and cooking. In January 2006, several provinces farther up the Pearl River opened the floodgates of their dams to flush the salt water out of the delta and slow down the damage to its ecosystem. The air in Hong Kong, which is downwind from Guangdong Province, has grown increasingly smoggy to the point that most days it seems cloudy when its not. “When they shut down manufacturing in China for one or two days for national holidays, you can see the difference,” Bonnie Brooks, president of Lane Crawford department stores in Hong Kong, told me. “We get a couple of sunny days.”
The constant pressure to increase productivity has triggered a rise in human-rights violations in textile manufacturing around the world, according to the 2005 “Annual Survey of Trade Union Rights Violations,” published by the Belgium-based International Confederation of Free Trade Unions. In Bangladesh, workers at International Knitwear and Apparel who demanded better working conditions were fired, beaten, and told they’d be killed if they joined a union, the report stated. In Cambodia, police armed with guns and electric prods dispersed approximately four hundred protesting workers from a garment factory. In China, police detained cotton factory workers in Shaanxi province for protesting changes in their employment contracts. In China, workers are not required to wear protective gear such as earplugs or helmets when needed. “Foreign employers in the industrial zones, mainly textile groups from South Africa, Hong Kong and Taiwan, pay wages below the statutory minimum, refuse to pay sickness benefits and make unilateral deductions from their employees’ pay packets,” the study said. “The authorities turn a blind eye to these infringements.”
Recently, China has come under fire from human-rights and labor organizations for child labor practices. Though the legal working age in China is sixteen, children as young as eleven or twelve from poor families easily find work in factories, since they are cheaper to employ than skilled workers. Often Chinese children are forced to seek out work because their families cannot afford to send them to public school. Students at public schools in China regularly pay for their books, food, boarding, and transportation, all of which can cost up to $125 a year—the equivalent of two months of factory wages and more than some farmers make in a year. But that is slated to change. The Chinese government recently instituted a reform to largely eliminate school fees.
In response to rising costs of manufacturing in China, brands are moving production to new cheap-labor markets such as Vietnam and Cambodia. “Chinese factories are coming here more and more,” said Chinese manufacturer Chen Guohui at his factory on the outskirts of Hanoi. “Labor costs are 25 to 30 percent lower than in China.” His workers earn approximately $60 a month. While in Hong Kong, I heard from a highly placed source at a well-known luxury brand that the company had begun to produce some of its knitwear in Vietnam. As Mookeshwarsing Gopal in Mauritius told me, “The textile industry has a nomadic nature and requires cheap and abundant labor.”
Meanwhile, the Chinese are moving into ownership. In addition to Hong Kong manufacturer Kenneth Fang buying Pringle in 2000, Taiwanese media magnate Shaw-Lan Wang bought the century-old French couture house Lanvin in 2001, YGM Trading Limited of Hong Kong picked up French couture house Guy Laroche in 2004, and Singaporean businessman Cheng Wai Keung owns the venerable 235-year-old Savile Row tailor Gieves & Hawkes. Chinese entrepreneur Silas Chou is co-owner of both the esteemed British jeweler Asprey and the American luxury sportswear label Michael Kors.
And Chinese manufacturers are looking to acquire textile mills in Italy, many of which are in financial trouble due to cheap labor in China. The manufacturers hope to take over established brands, set up joint ventures to launch new brands, and distribute Italian labels in China. “China is no longer content with producing goods—it wants to go to the next level, to share brand vision, to be part of a distribution plan and bring added value to a project,” said Alfredo Canessa, chairman of Ballantyne, the classic Scottish cashmere knitwear company now based in Milan, which is launching a new brand called Chinese Cashmere Company in a joint venture with the Hong Kong–based company Fenix. “We want to be part of this scenario, if and when China will no longer be a low-cost manufacturing country.”
PART THREE
CHAPTER EIGHT
GOING MASS
“If you would abolish avarice, you must abolish its mother, luxury.”
—CICERO
OUTSIDE IT WAS 110 in the shade. But inside the Esplanade shopping mall at the Wynn Las Vegas hotel and resort on a July afternoon in 2005, it was as cool and dry as a martini, and just as satisfying. Middle-aged Americans in T-shirts and shorts flip-flopped their way down the arcade’s colorful Jacques Garcia carpet, sightseeing. They nipped into Louis Vuitton and Dior to check out the bags and scarfed down free chocolates at Frederic Robert. They snapped pictures of each other in front of Cartier, ogled dresses at Oscar de la Renta, and pawed Manolo Blahnik’s towering gold sandals. Some bought, primarily small items like Vuitton credit card holders and Chanel perfume. Most looked.
Like Kris Stewart, an administrator at Miami University in Oxford, Ohio, and her sister Kathy Sorenson, a human resources executive for Sonoco Products Corporation in Long Beach, California—a couple of nice, average, forty-something white women on holiday in Vegas shopping for “something special” for friends with birthdays coming up. They hadn’t found anything by the time I met them in front of Jean-Paul Gaultier’s store, but they were enjoying the tour. “We don’t normally have an opportunity to stroll through these stores—we don’t get to go to New York all the time,” Stewart told me. “We have none of these shops in Oxford. No Chanel and Dior in Cincinnati. You see ads for the brands, so it’s nice to actually see the products.”
Las Vegas has always been America’s everyman town. Back in the 1880s, miners set out from there, hoping to strike it rich. In the 1950s, it was the epicenter of postwar decadence: the showgirls, the mob, the Rat Pack. In the early 1990s, it improbably became a family vacation destination, with the Disneyfication of the famed Strip adding pirate ship battles and roller-coaster rides. And today, it has morphed again, into a luxury vacation resort with world-class restaurants, art museums, spas, and golf courses—and the greatest shopping in the United States. In the early 1990s, “shopping wasn’t even on the charts” of how tourists passed their time in Las Vegas, says Maureen Crampton, marketing director for the Forum Shops at Caesars Palace, home of 150 “specialty shops” including Louis Vuitton, Gucci, Pucci, and Dior. By 2006, shopping was the third most popular activity, after gambling and entertainment. In fact, the Forum Shops at Caesars receive more visitors each year than Disney
World.
Because of its unrelenting flow of visitors—more than thirty-five million annually, most of whom, like Stewart and Sorenson, come simply to indulge—Las Vegas has become vitally important market for the luxury fashion business. Bernard Arnault visited the Louis Vuitton and Dior stores in the Esplanade four times in the first ninety days Wynn Las Vegas was open. “Las Vegas stores are always high in performance per square foot—first, second or third best [in the United States],” says Elaine Wynn, the wife of the Vegas impresario Steve Wynn, and a member of the board of directors of Wynn Resorts.
Vegas offers everything that luxury executives dream of: space, the traffic, the favorable demographics. “It’s really a broad cross-section of people,” Marla Sabo, former president and chief operating officer for Christian Dior Inc., North America, told me. “We see good clients from L.A. who visit for the weekend, then you have someone walk in who comes from someplace where we don’t have distribution, and then you’ll have someone who has won a fortune at the gaming tables and is looking for a place to spend it. And you know the Asian clientele has really taken off in the last couple of years. Now there are nonstops from Japan to Vegas. Because of this, we can see what works and what doesn’t work…and to get your brand image across to that many people is an incredible gift. Vegas is exposure.”
In the old days, when European luxury brands expanded to the United States, they primarily sold their goods in fine department stores in New York, Los Angeles, Philadelphia, and Chicago—cities with industrialist and entertainment fortunes and a vibrant social life. Back then, there was still a strict class structure in the United States. Luxury merchants, be it Bergdorf Goodman in New York or the local fine jeweler or silversmith in a smaller city, were considered the domain of the rich, a frontier that the middle class didn’t dare cross. “We don’t belong there,” mothers would whisper to their daughters.