And just like that… Manolo Blahnik can sell in China

Sascha: [00:00:02] From Equity Mates media. This is the dive. I'm your host, Sascha Kelly. After 22 years, Manolo Blahnik can finally sell his shoes in China. Chinese shoe lovers will finally be able to identify with the feelings that Carrie Bradshaw talked about for so long. 

Audio clip: [00:00:17] Later that week, I had a religious experience at Manolo Blahnik. 

Sascha: [00:00:21] This has been a fight 22 years in the making, and the Spanish shoe designer isn't alone. Big Western brands have been fighting and losing in Chinese courts for decades. But last week, something changed. China's highest court sided with Manolo Blahnik, cancelled the trademark held by a local Chinese business and opened the door for Manolo Blahnik to sell his shoes in China. It's Monday, the 25th of July. And today, I want to know what changed. And does this case tell us anything about China's changing relationship with Western fashion brands? To do this, I'm joined by my colleague and regular fashionista, Alec.

Alec: [00:01:04] Hey, Sascha. I feel very underdone for this episode for people that know me well. My fashion budget is $0, so I rely on free merch we get here at the office. So anyway, I'll do my best here. 

Sascha: [00:01:18] Well, I was going to say we're both dressed in hoodies, so really, I cannot be throwing stones in glass houses. But let's start with a quick primer on Manolo Blahnik. 

Alec: [00:01:27] Well, Sascha, I feel like it's you who should give us this primer. Who is Manolo Blahnik, the man? What is Manolo Blahnik, the fashion label. Why is Sex in the City so important to this story? I feel you're closer to this one than I am. So you tell me. [00:01:41][14.2]

Sascha: [00:01:41] Fair enough. Well, he's a Spanish fashion designer, and he specialises in designing shoes. So even though, you know, we use fashion house, it's really the accessories that he's really famous for. 

Audio clip: [00:01:53] In the last 40 years. I become a shoe maker, which is what I am now. 

Sascha: [00:01:59] He started in the early 1970s. In fact, I think it's 1970 that they credit as their birth date. And he's the second man to ever be featured on the cover of UK Vogue. In 1974, he was posing with Anjelica Houston. Naomi Campbell calls him the King of Shoes and Anna Wintour, the famous editor of U.S. Vogue, most notably Devil Wears Prada. That's where she became famous. She says she can't remember the last time she wore a pair of shoes that weren't designed by him. His mainstream fame, as you said, came with Sex in the City. And I think the most notable kind of turning point was season three. Not to get too in the weeds about it, but season three. Carrie Bradshaw is held up at gunpoint and the thief demands her rings, her purse and like Blahniks.

Audio clip: [00:02:47] Oh, give me a can, Blahniks, please, sir. They're my

Sascha: [00:02:50] Favourite pair. Probably the most important thing, though, is the price point. If you want to pay it, they're going to set you back between U.S. 700 and a grand in terms of money. Crucially, why are we talking about him today, Alec? It's because he's never been able to sell his shoes in China. [00:03:04][14.4]

Alec: [00:03:05] Great description there, Sascha. The king of shoes, Anna Wintour, not remembering the last time she wore a pair of shoes designed by anyone else. I actually call B.S. on that. I think she definitely can. But anyway, it's good for the narrative. But in China, they haven't been able to buy Manolo Blahniks because in 1999, the Chinese businessman Fang Zao, registered the trademark Manolo and Blahnik with the Chinese authorities in 2000. The trademark was registered by China, and that has sparked a 22 year legal battle. Blahnik first registered a complaint in Chinese court in 2000. Basically as soon as the trademark was registered. But Chinese courts have dismissed this challenge time and time again, continuing to find that Blahnik could not prove he had a reputation in China before 2000. [00:03:58][52.7]

Sascha: [00:03:59] I think that's a bit rich. No reputation in China before 2000. I mean, beyond the description I just gave. The most important thing I think, is the date. 1970 is what they count as the time that their business started. [00:04:09][10.5]

Alec: [00:04:10] Yeah, look, I don't think we should concern ourselves too much with the court's reasoning here. I think the main takeaway is that China's courts were very unsympathetic to Western trademark challenges. They almost universally sided with local Chinese businesses that had registered these trademarks. [00:04:26][16.5]

Audio clip: [00:04:27] Under Chinese law. Multinational corporations still have to prove their trademarks are well-known in China. The country does have a history of individuals and companies registering foreign brand names as their own and then forcing those brands to pay large sums to use the trademarks in China. [00:04:40][13.7]

Sascha: [00:04:41] That sounds crazy to me. So I could basically, if I lived in China, could just decide to register a company like Nike. [00:04:48][7.4]

Alec: [00:04:49] In a nutshell, yes. And Manolo Blahnik aren't alone with a story like this. French luxury brand Hermes has been fighting a trademark case since 1997. Michael Jordan was involved in a similar case for nine years. [00:05:03][14.1]

Sascha: [00:05:04] Michael Jordan first lodged a complaint to China's trademark authorities in 2012, but it was rejected. [00:05:10][6.3]

Audio clip: [00:05:12] No other choice but to turn to the courts. Other athletes have done the same. I feel the need to protect my name, identity and the Chinese consumers. [00:05:19][7.6]

Alec: [00:05:20] Even Apple has had trouble protecting the term iPhone in China. [00:05:24][4.1]

Sascha: [00:05:25] A judge deciding Chinese tech firms, Jin Tong Tiandi, can use the iPhone trademark for its leather goods. That ruling means Apple has no exclusive rights to use the iPhone name on the mainland. The bottom line, Apple protecting its iPhone name. [00:05:38][13.4]

Alec: [00:05:39] The reason for this, Sascha, is that China has a, quote, thirst, a file system where a local Chinese company registers a trademark before a foreign company. Foreign companies often have trouble, then using their own trademark in China. So they're forced to change their products to sell in China or make a deal with the local Chinese company that registered the trademark. [00:06:02][23.6]

Sascha: [00:06:03] First. First to file. It sounds like a race, but you're saying that there's change coming in the world's fastest growing fashion market because after 22 years, as we said, Blahnik has won that trademark dispute. And this is because the Chinese government is cracking down on, quote, bad faith trademark filings. [00:06:21][17.9]

Alec: [00:06:22] That's right, Sascha. China amended their trademark laws in 2019 and we've seen the tide turning ever since. After decades of losing these cases, foreign companies are finally saying some success in Chinese courts. New Balance won a lawsuit against two Chinese companies imitating its WN logo. Michael Jordan was finally able to win his lawsuit after nine years. Italian menswear group Zegna British label Dunhill have also recently won in Chinese courts. Even Donald Trump has won a decades long case, long predating his presidency against a Chinese toilet seat maker. Producing Trump brand toilets. [00:07:03][41.3]

Audio clip: [00:07:04] On People in China tour is known as a brand name of high tech. [00:07:08][4.5]

Alec: [00:07:09] Toilets. [00:07:09][0.0]

Sascha: [00:07:10] That one is definitely worth including, but doesn't need any commentary, does it? [00:07:13][3.2]

Alec: [00:07:14] You know, Facebook were able to win a case against a Chinese drink company that called their product Facebook. [00:07:21][6.7]

Audio clip: [00:07:22] Two words. Facebook has done what very few American companies have before when a trademark case in China. A Chinese beverage company had registered the name Facebook, written as two separate words. [00:07:33][10.6]

Alec: [00:07:33] And Sascha. Now we can add Manolo Blahnik to the list. They have finally won their case after 22 years. [00:07:39][5.9]

Sascha: [00:07:40] Well, for Manolo Blahnik, this seems like a positive step, but it seems as well they're going to have their work cut out for them competing in China. It's the world's largest luxury market and competition is fierce. So I can understand a little bit more about this fashion market. But first, let's take a break so that one day I can afford my own pair of Manolo Blahniks. He is the king of shoes. Welcome back to The Dive. I'm your host, Sascha Kelley. Today I'm talking about fashion with my colleague Alec Ratigan. You know. [00:08:18][38.1]

Audio clip: [00:08:18] I can't remember the last time I wore anybody else's shoes. I mean, I just didn't even look at them really. [00:08:22][4.1]

Sascha: [00:08:23] Earlier this month, Manolo Blahnik had a victory 22 years in the making. They have finally won back their own trademark in China, which now allows them to directly enter the world's fastest growing luxury market. [00:08:36][13.7]

Alec: [00:08:37] That's right. Sascha Blahnik. I have not been able to sell directly in China, although they have courted Chinese luxury consumers via stores in Tokyo, Hong Kong, Singapore, Taipei and Seoul. But for all of these high end fashion and luxury goods brands, getting into mainland China is the real opportunity. To give you an idea of just how fast it is growing despite the pandemic, the market has nearly doubled in the past two years, according to Bain. [00:09:05][27.8]

Sascha: [00:09:05] That's huge. [00:09:06][0.3]

Alec: [00:09:07] The Chinese luxury market is where all the growth in the industry is coming from. To give you a few more numbers from this Bain study, the market size, ¥471 billion, equivalent of about 70 billion USD. All categories are growing, not just shoes that we're talking about today. Leather goods grew 60% last year. Jewellery 35% last year. High end watches 30%. Luxury beauty products 20%. Those are the growth numbers you can only dream of in Western markets. Globally, the Chinese domestic market, the luxury market there makes up 21% of the global luxury market. And China is on track to be the world's largest luxury goods market by 2025. [00:09:51][44.4]

Audio clip: [00:09:52] China is the only major economy still expected to grow this year after the global health crisis has sent most of the world's luxury spending into a tailspin. [00:10:01][8.3]

Alec: [00:10:02] You can understand why Manolo Blahnik fought for 22 years to get into the market. [00:10:05][3.6]

Sascha: [00:10:06] Yeah, a huge opportunity with numbers like that. [00:10:08][2.1]

Alec: [00:10:08] Now, to add to that, Sascha, the Financial Times also reported that Chinese tourists account for between 17 and 20% of all global luxury sales while they're abroad, while they're travelling now, not 100% sure these two numbers add up by 21% and the Financial Times 20% would suggest that Chinese consumers at home, all while travelling, account for about 40% of the luxury goods market. That doesn't pass the sniff test, but I guess it just gives a sense of how big the Chinese consumer is for these luxury fashion brands in 2018. [00:10:42][34.2]

Audio clip: [00:10:44] Chinese consumers like Chai and she purchased $115 billion worth of luxury goods. [00:10:49][5.3]

Sascha: [00:10:50] And so from those numbers, you can at least draw the conclusion that competition is hot as a result. [00:10:55][5.6]

Alec: [00:10:56] That's right. Think of any Western luxury brand and chances are they're focussed on China. Some analysts would argue too focussed on China. Gucci, Burberry, LVMH, Prada they are all experimenting and testing new ideas to win Chinese market share. Burberry and Prada unveiling new retail concepts. Many of them are intensifying their social commerce efforts on platforms like Tao Bao, Bilibili and Deutsche in the Chinese version of Tik-tok. It is where all the focus is, all the experimentation is, and most of the growth is coming from. [00:11:33][36.8]

Audio clip: [00:11:33] This is livestream shopping. One of the hottest trends in China. By the end of 2020, the country had almost a 400 million live stream shopping users. [00:11:43][10.0]

Sascha: [00:11:44] I want to drill down on something that you just said, which is that you mentioned that some analysts are too focussed. What do you mean by that? [00:11:51][6.7]

Alec: [00:11:51] Look, you don't want to be too dependent on one market. And many of these brands are saying all of that growth from China. Some are even saying declines in North American and European sales. And that's a risk. That's a risk that, you know, China's COVID zero policy shuts down retail. It's a risk that China changes its laws. And you can't protect intellectual property as much. It's a risk that Chinese consumers change their minds and maybe prioritise local luxury brands over foreign ones. One LVMH board member, Sue Bird Vidrine, said luxury brands should reduce their dependence on the Chinese market as much as possible. Quote, for those luxury brands who can. It would be prudent, even if it is difficult, to avoid increasing their exposure to China. Now, that's ironic for LVMH, given so much of their success for all of their luxury brands. Louis Vuitton, Moet, Hennessy, all of them have come from China. [00:12:48][56.9]

Sascha: [00:12:49] And I think that's interesting because Blahnik is entering this market, but they're approaching it slowly. Manolo Blahnik, CEO and also the founder's niece, Christina Blahnik, said, we won't be racing with a rocket into China, but walking gently, which is just a lovely phrase. [00:13:04][15.1]

Alec: [00:13:04] Yeah, that's right. Walking. Gently, although they shouldn't move too slowly because there is an interesting trend emerging in the shoe market in China. For years, domestic Chinese brands couldn't compete against the brand cachet of these Western companies. But in some markets, that is slowly starting to turn. Take the sneaker market. Chinese sneaker brand leaning founded by the successful Olympic gymnast Li Ning, is taking on the Nike's and Adidas and Puma's of the world. Li Ning has signed NBA superstars, including Dwyane Wade and Jemmy Butler. They've partnered with the NBA team, the Houston Rockets, the encroaching on days Western Brand's turf and taking Chinese consumers with them. [00:13:48][44.1]

Audio clip: [00:13:48] Butler shocked the sneaker world by mutually agreeing to part ways with Jordan Brand. Back in January of 2020, ten months before the original expiration date of his contract. [00:13:58][9.4]

Alec: [00:13:58] And it's not just li-ning. Other footwear brands like Anta Sports and Warrior are taking market share from Western names. Sascha According to Footwear News.com, my favourite website, New Balance, was the only international leisure brand to see growth in China in Q3 2021. [00:14:17][18.7]

Sascha: [00:14:18] I want to hold you to that footwear news dot com. I'm assuming you've used this website to find out it's not just in sneakers that this trend is happening. [00:14:25][7.4]

Alec: [00:14:26] Well, it's not just in sneakers. We did have to go beyond the footwear website to find that out. But across the fashion world, we're seeing domestic Chinese brands really take it to their Western counterparts. And I think the best example is in fast fashion. China's Shen is one of the fastest growing private companies in the world, and it is taking it to and beating a source H&M, Zara, those fast fashion giants at their own game. [00:14:52][26.4]

Audio clip: [00:14:53] It is very fast and the products are updated much more frequently and at a higher volume than any other fast fashion brand. [00:15:02][9.2]

Sascha: [00:15:02] But there is a key difference between sneakers and especially fast fashion from the high end luxury shoes that Blahnik makes. China has decades of making sneakers and clothes for Western brands. Nike first outsourced to China in the 1980s, and the whole fast fashion industry has relied on Chinese factories and production. Meanwhile, Blahnik still sketches every shoe himself, and he oversees the process of these shoes being manufactured in Italy. I mean, we see that in the price point. [00:15:31][28.9]

Alec: [00:15:32] Yeah, that's right. For these sectors of the fashion industry that have grown reliant on China sneakers, fast fashion. It makes sense that there are local Chinese competitors emerging that have all the skills and expertise to take it to their Western counterparts. But for many of these luxury brands where production isn't centred in China, it's going to be a little bit more difficult for China to catch up. But also importantly, the brand cachet of some of these Western brands is still so powerful. Gucci, Louis Vuitton, Prada, Manolo Blahnik. That is difficult for any Start-Up competitor, whether in China or anywhere else around the globe to really compete with. But I guess it is an important watch out for foreign companies like Manolo Blahnik entering China. For decades, they've been so highly sought after, but they found it difficult to get the intellectual property protection to actually enter China. Now they're getting better intellectual property protection, but in some sectors and in some ways, they're finding that brand supremacy challenged by local Chinese competitors. I don't think this will be the last time we talk about this story, Sascha. The Chinese market is so important to so many businesses, but it's an interesting one to watch. [00:16:49][76.8]

Sascha: [00:16:49] Well, I, for one, welcome. Any time we get to talk about fashion, it's definitely a subject that I really enjoy delving into. So let's leave it there for today. But I'm going to hold you to that promise that we'll talk about it again. Thanks so much for joining us for today's edition of The Dive. Remember to follow us on Instagram. Our handle is at the Dive Dot Business News. The link is in the show notes below, but come and follow us to keep up with some of the biggest business news stories from around the world. And a friendly reminder that we're trying something new. If you're listening in the UK, we are testing a new technology called Referrer Matic. Click in the show notes to find out more. You could find yourself winning a trip to Australia. If you have any topic, suggestions or feedback, please email us at the dive at Equity Mates dot com and if you enjoy the show, please tell a friend about it. What if maths is the best way for podcast to go? Thank you so much for joining me today, Alex. [00:17:42][52.8]

Alec: [00:17:42] Thanks, Sascha. [00:17:43][0.3]

Sascha: [00:17:43] Until next time