One hundred five luxury brands, 15 food and beverage venues (including a farm-to-table restaurant), interactive art performances, and a members-only VIP reception center are among the attractions featured at Suzhou Village, a luxury outlet mall that had its soft opening in May 2014. Located in Suzhou, a major city one hour west of Shanghai, the outlet is London-based Value Retail’s first foray into the China market. The company operates nine luxury outlets throughout Europe, including its flagship, Bicester Village.
Value Retail is banking on China’s burgeoning middle class—currently at 180 million and projected to reach 500 million in five years—and aims to eventually open six or seven outlets on the mainland. Suzhou will be followed by Shanghai in the fall. Despite the explosion of retail spaces conspicuously including shopping malls and, by some accounts, over 200 outlet malls throughout China, few resemble the Western concept of an outlet and even fewer would be considered luxury. Jing Daily had a chance to visit Suzhou Village and sit down with Value Retail China CEO Mark Israel to chat about the company’s China strategy. Prior to relocating to China for Retail Value, Israel was president of U.S. diamond firm Hearts On Fire, which was recently acquired for $150 million by Hong Kong mega jeweler Chow Tai Fook.
What makes Value Retail outlets different from other outlets in China?
Two areas are different; one is the “hardware”: the authenticity, the design, also, the product selection. All those together we think about as the hardware. We also build special facilities where we can provide concierge services.
What’s more important than that is the experience we create, or the “software,” that includes a range of services such as valet parking, personal shoppers, and restaurant and hotel bookings. The rest of the software is about hospitality, how we treat each guest as an individual, rather than just a profile.
We’re the only retailer to partner with École Hôtelière Lausanne, the number one hotel school in the world, to learn five-star hospitality. We piloted a training [program] with Beijing Hospitality Institute that kicked off this February. We will be bringing in both interns and graduating students. We’re also creating curriculum for shopping tourism.
Most importantly, when we think about software, we think about people’s emotions and state of mind. We try to create a vacation for them, even if they have only come as far as Jiangsu province.
Even if you come for half a day, we want to make sure we change your state of mind when you come here.
Hearts On Fire is known for employing technology to create a more accessible and contemporary shopping experience. How will technology and social media in particular be incorporated into the overall shopping experience of the Villages?
It’s core to what we do. The journey to one of our outlets starts before they arrive. The primary way they might learn about us is digital media.
It’s also about joining a community. We’re building an online community where people can learn about fashion trends and what is going on in Europe. Here in China, we’ll be hosting a lot of special events and partnerships.
In the village, you’ll see iPads in the visitor center so visitors can learn about the outlet. We’re launching iBeacon to send personalized messages, apps with games, direction finding, information about brands. We’re piloting Yiyitan, an invitation-only, members club for high-net-worth individuals that will feature access to exclusive partnerships and events worldwide.
Who are the foreign target markets and how will the marketing for non-domestic shoppers differ?
The key source markets are Japan, Korea, Taiwan, even Hong Kong, although prices here are higher. We can create some experiences here that are not available in Hong Kong.
You’ve got Indonesia and rest of South Asia market. It’s not going to be a big Western market.
The marketing messages are the same.
Is the pricing competitive for these other Asian markets?
The price structure is a combination of import duties, structural costs of distribution, and rent.
When added together, the initial price is higher than others, but we offer 30 to 70 percent off local pricing. If you look around the region, Japan, Korea, and Taiwan have relatively high domestic price structures.
What is the role of technology in customer service?
The next wave of use of technology is the interaction of brick and mortar with online technology. If we know who you are and you want to hear from us, then we can tailor the communication. The risk of that is it might be invasive, so it’s about observing boundaries. If they find the information useful, then they welcome it. [It focuses on] the importance of authenticity, respect, and experience. As consumers become more sophisticated, they are not going to tolerate a lack of respect.
Would you say Chinese consumers are more open to such technology?
I think so—Chinese consumers are very realistic and pragmatic, so if it’s something that is useful and interesting to them, then they are very open to doing it and if not, they will just as quickly shut it down. They have not yet established dos and don’ts the way more mature markets have done. That also means they are more open to new styles. It’s also a younger consumer market, and of course, most of them grew up with technology as a core element of life.
The outlet will feature a mix of leading international and Asian luxury brands. Can you give examples of some Asian brands that will be featured prominently?
It’s a very important part of our strategy, to have regional brands, whether Chinese or from a broader region. We don’t pre-announce brands that will be open.
There is a big art program in the outlet’s marketing. How do you plan to integrate art with sales?
Conventionally, art goes into a mall, or in many locations, it’s just something hanging on the wall, so it’s quite static. In some cases, there’s a significant exhibition and people come for that but there’s no tie-back to stores.
Our art tells a story, a thousand silk threads, so it ties back to the clothes and the place [Suzhou]. It melds those two together. Why that helps with buying? First of all, it’s about state of mind. Are you relaxed, do you feel better than you did when you walked into the village, do you want to spend longer here? Have you been moved by something? Then you are willing to try new things. As you know, when you are on vacation, you are willing to try new things, spend money more freely, [and are] more open to how you spend your time. Our art helps put people in that frame of mind that they’ve gone someplace different. The net is they will stay longer, be more relaxed, [and] more emotionally satisfied, and when you are in that state of mind, you buy more.
Value Retail plans to open about six or seven outlets throughout China. Where will they be located?
We’re looking at Beijing, Chengdu, and the Pearl River Delta region, which includes the Hong Kong market. We should announce the location of the third village within the next six months.
Three in four Chinese travelers to the UK visit the original European village, Bicester Village. Chinese shoppers make up a third of its tax-refunded sales for international tourists. How will the China villages affect business in Europe? Will marketing be different for Chinese versus European villages?
We think it actually helps it. First of all, there are new travelers to Europe every year. If they are introduced to our village here for the first time, they want to see the original village, Bicester Village. So we can help source new guests who have never been to the European villages before. For those who have seen our villages, they don’t have a lot of opportunity to go to Europe but they can shop here. We don’t see one cannibalizing the other. They will just have more opportunities to shop.
The Shanghai Village will be the only luxury outlet mall located in the Shanghai International Tourism and Resorts Zone. Do you expect to maintain this geographic advantage over competitors?
There is another one opening in Pudong and there may be a third. There’s room for different concepts. Ours is very specific and deals with a certain type of customer.
Who shops at the villages?
There are a few different ways to think about it; demographically, they are upper-middle class to wealthy. In our European villages, we have royalty who shop with us, some of the wealthiest people. In the end, everyone loves a bargain.
Geographically, they are from all over China. We expect 80-90 percent of our customers to be Chinese. More than half from the Yangzte Delta River region. Then it will be other people who fly in. Some international, but Shanghai will have more.
Psychographically, it’s really the rising stylish, self-expressive, young consumer experiencing brands for first time, buying for first five to 10 years. It’s people who are interested in experiencing new things.