HKU650 CHI KIN (BENNETT) YIM SHANGHAI TANG: THE FIRST GLOBAL CHINESE LUXURY BRAND? When he created Shanghai Tang in 1994, Hong Kong businessman David Tang intended to launch China’s first bona-fide luxury brand. The idea was “to create the first global Chinese lifestyle brand by revitalising Chinese designs—interweaving traditional Chinese culture with the dynamism of the 21st century”.1 In the first few years, Tang’s flamboyant, cross-cultural style and ties to international celebrities fuelled the buzz surrounding the label. But the company was unable to establish its core customer outside its home market, Hong Kong,2 and it struggled to find a niche among successful, established global brands [see the Appendix for descriptions of a selection of successful global luxury brands]. In 2005, under new leadership and revised creative direction, Shanghai Tang expanded into several regional markets, with a particular focus on Asia. But was the company on track to become the first global Chinese luxury brand? Would David Tang’s vision be realised? The Story I just thought to myself, that if you agree that China will eventually be the largest economy in the world, it was time to start a brand that was quintessentially Chinese.3 - David Tang, founder of Shanghai Tang David Tang’s vision was to create a lifestyle brand that reintroduced traditional Chinese aesthetics to a new consumer audience. A self-described “broker between East and West”, Tang said that he constantly reconciled the various cultural influences he absorbed throughout his life.4 Born into privileged Hong Kong society, Tang’s grandfather made his fortune from 1 Shanghai Tang company website http://www.shanghaitang.com (accessed 5 February 2006) 2 Shanghai Tang’s core customer in its home market was wealthy western tourists. 3 Wong, T. (19 April 2003) “Chic Chinoiserie”, Toronto Star. 4 Leris, S. (16 September 2005) “Chairman Tang”, Evening Standard. Monica Park prepared this case under the supervision of Dr. Chi Kin (Bennett) Yim for class discussion. This case is not intended to show effective or ineffective handling of decision or business processes. © 2007 by The Asia Case Research Centre, The University of Hong Kong. No part of this publication may be reproduced or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise (including the internet)—without the permission of The University of Hong Kong. Ref. 07/332C (Revised in Feb. 2009) Do Not Copy or Post 1 This document is authorized for use only by Dr Bikramjit Rishi until July 2012. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860. 07/332C Shanghai Tang: The First Global Chinese Luxury Brand? the Kowloon Motor Bus Company. Tang’s father owned racehorses, and his mother was a Hong Kong socialite. At the age of 14, Tang was sent to England to attend boarding school. Initially unable to speak English, Tang quickly adapted to the habits of well-bred British society and spent weekends visiting friends’ families at their country houses while attending the Pure School in Cambridge.5 He studied law and philosophy at King’s College in London and then returned to China as a lecturer in philosophy at Peking University.6 Tired of academia, Tang ventured into business, beginning with a job at Cluff Oil. He also became the exclusive importer of Cuban cigars to Asia and Canada and managed “a family investment fund, an oil-drilling business and a gold mine in Africa”. 7 While he enjoyed success in these ventures, Tang felt a wave of opportunity flowing from China and set his sights on the creation of a lifestyle brand that was quintessentially Chinese. He was determined to create a brand that embodied everything he loved about the beauty and mystery of China from days past. The idea was to reintroduce this aesthetic and the impeccable Chinese sartorial tradition to an entirely new audience in a way that was relevant to modern tastes. Tang’s aesthetic was inspired by the Art Deco Shanghai of the 1930s, when the city was considered “the pearl of the Orient”8. In August 1994, his vision was realised. The Shanghai Tang flagship, a 12,000-square-foot store on Hong Kong’s Pedder Street, opened its doors to the public. Tang created Shanghai Tang as a lifestyle emporium where shoppers could purchase photo albums, watches, bedding, a sweater or a tailor-made qipao (a traditional Chinese dress) in one shop [see Exhibit 1 for product categories and price ranges]. He also sold communist era kitsch at upscale prices, like Mao Tse Tung watches and goods emblazoned with a red communist star, like the items sold in small side street shops in Hong Kong long popular with Western tourists. To elevate their country-of-origin status and mitigate China’s reputation for making cheap, low-quality products, the items carried the label “Made by Chinese”. Wealthy tourists visiting Hong Kong, Shanghai Tang’s core customer, often stopped at Shanghai Tang’s flagship store to buy the signature Tang Jacket, a tunic with a mandarin collar in shockingly bright colours, or a silk handbag embroidered with cherry blossoms. In 1995, Swiss luxury conglomerate Compagnie Financiere Richemont SA (Richemont), the parent company of prominent luxury brands such as Cartier, Alfred Dunhill, Montblanc, Van Cleef & Arpels and Chloe [see Exhibit 2 for brands by product category], became a major shareholder in Tang’s company. The company paid Tang US$13.1 million for a 40% stake and then bought out another partner to raise its stake to a controlling position.9 The company owned brands under four major segments: jewellery, watches, writing instruments and leather goods and apparel. With a big luxury goods player like Richemont behind it, Tang’s brand obtained something significant that no other Chinese fashion house had achieved: the financial and symbolic backing of a European luxury conglomerate. Tang dismissed speculation that, under Richemont’s leadership, Shanghai Tang would showcase more mainstream fashions detached from Chinese influence. 5 Leris, S. (16 September 2005) “Chairman Tang”, Evening Standard. 6 Leris, S. (16 September 2005) “Chairman Tang”, Evening Standard. 7 Leris, S. (16 September 2005) “Chairman Tang”, Evening Standard. 8 Management Today (5 May 2006) “MT in China: Silk Route to Success (Luxury Goods)”, http://www.turnitin.com/viewGale.asp?r=4.2676745289107&svr=8&lang=en_us&oid=40377352&key=ed4c906c537619b43f1 93e6292b323fd (accessed 23 May 2006). 9 McBride, S. (23 July 2003) “Shanghai Tang Wants its Buzz Back”, The Wall Street Journal. Do Not Copy or Post 2 This document is authorized for use only by Dr Bikramjit Rishi until July 2012. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860. 07/332C Shanghai Tang: The First Global Chinese Luxury Brand? Our business is to always be quintessentially Chinese and to find our place within the mainstream. If we stop being Chinese, we will completely lose ourselves.10 - David Tang Riding the wave of self-created momentum (and with Richemont’s deep pockets backing him), Tang once again dreamed big. Shanghai Tang began a rapid expansion, with plans to open stores in New York, London and several Asian cities. Tang’s particular focus was the US. “I want to take New York. I want to pick it up and embrace it with a big squeeze and a sloppy wet kiss”, Tang said.11 In December of 1997, at a star-studded event that rivalled Hollywood premiers, Shanghai Tang’s 12,500 square foot store opened. Sarah Ferguson appeared on the Oprah Winfrey show and gave Oprah a pair of Shanghai Tang’s signature silk pyjamas.12 To coincide with the store opening, high-profile Chinese actress Gong Li was featured in a print campaign, which included ads in The New York Times, Vanity Fair, Harper’s Bazaar and W.13 Situated on Madison Avenue—prime fashion real estate—the New York store was poised to be the western beacon to its sister stores in the east. As was typical, Tang’s excitement and vision were bold, but the dream proved too big for reality. In July 1999, the high-profile New York flagship closed only 19 months after it had opened and relocated to a smaller space down the road from the original.14 There were several reasons why sales did not meet expectations. First, the company overestimated American consumers’ interest in upscale Chinoiserie. Kristina Stewart, editor- in-chief of Quest magazine in New York, was quoted in an article saying, “they certainly courted the Upper East Side scene and threw lavish parties there, but at the end of the day those lime-green Nehru jackets made better wallpaper. You can’t wear that stuff”.15 Second, the Shanghai Tang style was confusing for customers. There was incongruity in presenting both pre-revolutionary and cultural revolution styles in the same store, and the tongue-in- cheek, post-modern take on China’s heritage was ultimately lost on the wealthy American buyer. Third, it was difficult to justify the prices for high-end Chinese trinkets because cheaper alternatives were readily available in Chinatown at the Pearl River department store on Canal Street. Finally, the choice of retail space on Madison Avenue meant high rent (US$2.7 million annually), which ultimately sales revenue could not cover. It’s tough to start a brand. In one sense fashion is easy, but the competition is intense. Retail is a tough business, and we’ve pumped a lot of money into the brand, and I guess we shouldn’t be surprised if it’s a struggle.