October 3, 2012 3:24 pm

The luxury that dare not speak its name

Raphaël le Masne de Chermont is very enthusiastic about the French craftsman responsible for the new range of humidors for Shanghai Tang, the Hong Kong-based subsidiary of Swiss giant Richemont.

“The marquetry is exquisite,” says the executive chairman of the luxury fashion and accessory brand known for its modern Chinese designs.

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The fact that the workshop producing the beautiful, and expensive, cedar humidors is located in neighbouring Guangdong province would have been unthinkable a decade ago. But China is no longer just the sweatshop of the world that churns out cheap T-shirts and jeans. The high costs in Europe have meant that many artisans have moved to China, while local manufacturers have also benefited from a transfer of knowledge that has taken place since the country became an outsourcing centre more than three decades ago.

Le Masne de Chermont, who has been at the helm of the brand since the Swiss group took over from founder Sir David Tang in 2001, says that Topbox, the company that makes the $1,300 humidors, is headed by a Frenchman who hails from a family of marquetry craftsmen. It is just one of a number of small workshops founded by either French or Italian artisans in China which supply Shanghai Tang, the 18-year-old label that claims to be the first homegrown luxury brand.

But Le Masne de Chermont is unusual in his willingness to talk about manufacturing luxury items in China. Numerous western luxury brands known to have “made in China” on some of their products either refused to discuss the subject or said they were not available for comment.

It is the worst-kept secret in the retail industry that many luxury brands have outsourced to China. But the general feeling is that it’s not a subject that a brand should discuss in public because it could undermine brand value.

“Luxury is all about branding and one misstep could tarnish a brand’s value for a long time, which is why companies tend to have a very conservative approach,” says Shaun Rein, managing director of CMR, a Shanghai-based consumer retail consultancy. While brands have enough confidence in the quality of Chinese manufacturing, their customers don’t, he adds.

That is certainly still true even in China, the world’s second-largest consumer of luxury goods and according to McKinsey’s research, likely to overtake the US by 2015. “Chinese consumers buy into a lifestyle and a heritage when they pay for luxury goods. There has been a shift in the perception towards the quality of Chinese manufacturing but it would still take another 10 years before luxury brands can happily admit that they are producing goods in China,” says Mr Rein.

Politics also plays a part. There was a backlash against Ralph Lauren in the US, where outsourcing is often blamed for the nation’s high unemployment, after it was revealed that the designer of the US Olympic team uniform asked a Chinese company called Dayang Trands to make them.

All that is academic to companies which have been manufacturing partners of brands such as Burberry, Ralph Lauren, Donna Karan and Armani. A director of a Hong Kong-listed manufacturer with factories in mainland China says the level of input that his apparels company provides these clients has increased over the years.

He says pencil sketches are received over a secure file transfer system from Europe or the US. “We will work with the clients to choose the best fabric and pattern. Then, we create a prototype that we send back to the client for inspection and alteration.” He would only comment on condition of anonymity.

He adds that Chinese luxury manufacturers are having a much easier time because they can transfer more of the increases in costs to their clients than lower-end producers struggling with increases in minimum wages and more expensive raw materials. The wider margin offered by luxury brands means he is unlikely to move production to cheaper south-east Asian countries where skills, supply chains and infrastructure remain inferior to China’s.

“90 per cent of our raw materials are available close by in Guangdong province. The only parts with supply restrictions are the clothes’ labels and logo ribbons, which brands tend to have just a single, carefully vetted manufacturer for, in order to prevent counterfeiting,” the Hong Kong manufacturer says.

“You can make anything in China now,” says Mr Le Masne de Chermont. “There is a lot of savoir-faire.”

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