Luxury biz undermined by counterfeit goods

Along Shanghai's bustling shopping street of Nanjing Road, small but loud stores dot the thousand-meter-long stretch of road between the glass-and-steel Apple Inc store and sleek upscale malls.

"Italian luxury items on sale. Final three days. Don't miss it!" yelled a voice over the loudspeaker at an entrance to one of the stores.

Inside, tourists and middle-aged women are packed into the cramped store for T-shirts, leather wallets and belts that bear logos similar to those of LV and Gucci but cost a suspiciously low price.

"Nobody really cares whether our wares are Italian or French," said the shop assistant, surnamed Zheng.

"It's foreign and it's on sale. That's enough," she said impatiently. But both factors are questionable if not false, given that the sale has been in its "final three days" for years.

Italian-born Pierre Cardin kicked off China's first fashion show in Beijing in 1979. The nation's appetite for foreign, colorful fashion was whetted and is still seemingly unlikely to be sated.

While foreign fashion houses are aggressively expanding their presence in the world's largest consumer market, some Chinese businessmen are undermining their efforts by producing low-quality clothes, shoes and accessories and slapping on a foreign label.

In March, the Italian Trade Commission produced a list of 30 Chinese brands that falsely claimed Italian origin.

None of the 30 brands had ever been registered in Italy, nor could any part of their production process be traced to the country, according to the Italian commission's Beijing-based office.

"It should be stopped, because we have spent hundreds of years building a strong image for Italian products," said Antonino Laspina, the commission's chief representative in China.

Most of the 30 counterfeit Italian products are produced in Guangzhou or Wenzhou, according to an earlier report by China Youth Daily.

"When people talk about Italian products, they know they are buying into the best quality in the world. But if the consumers find they have paid a high price for something that is totally not worth it, it will cause irreparable harm to (authentic) Italian brands," Laspina said.

Whether consumers of counterfeit brands are truly unaware of the origin of their bargain luxury goods or simply wish to sample a lifestyle that they may not be able to afford, a look back into the history of Chinese fashion may help decipher the country's widespread mentality of brand-worshiping.

"For people of my generation, a foreign brand means style, quality, and perhaps the only thing you need to be fashionable," said 58-year-old Lu Yongli.

Following the fashion show by Pierre Cardin in the Cultural Palace of Nationality in Beijing decades ago, scores of brands, including Playboy, Montagut and Cartelo, quickly penetrated bigger cities such as Beijing and Shanghai in the late 1980s and became a symbol of status and wealth.

Statistics from Southern Weekly showed that during the country's first international luxury exhibition in Shanghai in 2005, business transactions totaled 200 million yuan ($31.7 million) within three days.

"A leather bag belonging to a dageda (the Chinese label for the first generation to use cell phones) previously could have any foreign logo on it and would have been considered a luxury item. Today, it would have to be LV, or perhaps Hermes," Lu said.

Lu, a Shanghai housewife, remembered purchasing her first luxury bag—a red Playboy calfskin shoulder bag—in the early 1990s.

She recalled the bag cost her 700 yuan, while the average monthly income at the time was around 200 yuan. It was not available in domestic stores and was brought by relatives from overseas.

"Luxuries, then and now, may still be comparatively expensive, but unavailability made them more precious, just like the Hermes Birkins bags today," Lu said.

Zhou Ting, an associate professor at University of International Business and Economics in Beijing and an expert on the luxury industry, said the problem partly stems from the limited supply of authentic luxury items. "Essentially, demand from the country's emerging middle class greatly outstrips the amount that brands can supply," said Zhou.

But Giovanni Musacchi, chief executive officer of Italian Fashion Way China, explained the conundrum facing Italian workshops and brands that venture into China, "a market where three big cities "consume as much attire" as Italy.

"Of course we don't need to tell our partners what a large market China is. The major concern for most of the companies would be, after arriving in the market, how to supply such a large nation while not lowering quality," he said.

Musacchi's company currently works with about 300 Italian fashion brands, which often prefer to seek cooperation with Chinese companies.