The Founding of Shanghai Tang: Celebrating Chinese Craftsmanship

Shanghai Tang was established by David Tang in Hong Kong in 1994. It was a store selling high quality item made in China, such as conventional Chinese outfits, Chairman Mao wrist watch, qipao, conventional Chinese silk products with Chinese design. Its target clients at the top place were those high ended tourists. Taking around 1 year, instead of 2 year which is normal duration a brand-new retailers require to make company in break even, Shanghai Tang turned its very first revenue in October 1995. Shanghai Tang later entered a contract with the Richemont Group which is a famous Switzerland-based high-end items maker.

David Tang believed Shanghai Tang would end up being China's very first worldwide high-end brand.

Like other enthusiastic entrepreneur, in Nov 1997, Tang opened the very first Shanghai Tang shop on Madison Opportunity in New York U.S.A.. Nevertheless, things were not going the way it was expected to. Very few individuals liked what Shanghai Tang was offering. Unfortunately, the monetary crisis got worse the circumstance, and it had to scale down business.

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By 2001, Tang had lowered his stake in Shanghai Tang to near 5%, so the Richemont Group took control of the company. Designating executive chairman of Shanghai Tang in September 2001, Raphael Le Masne, who then used a brand-new innovative director, Joanne Ooi, having extensive experience in global garment organisation.

With right insight and vision, employed more in house designers, and repaired the right directions, they were effectively turning Shanghai Tang around. Image of Chinese-themed high-end style and way of life emporium had been established.

Sales and worldwide coverage had been increased a lot from 2001 to 2008. By summertime of 2008, company had more than 40 shops in 14 nations all over the world. Things will never ever run smooth, at the same time, Joanne had actually handed in her resignation. An increasing conflict within business in between creators and commercial departments likewise offered huge headache to Raphael who always depend on Joanne to smooth things out.

During that time, the global financial crisis was striking the whole world economy again, while China, still with double digit increase in GDP every year, was considered a shelter and gold mine for every business. Shanghai Tang has no exception, but tried to expand its business in China market. Should Shanghai Tang hire a new creative director under this uncertain economic time? How to strike a balance between creativity and the profit? How the company can maintain its success? How the company should adapt its strategy to make it successful in China market and other potential global markets? These were the main challenge Shanghai Tang were facing.

Analysis

Conflicts between Creativity/Innovation and Business Sense
As a business, the past success factors are always considered as a critical factor. Business people have a tendency not to deviate this much in order to maintain the success. On the other hand, it will certainly jeopardize the creativity and innovation from designers especially it is considered it is too much different from the successful factors or past evidences already prove it had not worked out. For creative people, they always tend to be very trendy and creative, so they try to make something completely new which is of course totally different than the past.

However, like Shanghai Tang, it had experienced a very bad time, and a new design strategy set by Le Masne and Ooi, had made the company turn around. It just likes an endless cycle – company having a success factor, makes itself become successful in terms of profit and image, then it will resist to change and the success may last for another couple of years. At the end, with emerge of new competitors, change in economy or whatever reason, past success factors may no longer work. The company may be forced to think deeply in creativity and business innovation, but it is always too late. A real successful company must be able to continue its success factors, but new elements must always be needed to be added in its business.

In Shanghai Tang, from design process to the start of mass production, there was heavy involvement from a Product Committee which comprise the designers, executive chairman, the creative director and key business managers like retail /marketing/ merchandizing directors. To help designers to understand how different products perform in the market, they received reports from the retail and marketing departments regularly. Those reports mainly revealed the sales and customer feedback to different items. Designers also had to follow the company norm “Shanghai Tang DNA” which contains 2 major elements – Chinese-ness and the use of bright color.

Excellent design but expensive to produce will be eliminated. Designers are also paid a salary plus bonus based on KPI such as its generating revenue and ability to innovate. It can simply observe that there were too much constraints to the design process. Potential generating revenue becomes a very important element to determine the success of the new design. New design which is not similar with past success factors is unlikely to survive.

The consequence is that it will eliminate some new elements which make the company even successful in future. Shanghai Tang has 2 main business streams – core collection and seasonal collection, which about 50/50 in terms of revenue. In fact, for its seasonal collection, extra room should be given to the design teams, and more deviation from Shanghai Tang DNA should be allowed. It can let the company to test the water temperature in the market and to get more insight how the market is changing. It would not impact to its core business. Shanghai Tang could even think of the 3rd stream which more innovation would be allowed.

The bonus scheme for designers would also be linked to the recognition of their design. The Shanghai Tang DNA should be reviewed from time to time to keep pace with the market trend to make sure the new fashion elements will be captured. Thus, those designers will be motivated and encourage to participate in the theme of their design. As Shanghai Tang is a high end fashioned product, it should not be limited to high manufacturing cost as well. Margin can be set higher for products with nice design but higher manufacturing cost. Replacement of Creative Director

Ooi was going to leave Shanghai Tang, but the global economy was in the tough situation. Le Masne was in a dilemma to hire a new replacement or let the whole team to continue the work. Considering the fact that the Creative Director is the soul of the company which can define the main frame of the products and company direction, it is indeed an urgent matter that they have to hire the new replacement or promote internally.

Promoting internally may create conflicts inside the team, and it doesn’t add any new element to the team. Unless there is someone very outstanding, Shanghai Tang could look for a competent replacement externally. Working a whole team without leader is not going to work especially there are too much conflicts between the design and commercial teams and no one is able to resolve it. Expanding China Market

Shanghai Tang had around 10 shops in China. It also had 9 shops in Hong Kong
which can be considered crossover between eastern and western culture, not pure Chinese taste. The Chinese society accounted totally half of its total shops all over the world. However, looking deeply to its customer profiles, its major customer group was still USA and Europe. The Chinese customer in mainland China market was just over 50%. American and European might be in favour of existing product design in Shanghai Tang.

However, it doesn’t imply that the Chinese customers are with the similar taste. Foreigners may be in favour of design with fashion and absolute Chinese styled, but Chinese may desire the design with mix of Chinese and Western style, and do not want it to be too Chinese. They may be even reluctant to accept the goods “Made in China”, as there was a trend wealthy people tend to buy foreign luxary brand. Shanghai Tang had experience that different culture may have different taste. Design had to be fine tuned somehow to fit different culture.

In terms of customer age group, excluding Mainland China market, the target age group was those between 36 to 45. However, in China market, there’s also 40% of customer from age group 26-35. Among the 7 key in house designers in Shanghai Tang, though 3 of them were Chinese, they did not really have exposure in China. For the rest, they were foreigner but had certain exposure in eastern fashion industry, not much in China yet.

It was proven their design can quite hit the western market with age group 36-45, but it did not imply it will work perfectly in China market and younger age group. It is advisable that Shanghai Tang should conduct a thorough research in China to define the Chinese taste. Moreover, they should also bring in some designers with Mainland Chinese exposure. They should also add in innovation elements into the business in order to compete the market shares in China.

“Jacket in Chinese, skirt in more western” may not work for US/European customers, but it may work perfectly in China market. Using the famous western celebrities to promote its brand in China may increase its awareness effectively. Chinese may not perceive Shanghai Tang as “Real Chinese Stuff” only, but also an icon of western fashion. Conclusion

Though Shanghai Tang had been quite successful in the past years, it cannot simply stick to it. It has to keep its creativity and innovation, and bring new elements to the company. Thorough preparation is essential for its battle in Mainland China Market.