After years of aggressive expansion in Asia, Alfred Dunhill is gambling big on the U.S. market.
London’s high-end men’s retailer is planning to open its second store in the U.S. on Vegas’ sunset strip this summer. It plans to open at least three more over the next 12 months.
“We, in the last six years, have focused where the fish are for us, and that was predominately in Asia, that’s what we went out to focus on. We now have the need to focus on the west, and that is the U.S.,” Dunhill CEO Christopher Colfer tells CNBC. “We haven’t been to your backyard, but we are coming.”
So, why now?
For one, Europe’s sovereign debt crisis has swayed Dunhill’s focus away from its domestic market, prompting it to venture to untapped regions. And while the Asia is a top priority in terms of expansion, Colfer says the timing is now for the U.S. to get its taste of London’s High Street.
“We have ample time to do it,” he says. “Because the American market is somewhat saturated with the same things for a long period of time, and I think there is great opportunity for newness here.”
Also high-end luxury spending in the U.S. has outpaced the broader benchmark in 2012. “At the luxury spending level, we continue to see spending, we aren’t seeing slowing, spending at the luxury level is still happening,” says Robert Burke, retail consultant at Robert Burke & Associates.
This is especially true in the menswear sector as men cough up more cash for their clothing and wear more formal attire on the job. The global luxury menswear market is growing at about 14 percent a year, or nearly double the pace of luxury women's wear, according to consulting firm Bain & Co.
Dunhill, however, has its work cutout for them. Although its Madison Avenue store has been open since the 1950’s, the iconic brand has little exposure in the domestic market. It will have to compete with companies like Brioni, Ermenegildo Zegna and Salvatore Ferragamo, which are already established in the U.S.
Dunhill also won't abandon its most profitable market. China brings in around 30 percent of its total revenue and customers are very demanding, Colfer says.
“With certain brands, you have to make a major statement for the Chinese to recognize it. The best way to capitalize on it is to make a big presence,” says Burke. “China, it is either go big or go home.”
Burke adds, Chinese consumers are very brand driven, and do not take direction well, but rather go for the highest price and brands they recognize.
Colfer disagrees. He says, unlike twenty years ago when Chinese consumers had a predilection for iconic logos and big brand names, the trend is changing. China’s consumers are maturing at a fast rate compared with other emerging nations.
“It is a highly intelligent customer base, very knowledgeable in your product, and they really understand quality and they understand how things are constructed and made, and they buy into the providence of that,” he says.
While there is much chatter on Wall Street about whether China is destined for a hard landing, Colfer dismisses the idea.
“I see China daily, every single morning when I wake up," he says. "I think there are elements of the economy that obviously are struggling, and it’s slowing down, but I don’t see it.”
The latest manufacturing report from Chinasupports his view, as activity at large factories jumped to an 11-month high of 53.1 in March, there continue to be fears about rising inflation.
But doing business in the fastest growing nation has poised some fundamental drawbacks as well. Everyone wants their share of the market and the landscape changes quickly. Only last week, for example, Neiman Marcus went the ecommerce route to enter China.
“The landscape has changed enormously," Colfer says. "...It’s fundamentally changed, from a cost basis it has changed, from an operations point of view it has changed, to how you localize yourself in different tax districts, all the way down to how you import and what gets imported into the market.”
And while it used to be a relatively inexpensive market to enter, but a difficult market to enter, the situation has shifted. It is now an easier market to enter, but it is much more expensive.
Colfer remains very bullish on the American growth. He says, while other retailers believe its “doomsday” here in America, he does not “agree with them in any shape or matter” and he is ready to tap the largest economy in the world.
“It’s time. We have capital, we’ve got product, and now we have to employ the right people to take this business out further.”
(CORRECTION: An earlier version of the story incorrectly said Alfred Dunhill had already opened the second Las Vegas store. That store will open this summer.)