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Promise of China Boom Draws $60 Million Luxury Bet

Despite evidence of slowing retail sales growth in China, high-end designers are still clamoring to enter the emerging market with the launch of a new luxury e-commerce website.

Source: shangpin.com

About 80 brands have partnered with Shangpin, which launched on Thursday as the country’s first full-price designer luxury retail site. The company seeks to overcome one major obstacle that designers have in reaching aspiring Chinese fashionistas — a lack of consumer awareness of lesser-known brands.

While many are familiar with Burberry’s iconic plaid or Chanel’s interlocking letter C's, smaller brands do not carry quite the same cache among Chinese consumers … yet.

The company's foray into full-price designer items comes two years after it first launched as a discount luxury flash sale site, which has been renamed aolai.com. Shangpin’s $60-million dollar retail bet (raised by Walt Disney’s Steamboat Ventures and two other international investors) centers on providing its more than 2.4 million customers with background information on designer brands.

“We work with the brands to basically translate all of their digital content into Mandarin and put it up into the Chinese search engines,” said Claire Chung, vice president of global business development. “You know, Google is blocked, YouTube is blocked. So we’re actually operating as their Chinese PR and marketing digital company.”

The company also offers styling tips through a separate online fashion magazine, which offers editorial content for customers.

Items used in these stylized outfits shown online typically sell well, said Winnie Foon, the company’s vice president of global merchandise.

“I think right now China is very big on labels — it’s like a new rich,” said Lubov Azria, designer of BCBG Max Azria and Herve Leger. “They sort of look for labels. I think educating the Chinese consumer is very important.”

Designer Tracy Reese sees her partnership with Shangpin as a baby step toward eventually opening up her own brick-and-mortar store for her eponymous label.

“It gives us an opportunity to explore that market and get to know that customer — her likes and dislikes and all of that,” Reese said. “So for us, it’s like an education to kind of dip our toe in the water and start to understand the market, but it also gives us the ability to access customers that we never could on our own.”

Shangpin built its customer base through an alliance with three of the country’s banks, including China Construction Bank, which Bank of America has invested in, and Hua Xia Bank, which Deutsche Bank is a partner in. These banks introduced their top customers to the Shangpin as a shopping platform where they could purchase luxury items.

Part of the double-edged sword of Chinese growth stems from the difficulties in reaching the country's enormous population.

“You have to remember that China is a huge market with more than 150 cities with more than 1 million people so even global luxury brands such as Louis Vuitton — in order to even make a market penetration, they have to open three to four shops in a city to even be known,” said Chung said.

For smaller brands, the scope of the market can be somewhat daunting.

“The obstacles are really that it’s such a huge country and that there are so many leading cities that it’s almost impossible on your own for a small company to really penetrate in a meaningful way,” Reese said.

Even though recent metrics of Chinese growth have been disheartening for economists, the designers that we talked to did not seem worried.

Since Reese is currently on the ground floor of her Chinese expansion, she said the slowing of retail growth is not that large of a concern for her brand.

Meanwhile, Azria, whose BCBG brand operates more than 20 locations through China and Hong Kong, said she also was not very and compared it to another well-known cyclical trend.

“It goes kind of up and down — it’s kind of like a stock market,” she said.

-By Katie Little, CNBC News Associate

Questions? Comments? Email us at consumernation@cnbc.com. Follow Katie Little on Twitter @katie_little_.

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