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Management in Practice

Is China Ready for Luxury Fashion?

Every global company wants to be in China. But for any company, accessing the Chinese market comes with unique questions and challenges. Chris Cabot ’97, the president of Value Retail China, talked with Yale Insights about how he expanded his company’s luxury outlet shopping villages into China. The first step to doing business in China, he says, is to assume you know nothing.

When Chris Cabot ’97 took the assignment to launch Value Retail China, a new venture of Value Retail, he had nearly ten years experience working across a half dozen countries in Europe as the chief operating officer of the company. Value Retail specializes in the development and management of luxury outlet shopping “villages,” targeting European gateway locations such as London, Paris, Barcelona, Madrid, and Milan. At this point in his career, the role as president of Value Retail China could’ve seemed like just moving into one more market: Take what’s worked before and do it again.

But Cabot knew better than to make assumptions about China. He has learned that in international business, knowledge in one place often equals ignorance in another. “The key trait you need as a leader and an employee is humility—to understand that you’re going to need to adapt,” he said. “When we walk into a market we assume we know absolutely nothing. We listen.”

This spring, the company opened its first outlet village in Suzhou, a city near Shanghai with a population of roughly 10 million. Cabot said that the location was chosen after an extensive search. Value Retail’s strategy has been to build its outlet shopping villages outside major tourist cities, aiming to attract fashion-conscious buyers without encroaching on the flagship stores of the brands it sells. Suzhou is a 20-minute train ride from Shanghai, one of the most visited cities in China. “It fits perfectly into our core business strategy,” Cabot said. “We’re confident in this location. It is by a lake called the Yangcheng, which is famous for the hairy crab, a delicacy throughout Asia.”

Entering a new market is always a learning experience for Cabot. One of his first tasks is to master the differences in culture. Cabot has many stories about encountering unexpected cultural difficulties—and the need to adapt to them. “In Barcelona, we had these beautiful trees, but it turned out that in Spain they were associated with death. So we had to pull them all out. We could’ve charged ahead and stuck to our plan, but we adapted.”

The company has also had to adapt is to changes in its customers. For a long time, the dominant consumer was a European woman who otherwise shopped full price in Europe’s gateway cities. Chances were good that if she shopped at the village outside London, she was English. Over the last decade or so, the woman who shops the leading international fashion and luxury brands in Europe’s capital cites has become more and more likely to come from Asia, Russia or the Middle East, shopping while on a trip. Within that group, Chinese have become dominant. This sparked the company’s decision to look at expansion into China.

Even while Chinese customers have been ascendant, they have been changing. Cabot noted a transformation in just the last several years that has played a major role in determining how Value Retail would enter China. As consumers in a developing country become more affluent, he said, they move up what is called the “luxury curve.”At first, they buy products that signal their increasing wealth, such as a t-shirt that says Dolce & Gabbana. As they become richer, their purchases become more sophisticated and subtler, with less obvious branding. Eventually, they graduate to custom-made couture. “This has happened incredibly quickly in China,” said Cabot. “This is my ninth country and the pace has been staggering.”

Cabot stresses the importance of finding a local partner to help understand and advise the company in China. It’s a strategy that Value Retail has employed in other markets, finding that there’s no better way to understand a new culture than to work with those who know it intimately. “It can be incredibly difficult to get a handle on the national and local political situations,” he said. “Your partner should know how to get things done. They should also be able to help you understand the shadings of the business climate. In business there is black and white, and there is gray. Your partner needs to be able to tell you that no, you’re not in gray, but in black. It’s an incredibly important thing to do.”