Being first is half the battle.
German-based Hugo Boss, one of the earliest luxury brands to come to China, believes being first in small cities is the right strategy.
After opening its first outlet in Shanghai in 1994, and the second one in Beijing the next year, the company's eyes were next on Shenzhen.
Hugo Boss expanded to China's first special economic development zone in 1995, which was a pilot area for the country's "opening-up" policies. Its shop at the Seibu Department Store is small but has been successful over the past 12 years, the company says.
Lars Larsen, managing director of Hugo Boss Hong Kong Ltd, notes there is a ripple effect from major cities outward to the second-tier cities.
"China is on such a large scale that it can be compared to Asia. All fashion brands have to be launched in Hong Kong and Tokyo before other cities can catch on. So in China, the same can be said that fashion brands have to be introduced in Shanghai, Beijing and Guangzhou before second-tier cities can become familiar with them," Larsen says.
He notes that major cities are of strategic importance because that is where the press, opinion leaders and international companies are located, all of which are key for a brand to develop.
At the end of April, Hugo Boss had 75 points of sale in nearly 40 cities in China. The number is increasing monthly as its expansion plans continue to roll out.
"Our strategy is to have 100 outlets in place by next year and we are very much on target," Larsen tells China Business Weekly.
Currently the company has 10 stores in Shanghai, is represented in all major luxury malls, and has seven outlets in Beijing. These include the firm's first directly operated store at Three on-the-Bund in Shanghai, as well as the second directly operated shop at Shin Kong Place, Beijing, which opened in April.
Its remaining 58 stores are in cities spanning the country, such as Chongqing, Hangzhou, Shenyang, Shenzhen and Wenzhou.
Larsen says there are many opportunities in second-tier cities, which have wealthy, well-traveled citizens who are cosmopolitan in their own right. Customers living in secondary cities do not now need to travel far away to purchase international brands - they are available at their doorstep.
"We see this as an opportunity to take our quality service and merchandise to our customers from as far away as Kunming and Chongqing. It is a great possibility to establish our brands and build a core group of loyal customers and for the brand to get to know its customers better," Larsen says.
"We do not consider these cities as 'second-tier' any more. They offer great distribution opportunities. Both local and foreign investment has hugely contributed to their growth," he continues.
Larsen notes that smaller cities do not usually have available and suitable retail space that meets the requirements of international luxury brands.
Another challenge is how to build a customer base from scratch and work on achieving a consistent business.
"When we enter a city, we work on a durable business plan," he says.
Smaller cities currently offer less competition. But in main cities, all types of brands are flooding in. Main cities are also far more costly for rent, salaries and transportation, which add to the challenges of doing business.
To expand to new locations, it is vital to have a good business partner who understands the local market and has experience in retailing luxury brands, he says.
Hugo Boss requires all its partners to be transparent so it can provide timely assistance.
The company also verifies the business potential of the city by looking at local infrastructure, how well malls are managed, the brand mix, overall growth, number of international hotels and businesses and population demographics.
Larsen says the whole of China offers huge opportunity for the company. Compared with some markets where people are conservative, the Chinese are more conspicuous in their outlook.
"In some Chinese cities we see people who live for now, so there are more impulsive purchases and a bigger desire to own luxury items compared to other regions, where people tend to be more attentive to good food, home ownership and money in the bank," Larsen explains.
According to its latest financial report for the first quarter of the current fiscal year, Hugo Boss increased sales by 9 percent to 500 million euros. In Asia, its growth was 11 percent.
