When Shanghai Tang was forced to relocate its iconic Hong Kong flagship store, its management turned crisis into a successful rebranding exercise
In September 2011, Shanghai Tang’s executive chairman Raphael Le Masne de Chermont was facing a crisis: the fashion brand had just lost the lease for its flagship store in Hong Kong’s main shopping street, Pedder Street. The management at Pedder Building, where Shanghai Tang had operated a ground floor storefront since 1994, had just booted out its longtime tenant in favour of American retailer Abercrombie & Fitch – for four times the rent.
“Shanghai Tang’s lease was coming up for renewal and prices were going up like crazy,” Le Masne recalls. “I had always recognised the high rental risk of Pedder Street based on my business risk analysis – so I had it on the top of my head, but I honestly thought we could always negotiate something.”
Shanghai Tang was never given an option to rebut with a counteroffer. Le Masne called the CEO of Abercrombie & Fitch in an attempt to request an arrangement for Shanghai Tang to keep its flagship location through the Christmas season; Abercrombie & Fitch insisted on moving in right away.
Location move, brand shift
The Chinese word for crisis, “危机”, is represented by the characters for “danger” (危) and “opportunity” (机). For a company with Chinese roots, the forced relocation presented the perfect opportunity to address a somewhat unwanted perception of the brand.
“Hong Kong-ers saw Shanghai Tang as a brand for transient Westerners, for people just passing through, for ‘gweilos’,” Le Masne laments. “There is a real distinction between the Chinese and Western societies in Hong Kong – there are certain aspects between the two that are mutually exclusive.”
The new flagship store would help remould the brand as one with “a Chinese aesthetic with style and self-confidence – and positioned as an affordable and accessible luxury. The vision was for a bright, clean and uncluttered layout that was product-centric so that the product spoke for itself; before, the product was akin to a prop on a vintage set.” In Le Masne’s own words:
“We had to rethink our concept store. We had to redefine the whole concept of modern Chinese chic. We revisited our concept, our shopping bags, our identity, everything. This was a blessing in disguise, because I don’t think I could have accelerated the evolution of the brand if we hadn’t had this dramatic change in course. We totally rebuilt Shanghai Tang: new store, new product offer, new brand image, new [customer] value model. Even down to our business cards, everything. We ended up totally changing our customer demographic, because almost overnight, we became relevant to the Chinese people instead of just visitors coming to Hong Kong.”
When the new flagship opened for business in March 2012, it carried a refreshed product line that was not only modern, but that which catered to Asian physiques. From 85-95 percent Western and 10 percent Asian, the mix was now 55 percent Asian and 45 percent Western. “The size run changed, which also alienated some of our Western customers because they couldn’t fit into our clothes anymore,” Le Masne says.
To address these concerns, an alternative flagship store was set up in Pacific Place. Other locations, meanwhile, maintained a more nostalgic look. The new concept was slowly phased in in 30-35 established locations while respecting the demographics that frequented those places. Locations that catered to tourists, such as Tsim Sha Tsui, retained the bulk of the original feel while the 25 mainland China stores were revamped along the lines of the new concept.
The rent monster
The new concept has paid off: traffic to regional satellite and boutique stores have gone up. But even as Le Masne basks in glow of the new Shanghai Tang brand, an old adversary continues to haunt the business: rising rents.
“I am constantly meeting with landlords to renegotiate tenancy agreements and rent,” he says. “In places like Hong Kong, Singapore, Shanghai – they expect to be able to raise rent by 15% a year. It’s ludicrous. And the retail environment can be finicky.”
He adds, “It’s about managing adversity. How can you sort out, and get stronger from an unexpected problem. We have to rely on the strength of our brand, but tastes can always change.”
This is a condensed version of the SMU Case Writing Initiative case, “Shanghai Tang, China's first luxury brand: From nostalgic to Chinese contemporary chic”. To see the full case, please click on the following link: http://casewriting.smu.edu.sg/case/shanghai-tang-china%E2%80%99s-first-luxury-brand-nostalgic-chinese-contemporary-chic
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Last updated on 27 Oct 2017 .
