FACE TO FACE INTERVIEW

The setting for CIB’s meeting with Jonathan Seliger, a beautifully restored 1920s neoclassical villa in the heart of Shanghai’s French Concession, was certainly befitting of the managing director of one of the most prestigious global luxury fashion brands in China.

The villa houses “The Home of Alfred Dunhill” in Shanghai, opened in October 2008, a venue that lives up to its billing as a luxury lifestyle palace, from the art gallery and personal concierge service right down to the personal Bentley chauffeur service for VIP customers.

Opening such a lavish and expensive venture given the bleak economic outlook was certainly a bold — and some might say risky — move. Seliger sat down with CIB to discuss how he came to represent a luxury brand in China, his future outlook for the luxury market, and what he believes the definition of luxury really is.

Can you tell us about your business background? How did you end up in China?

It was probably the most important “non-choice” I’ve ever made. During college, I had to choose a non-Western civilization class as part of my university requirement; it was either getting up very early and taking an African civilization class or taking Chinese civilization in the afternoon. The interest snowballed and I ended up studying Chinese in Beijing in 1990.

After graduation, I headed to Hong Kong to pursue my interest in Chinese art, really not having a plan. Then, out of the blue, I got a call from a headhunter asking me to join William McDowell & Company. Willie was a prototypical ‘China Hand’ and had a great portfolio of brands that he was representing there. I was thrust into the deep-end selling Jack Daniels and Camus Cognac up and down the coast of China.

It was great experience for a 23-year-old with a very healthy liver. China back then was going a million miles an hour, with a huge number of opportunities. It was particularly good for people who didn’t have a traditional business background, because in those early days, before the multinationals were sending tons of people over here, it was still a play it by ear, take the bull by the horns-type of cowboy country. As someone who didn’t have technical business training, it was exhilarating and a real education as to how the Chinese did business.

How did you move from liquor into fashion?

Just before the Asian Financial Crisis in 1997, I saw an opportunity to start an agency business and formed Paragon Brand Management with my former boss and colleague from Camus. We initially represented wine and spirits brands in the duty-free market in Asia-Pacific, but quickly saw an opportunity to widen our portfolio. This is how we met with Alfred Dunhill and started working with them to establish duty-free boutiques in China. We opened three boutiques in Beijing Airport in 2002-2003.

What was it like working with a state-owned duty-free operation during those years?

It was incredibly labor-intensive. We were trying to convince luxury brands to enter a non-luxury environment and then convince a non-luxury retailer to operate luxury stores. The duty-free operators had to learn how to manage these stores, in terms of having enough stock and knowing how to clear stock through mark-downs, to avoid accumulating inventory, which is going to put pressure on your cash-flow. If there’s one thing I’ve learned in China, it’s that the Chinese are unbelievably protective of their margin. It was very, very difficult to convince or cajole them into thinking otherwise.

Why did you move on from the duty-free business?

SARS hit and it really took the legs out from under us. We were a travel-related business and were down 90% for six months. Also, we could see that the nature of the duty-free business was changing in China. We saw the writing on the wall and started to look for other opportunities.

After taking some time off, I touched base with my friends at Alfred Dunhill, who were in the process of buying back their distribution in China. I thought it was an interesting opportunity, because, number one, it would be the first time in my life where I would be in control of a business in China, i.e. not be a middleman or working within someone else’s distribution structure, and, number two, I could decide the investment and strategic planning, which to me is the most important thing about doing business in China – controlling the situation as much as you can. I’d always been a fan of the brand, and it just clicked. Before I knew it, I was packing my bags for Shanghai.

Has a lot changed since you arrived in Shanghai in August 2005?

Yes. We went from a company of eight people working out of a rep office in Shanghai doing sales and marketing to, literally overnight, becoming a company of 250 people with more than 25 retail stores in 10 cities, as well as a significant franchise retail business in perhaps 30 others.

How long has Alfred Dunhill been involved on the Chinese mainland and what is the scale of your operations here?

Dunhill is one of the most well-recognized and longest-standing luxury brands in China, but commercially we were one of the last to acquire back our distribution in terms of formal corporate structure. All foreign brands, until 2004, were required to go through a franchisee model in China. When that restriction was relaxed in December 2004, it was clear to Alfred Dunhill that they needed to restructure.

We now have over 80 points-of-sale in China, with about half being our own retail stores and the others being franchised retail stores. We’re expanding very fast in second- and third-tier cities like Urumqi, Chengdu, Chongqing and Kunming, and have a presence in over 40 cities. We’ve nearly doubled the size of our retail footprint in three years.

What percentage of Alfred Dunhill’s Asia-Pacific revenues comes from China?

I’m afraid that I cannot disclose that.

How has the luxury business changed in China since you’ve been operating here?

When Alfred Dunhill opened in 1993 in Shanghai, it was a male-dominated market. The main consumers were men. They were the ones with money in their pocket because, at that stage of the game, corporate gifting was a very big part of closing business deals in China. And dunhill became the go-to brand for a gift item, anything from a belt to a pouchette (a man’s handbag).

Globally, the luxury industry is heavily skewed towards women, whether it’s fashion, handbags or cosmetics. I think the split is 90% women to 10% men. But in developing markets, it is heavily skewed towards men. In China, men typically had the disposable income and they were the ones who first entered the aspirational phase of luxury consumption.

Now, it’s changed. It’s still not at the same levels as in the West, but the gender balance is heading towards that direction. There are still regional differences. In northeastern China it’s still a male-dominated culture, whereas in Shanghai it’s more balanced. Over 35% of our customers are women. They are buying for their fathers, their husbands, their sons.

What is the current state of the Chinese luxury market? Your group Richemont posted very gloomy results for the last quarter and warned that it was facing the toughest market conditions in 20 years.

I do feel a bit of softening in China. There is maybe the “fear factor” starting to settle in, but we’re still a growing business and we’re still investing for growth. If there’s anywhere in the world to invest in the luxury business, [right now] it is China. Globally, China is poised to become the top consumer of luxury goods in the next 10 years. In times like this, you have to manage your business a bit more smartly. We’re a profitable business; we acquired a profitable business and have been growing it exponentially.

Will this growth continue?

We’re certain this will continue. The train is going to slow down a little bit over the next year or so. And in a way, I see this as an opportunity to focus on the stores we have, and to improve what we are offering. We’re still forecasting growth, not to the extent we’ve enjoyed in the past few years, but we’re still optimistic.

Some might say that you couldn’t have picked a worse time to open a high-end luxury store in Shanghai.

I actually disagree. If anything, we opened it just in time. At the same time, because of what’s happening in the global economy, there might be barriers for the competition to do something similar at this level, with this kind of investment. So we’re very well-positioned with this new Home of Alfred Dunhill in Shanghai.

Who are your typical customers in China?

Our customers in China are 99.8% Chinese – that’s probably true for most luxury brands here. They tend to be established senior managers and owners of businesses, entrepreneurs, self-made men. We’re firmly in the 35-55 demographic. But we’re getting younger; Jude Law, [our global brand ambassador] has helped and so has Kim Jones, our new creative director.

An oft-leveled accusation is that Chinese consumers tend to lack brand loyalty. Do you think this is true?

I don’t agree. The luxury business in China is branded. When they find a brand that delivers consistency and high quality, they will be loyal. Of course, they might also be consumers of multiple brands. We have a VIP database that goes back 15 years and we are adding 2,500 names a month in China. We have a great system that captures our VIPs and tracks their purchases.

Many consumers on the Chinese mainland go to Hong Kong to purchase the same items for less. How do you deal with this?

Hong Kong is duty-free, thus prices will be lower, and we do have many [Chinese mainland] customers buying in Hong Kong, but business is large enough and growing fast enough to not be heavily diluted by the pricing differential versus Hong Kong. Again, with distribution in over 40 cities in China, we are very well-positioned to capture sales locally.

How big an issue is staffing for a brand such as Alfred Dunhill?

There’s still a very high turnover [of staff] in China. I think the most important thing is to put yourself in an employee’s shoes. It’s very difficult to expect a 25-year-old kid to understand, for example, the motoring heritage of our brand, without first understanding the history of the motorcar as well as the whole luxury automobile industry. We actually spent four months teaching the staff about the world of luxury, from film to art, architecture to design, as well as talking about our competitors, the industry, and the whole business.

In China, many of the luxury customers don’t necessarily look it. How do you train your staff to deal with this?

I think that may be an observation for foreigners, but not an observation that local staff would make. I would think our retail staff would be in-tune with their culture. It might be more of an issue in Hong Kong or Singapore, but here it’s an open playing-field and everyone is a potential customer. Looks can be deceiving.

What is your approach to counterfeiting?

We have a zero-tolerance policy, and work closely with the Richemont IP team, local law and investigation firms and state and local trade organizations. We conduct numerous raids on counterfeit products being sold as well as on factories where they are being manufactured. We’re very, very active.

At the end of the day, though, there’s only so much you can do. Also, you have to give the customers some credit: they know what’s real and what’s fake. The aspirational class of customers knows the difference, and they may purchase fake goods when they first take interest in a brand [but can’t afford it], but they will eventually join our database.

Dana Thomas’ recent book How Luxury Lost its Luster claims that the quality of luxury products has declined precipitously, in inverse proportion to brands’ advertising budgets. Can you comment?

That’s not the case for dunhill. We’re committed to delivering a quality product and a luxury experience. Of course, you have to promote the brand and have to invest in marketing and communications, but you cannot allow your product quality and service standards to suffer. If anything, our product has improved, because the clientele here in China is so savvy and demanding.

What is your outlook for the future growth of luxury brands in China?

The opportunities are enormous. Chinese people are used to change and they are able to adapt quickly, so we’re not going to see such a dramatic downturn here as we will see in other markets. China still has two trillion US dollars in reserves and a government whose first priority is social stability. So we’re very confident about our business in China.

Finally, what is your definition of luxury?

Deep down, it’s a very personal thing. A luxury can be skipping out of work and having coffee with your wife; or it can be that dunhill lighter that’s been handed down three generations in your family; or a gift you buy yourself when you get promoted. These are very personal things that add value to your life that’s not just monetary.