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Luxury for China

Logistics concept for the Chinese growth market

Despite a cyclical slowdown, high end brands from Europe remain in hot demand in China. Handbags and shoes from Prada are just such items. DB Schenker manages the ­logistics behind the scenes – by virtue of its dense network and decades of experience.

Segments of the facade resemble gigantic white domino tiles, which provide a particularly impressive backdrop after sunset when their “spots” are back-lit. Emblazoned on the building in resplendent silver are the five letters: PRADA. Here in the fashionable heart of the mega city Shanghai is where the luxury goods manufacturer from Italy operates one of its flagship stores. 

Enlarge imageSource: Wei Zhang

The illuminated facade is a fitting symbol for the powerful presence of prestigious European companies in China. Although China’s staggering economic growth with steady double-digit increases has now weakened slightly, dropping to 7.7 percent in the first half of 2013, the demand for luxury handbags, shoes, clothing, and fashion accessories from Prada is greater than ever before. This is hardly surprising, after all, China with its population of 1.35 billion now boasts a middle and upper class comprising several million people. And this section of the population can afford to indulge in certain luxuries, even at a time when the overall economy is ailing.

Up until a few years ago, China was primarily known as the “world’s factory,” producing inexpensive goods that were sold the world over. This explains the impressive growth figures of the past. Yet it has created a huge imbalance: well-filled cargo holds on carriers heading to Europe and low utilization on the routes bound for Asia. Nowadays, however, many manufacturers regard China as their most important consumer market. This provides logistics experts with vast opportunities – of the kind that DB Schenker can exploit to the fullest thanks to its broad business base. As early as 1966, DB Schenker was one of the first international forwarders in China. Today, the company has locations in more than 60 key cities around the country and over 5,000 employees here.

Luxury imports from Europe are particularly popular

“China is of great importance for manufacturers of luxury goods,” says Annie Zhou, Senior Vertical Market Manager North/Central China at Schenker China Ltd. in Shanghai. “Many people here like to spend their money on brand names and luxury items. ”And luxury imports from Europe are particularly popular – as evidenced by the transport volume: DB Schenker’s national organization in China has been the transport and contract logistics service provider for Prada since 2008. “We have seen an annual increase of around 30 percent in tonnage since that time, mostly in airfreight transported from Italy to China. ”These exports come within the ambit of DB Schenker Logistics in Italy. As soon as Prada’s airfreight consignments reach China at Shanghai Pudong International Airport, they become the responsibility of Annie Zhou and her colleagues, who handle imports as well as customs formalities.

Vast distances within China

“Our second primary task is to take care of distribution to the stores – we are one of the most important forwarders for Prada in Italy and China,” says the manager. The complexity of this logistical challenge has also increased continuously. In late 2011, the Italian company operated 17 Prada stores in China and six additional boutiques under the company brand Miu Miu. Today, the number has grown to 25 Prada stores and ten Miu Miu boutiques in a total of 18 cities. “In March 2013, we received an additional order: the Chinese distribution for the company brand Church.”

DB Schenker’s cross dock, which is located within the airport’s catchment area, represents the company’s distribution hub. Although the majority of stores to be supplied are situated in China’s  highly-developed Eastern region, the government in Beijing has begun stimulating the regional economies to the west of the established centers, thus providing a boost to the purchasing power there. As a result, Prada now also has stores in inland cities such as Chengdu, Xian, and Taiyuan, thousands of kilometers from the coast. The distances from Shanghai are correspondingly great. DB Schenker dispatches only a quarter of the goods by truck; the remaining three-quarters are consigned to their destinations by aircraft.

“The transfer of goods between individual stores is becoming increasingly important,” notes Annie Zhou. “In addition to that, at the end of the season we consign unsold goods to Prada’s outlet stores all over the world.” This is preferably done by aircraft. DB Schenker also dispatches decoration materials produced by local manufacturers to the stores and back by airfreight, or by truck if the distances are shorter. These offers are supplemented by a complete logistical service package dedicated to the grand opening of new Prada stores or to trade fairs and events like fashion and road shows – providing a range of services from goods deliveries directly to trade fair booths up to ­security solutions.

Enlarge imageSource: Wei Zhang

Lead time for a consignment at least 48 hours

Annie Zhou sees the sheer pace at which these luxury consignments need to be processed as one of the major challenges in working together with Prada. “The lead time for a consignment from Europe to China is at least 48 hours,” she explains. Within China, the lead time is estimated at between 24 and 48 hours. This can, however, be adapted to suit the customer’s specific requirements and reduced accordingly. Annie Zhou explains: “In urgent cases or if it is a special assignment, we offer customized transport solutions with lead times  of between 24 and 36 hours. As a matter of principle, we are constantly striving to optimize our processes, and thus our lead times.”

The same applies to security standards, after all, Prada as a manufacturer of luxury goods has set particularly demanding requirements in this regard. “Packaging material that is both theft-proof and damage-resistant is a very important topic. It goes without saying that we train our workers and that they wear special clothing and gloves when handling products from Prada.”

Ten additional employees, all based in Shanghai, work alongside Annie Zhou at Schenker China Ltd. catering to the needs of their customer Prada. Together, they are ultimately responsible for guaranteeing that all individual operations are monitored constantly. They ensure that their discerning customer has around-the-clock access to a point of contact and that even orders placed at extremely short notice are handled promptly.The order volume from customers like Prada is set to increase in the foreseeable future as their target market continues to grow. Conservative estimates predict that by 2025 around ten percent of China’s population will belong to the middle classes. Based on the current demographic that would be 135 million people – more than one-and-a-half times the total German population. DB Schenker is well prepared to deal with the corresponding rise in demand.

Last modified: 11.03.2014

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