Deluxe

by Dana Thomas

  In 1996, Lee opened the Courtyard, one of China’s first privately owned contemporary art galleries, across from the east gate of the Forbidden City. The inaugural fete was a blowout, “with nine ambassadors and long-haired artists,” Lee remembered with a laugh. “The police came, and they were shocked and surprised by the scene.” Government officials, he said, “were afraid it could have been unhealthy art.” And with just cause. “There was a lot of political content in the work,” he admitted. Though Lee had all the permits required, the government shut down the gallery the next day. It took eight months to get permission to reopen.

  In 1999, Lee decided to take the concept to Shanghai, but on a bigger, grander scale—“a place with a gallery and a restaurant,” he said. During a Christmas call to a family friend, he mentioned his idea.

  “You should look at our building,” she offered.

  Three years earlier, her family had purchased from the government a 1916 granite neoclassical building on the Bund that had served as the Union Insurance Company and later the Mercantile Bank of India. But the family had never figured out what to do with it.

  A few days later, Lee checked out the place.

  “I can do a whole building dedicated to setting the standards for contemporary art, luxury, and society in Shanghai,” he thought to himself.

  He wrote up a proposal that included restaurants, luxury retail, and an art gallery and presented it to the owner.

  “This is fantastic,” she told him, and gave him carte blanche.

  He dubbed it Three on the Bund, after its address, and hired renowned architect Michael Graves to turn the proposal into reality.

  Then he called Giorgio Armani.

  IT TOOK THREE THOUSAND YEARS, but luxury has finally circumnavigated the world: it began in China and has now returned there, for consumption as well as production. And it is marching onward to India and Russia. The potential customer base is phenomenal. In 2006, China officially had three hundred thousand millionaires, Russia eighty-eight thousand, India seventy thousand. In 2004, Moscow had thirty-three billionaires, more than any other city in the world. “This is the century of emerging markets,” Tom Ford told me. “We are finished here in the West—our moment has come and gone. This is all about China and India and Russia. It is the beginning of the reawakening of cultures that have historically worshipped luxury and haven’t had it for so long.”

  When luxury business arrived in China in the early 1990s, the market was nearly non-existent. Forty years of communism and the Cultural Revolution had wiped out what was known as Chinese luxury, including the traditions of fine silk, delicate porcelain, and handcrafted wood furnishings. The Chinese didn’t even have a word for luxury. They used the phrase ming pai, which means “famous brands.” “When we opened here on Nanjing Road in 1995, people were pushing bicycles,” Louis Vuitton president and CEO Yves Carcelle told me at the inauguration of the Louis Vuitton Global Store in Plaza 66 in Shanghai in September 2004.

  At first, luxury brands opened stores in safe places like the lobby of the Palace Hotel in Beijing and the Plaza 66 luxury shopping mall in Shanghai to show off their wares. “It’s cheaper than a billboard,” said Paul French, a director of business consultancy Access Asia. “Just stick in some purses and some girls.” In contrast to the rest of the world, the Chinese luxury market for much of the 1990s was male-driven: 90 percent of sales were to men, and male-oriented brands such as Boss, Dunhill, and Zegna thrived. Government officials and civil servants in Beijing, bankers and real estate barons in Shanghai, and manufacturing entrepreneurs in the northern provinces wanted all the trappings of Western businessmen. They bought Givenchy suits, Vuitton and Dunhill briefcases and money satchels, Rolex watches for themselves, and Cartier baubles for their wives and mistresses.

  But in the early 2000s, Lee saw the luxury customer base broadening and believed that the market was mature enough to support a luxury retail-and-restaurant development. “Imagine that the luxury consumer is the top 5 percent of the population,” he said. “In Shanghai, that’s 900,000 people, in Beijing, it’s 750,000—and that’s not counting expats who are white-collar executives with nice packages. There are a half-million expats from Taiwan and Hong Kong alone.” But rich locals weren’t the only potential customers for Three on the Bund. “In Shanghai, you see secretaries dressed, out at night,” Lee told me. “They save up and buy their Louis Vuitton bag. My secretary has a Prada bag. She displays it prominently on her desk and she’s saving up for another one. And Beijing and especially Shanghai are the shopping Meccas for the wealthy from the north—Shenyang, Qingdao, and Harbin,” he continued. “Most are private businessmen, in manufacturing and real estate—they buy an entire building at a clip. There are 250,000 millionaires in Wenzhou alone. They buy in cash. They have crew cuts and Dunhill bags stuffed with cash. They bring in their wife or girlfriend, say, ‘What’s the best?’ and throw down the money.”

  Armani’s presence in China in 2004 was minuscule compared to that of his competitors: a Giorgio Armani boutique in the Peninsula Palace Hotel in Beijing, Emporio Armani stores in Dalian and Wenzhou, and an Armani Collezioni in Shenzhen. For Lee, Armani was a natural choice for Three on the Bund. “He changed our aesthetic of contemporary fashion, and I thought it was important to bring him into China in a big way,” Lee said. “He’s vigorous and bigger than life, and that’s important for China, the cult of the person. At the opening of Chanel, someone asked where Coco Chanel was. Armani would make a big impression on the Chinese.”

  When completed, Three on the Bund included a Giorgio Armani boutique; Emporio Armani; Armani Fiori (which sold orchids and calla lilies shipped from Holland); Armani Dolci (with Italian-made chocolates); two multibrand high-fashion boutiques; an Evian Spa; four restaurants, including Jean Georges Shanghai; and the Shanghai Gallery of Art. It would be the launchpad not only for Armani in China but also for the sort of Western-style retailing that luxury brands had cultivated and mastered in the rest of the world. “It’s the moment to open here,” Armani told me the day of the inauguration. “You can see things are happening. Last night when we went to dinner here in Shanghai, I was surprised by the way the people were so well turned out. Even Paris doesn’t have this atmosphere, this spirit.”

  Armani made the most of his maiden voyage to the Middle Kingdom. He visited the Forbidden City, where Chinese tourists swirled around him, snapping photos. He was the guest of honor at a cocktail reception at the Italian ambassador’s residence, with hundreds of impossibly hip Chinese twentysomethings dressed in Dior corset dresses and Armani suits, chattering endlessly, champagne in hand. In Shanghai, he staged a fashion show for a thousand people in a tent on the Pudong side of the Huangpu River, followed by a party in the Shanghai Gallery of Art at Three on the Bund with an abundant supply of good Chianti and heaping platters of carpaccio and prosciutto. Hundreds of young, beautiful Chinese danced to techno as American actress Mira Sorvino, British socialite Lady Helen Taylor, and Taiwanese movie idol Chen Chang—“the Johnny Depp of China,” one girl swooned—held court in the VIP section. “Everything is alive here,” Bao-Wen Chen, a forty-one-year-old Shanghainese investment banker, shouted to me over the booming music well after midnight. “There’s a culture of young people who want to learn about luxury and fine dining. Shanghai is not New York or Hong Kong, but it’s not far behind.”

  Three on the Bund kicked off the renovation of the elegant former banking district along the river, turning it into a luxury brand alley like the avenue Montaigne and Rodeo Drive in a matter of two years. In the first six months, sales of Armani at Three on the Bund were 50 percent more than Lee’s initial predictions. Three-quarters of the clientele at Three on the Bund were local Chinese, and they dropped an average of $400 to $500 per visit. Chinese women began to take an interest in luxury goods: sales went up, and luxury brands began to putting more women’s clothing and accessories in their stores. By 2004, women accounted for 40 percent of luxury goods sales in China, up from 10 perce
nt in the 1990s. “In other provinces, they say people will buy food with their last penny, but in Shanghai, we’d buy clothes,” local shoe designer Denise Huang told Vogue shortly after the Armani opening in 2004. Hong Huang, publisher of the luxury goods magazine I-Look, concurred: “A girl will spend a month’s pay on a handbag. No one would do that in New York or London, but these girls have confidence. They know more money, more opportunity is coming for them.”

  Fashion magazines became the country’s most important source of information on luxury goods. There are Chinese versions of Elle, Cosmopolitan, and Vogue, each which sell about half a million copies every month, primarily on newsstands. When Vogue China debuted in September 2005, it sold out its initial run in five days. The second printing sold out in three days. “The best-selling brands here are Chanel, Dior, and Louis Vuitton,” Vogue China editor Angelica Cheung told me. “Most Chinese buy luxury as a status symbol rather than taste. They like logos. They want people to know they are carrying something expensive. You see people walk into stores and say, ‘Where is this brand from? Italy? Must be good!’ They can’t pronounce the names and they don’t know where it comes from. They just want it because it’s expensive.”

  Brands began to expand into secondary and tertiary cities of six to eight million, such as Hangzhou, Guangzhou, Chengdu, and Xi’an. By the end of 2006, Louis Vuitton had fourteen flagships on Mainland China, including one in Xi’an, and had plans to open two to three new stores each year for several years to come. “We are still underrepresented in China,” Vuitton managing director Serge Brunschwig said in 2005. “China’s an underdeveloped market with good potential.” Giorgio Armani grew from five stores in April 2005 to fifty-three in 2006, and planned to open another twenty-three in 2007. By the end of 2006, Greater China was Armani’s second largest wholesale market in Asia, after Japan. Salvatore Ferragamo had thirty stores in China by early 2006 and scheduled another ten to fifteen in two to three years. Calvin Klein had twenty-four freestanding stores for its various lines in early 2006 with plans to open another eighty to ninety stores by 2008. Valentino opened its first mainland China store in 2006 in the secondary city of Hangzhou, along the famous West Lake near Dolce & Gabbana and Giorgio Armani. Most are doing very well. Since its arrival in Beijing in 1992, Louis Vuitton has “never lost any money in any store in China,” boasted Vuitton’s China CEO, Christopher Zanardi-Landi.

  Today, luxury—like everything else in China—is booming. The Chinese economy has grown like no other in history. By 2006, China had become the world’s fourth largest economy, after the United States, Japan, and Germany, and economists predict that it will be number one within a matter of a few decades. By 2005, the luxury market in China was worth about $1.3 billion, according to Bain & Company, an American consulting company.

  The luxury customer in China has evolved into what Wilfred Koo, Givenchy’s president for China–Asia Pacific, calls nouveau chic: young Chinese who “were born post–Nixon opening China, use the Internet, and have so much information.” They spend money on themselves and buy top-of-the-line. The nouveau chic bought so much of Armani’s more expensive Black Label at Three on the Bund that Lee decided in 2006 to transform the Emporio Armani store upstairs into Black Label space as well. Givenchy introduced a slimmer, more fashionably cut suit, and Zegna manufactures a men’s wear line in China solely for the Chinese market. “And the women’s business in China is going to boom-boom-boom!” Koo said with a smile.

  When I met Koo, a third-generation retail merchant, in Hong Kong in November 2005, he was busy searching for new boutique locations in China. At that time, Givenchy had forty-eight men’s wear stores, plus accessories boutiques in Beijing and Shanghai. All the stores there were franchises. “Three hundred shopping malls will open in the next three years in China,” he said, incredulously. There were six big malls planned in Beijing alone, making up six million square feet of shopping, most to be open in time for the Summer Olympics in 2008. Givenchy was planning to open two LVMH-owned flagships, in Beijing and in Shanghai, in 2006. “You will see Beijing and Shanghai transformed,” Koo assured me.

  Handel Lee is a major force in the transformation of both. In the fall of 2007, he plans to open Legation Quarter in Beijing, the city’s first luxury complex outside a hotel, at a four-acre compound on the southeast corner of Tiananmen Square that served as the American Embassy from 1903 to 1949 and where Lee’s grandfather worked for several years. Legation Quarter, as it is called, will include a 180-seat repertory theater; a twenty-five-thousand-square-foot art gallery; seven restaurants, including one by star New York chef Daniel Boulud; and a handful of “superluxury” brand boutiques, as Lee calls them. “Destination luxury like Brioni and Patek Philippe,” he said, “brands that don’t want to congregate with their competitors.”

  In Shanghai, Lee is constructing another luxury destination on the six-acre site of the former British consulate just north of the Peace Hotel on the Bund, a neighborhood that is currently undergoing a major facelift. Among the upscale projects under way are the Peninsula Hotel, Saks Fifth Avenue, and a retail-residential-office complex developed by the Rockefellers. When Lee’s complex opens in late 2009, it will have a small concert hall, art museum, luxury retailers and a boutique hotel. Like Three on the Bund, both Legation Quarter and the new Shanghai project should do a bang-up business. Analysts at Ernst & Young predict that in 2010 there will be 250 million Chinese who will be able to afford luxury goods, and by 2014 the Chinese will displace the Japanese as the world’s premier luxury brand consumer. “We started early because we were really convinced that modernization was going on in China,” Bernard Arnault said at the opening of the Louis Vuitton Mansion at the China World Trade Centre in Beijing in November 2005. “We knew [China] would someday be the biggest market in the world. Whether it would be in twenty, thirty, forty years, it was irreversible.”

  The Chinese domestic retail market is only part of the story. Like the Japanese, the Chinese like to travel and shop. Mainland China represented only 2 percent of the luxury market in 2006, but the Chinese accounted for 11 percent of world sales. That figure will likely double within a decade, according to Merrill Lynch. “There are 25 million Chinese traveling [now] and there will be 100 million in 2020,” Antoine Colonna, luxury analyst for Merrill Lynch in Paris, said in 2004. “They spend an average of $1,000 on luxury goods [per person per trip]. They might save on dinner or lodging, but not on luxury goods.” Vuitton chairman and CEO Yves Carcelle told me at the Vuitton store inauguration in Shanghai in 2004, “Mainland Chinese are one of the most eager to buy when they travel. Each time we sell 100 in China, we sell 150 to Chinese abroad.”

  The Chinese travel boom began in July 2003, when the Chinese government eased travel restrictions to Hong Kong. By 2005, 76 percent of all mainlanders traveling abroad headed to Hong Kong, and their preferred activity was and is shopping: there’s more choice in Hong Kong, and prices are 10 percent lower than back home, where they pay luxury taxes. “Three years ago, Hong Kong accounted for 2 percent of our sales,” Bulgari CEO Francesco Trapani told a luxury-brand roundtable in 2004. “Now it accounts for between 15 and 20 percent.”

  Luxury brands have expanded in Hong Kong to meet the demand. In a matter of weeks in late 2005, both Louis Vuitton and Chanel opened Peter Marino–designed megastores. Louis Vuitton now has six stores in Hong Kong and one in nearby Macau. In comparison, it has three in Paris. DFS is opening a Galleria in Macau in 2008, primarily to target the Chinese. Dior has nine boutiques in Hong Kong, including a flagship on Peking Road in Kowloon that is a massive eleven thousand square feet. “Mainlanders go to Hong Kong with one goal—to buy,” said Tom Doctoroff, director for JWT advertising in Shanghai. “Chinese people will gladly spend a price premium for goods that are publicly consumed. But it’s like buying a big glob of shiny glitter. They know which brands are famous, but they can’t tell you the difference between them in terms of quality or design. [They buy] to burnish their credentials as someo
ne of the modern world by stocking up on a year’s supply of prestige.”

  That doesn’t perturb Bernard Arnault. “I think, ultimately, the customers of luxury in China will be sophisticated customers,” he said at the Vuitton opening in Beijing in 2005. They are certainly trying. Mainlanders are enrolling their five-and six-year-olds in private lessons (golf, music, ballet, horseback riding, ice skating, polo), etiquette schools, and fast-track courses that bill themselves as junior MBA programs. “These people are rich economically but lacking in basic manners, and they are not very fond of their own reputation,” Wang Lianyi, an expert in comparative cultural studies at the Chinese Academy of Social Sciences in Beijing, told the New York Times. “These new rich not only want money, they want people to respect them in the future.”

  A RUSSIAN MAN buys a big new Mercedes. Two weeks later he brings it back to the dealer and says, “I want a new one.”

  “But sir, you just bought that car,” the dealer sputters. “What’s wrong with it?”

  “The ashtrays are full.”

  That joke epitomizes Russia’s new wealth today: young billionaire oligarchs with a taste for richesse to rival the Romanovs’. “I have customers coming in to the store and buying seven hundred socks because they wear them once and then throw them away,” said David Gisi, managing director for men’s wear at Mercury, one of Russia’s largest retail groups. “They consider Rolex to be almost like Swatch.”