Sung-Joo Kim on Rebuilding MCM

BEIJING, China — Originally known as Michael Cromer Munich, German leather goods maker MCM was launched in 1976. In the 1980s, the brand became synonymous with glamour, known for its flashy logo — which covered a spectrum of over 500 products, ranging from handbags and luggage to shoes and, even, tennis rackets — and advertising campaigns fronted by the likes of Cindy Crawford. According to market sources, by the mid-1990s, MCM was generating sales of around $350 million and operated 140 boutiques. But, a few years later, the company's fortunes took a turn for the worse when its then-owner was investigated for tax evasion. In 1997, the company was restructured and sold off many of its stores and trademark rights. In 1998, the business was bought by a Swiss investment group with little experience in managing fashion brands and it wasn't long before counterfeit goods flooded the market, seriously diluting MCM's appeal.

In 2005, Korean entrepreneur Sung-Joo Kim, who made a fortune licensing European luxury lines in Asia and had owned the licence for MCM in Korea since the late 1990s, stepped in and acquired the entire business for an undisclosed amount. After changing the brand’s name to Mode Creation Munich, Ms Kim (nicknamed "Genghis Kim" for her drive and ambition) spent the next few years rebuilding MCM’s image from scratch, shutting down the company’s global operations and refocusing her efforts solely on Asia, particularly in Korea and China.

Almost 10 years later, MCM is set to hit 2014 sales of $650 million, according to figures provided by the company, and has built a network of 300 stores in over 35 countries. Forty of these stores are in China, MCM’s fastest growing market, and the company plans to open 30 more by 2015. Indeed, a significant part of MCM’s turnaround can be attributed to the brand’s popularity with Chinese consumers.

Following the brand’s first runway show in Beijing, two weeks ago, BoF sat down with Sung-Joo Kim, chairperson of MCM Holding AG (mother company of MCM) and MCM Products AG, to talk about wooing the Chinese customer, building the brand beyond its logo and going West.

BoF: Why did you decided to invest in MCM in the first place?

SJK: Since the 1990s, I launched and acquired franchise rights for European brands like Gucci, Sonia Rykiel and Saint Laurent in Korea. MCM approached me and we took the first overseas licence to distribute the bags in Korea and produce bags for the Korean and American market. By 1996, however, the brand was experiencing problems — it had nothing to do with its success, as it was more popular than Louis Vuitton in Germany and was doing very well in Asia. But the original founder had some personal problems and the brand suddenly disappeared. It was then sold to new owners in Switzerland who didn't have much experience in the luxury segment. At that time Korea was feeling the effects of the Asian financial crisis, so I restructured my company and sold most of my licences except for MCM. By 2005 we had helped to re-grow MCM to a 100 million dollar business in Korea alone. We were still paying high royalties, so we decided to take on all operational aspects of the brand and acquired MCM holdings and ownership of the whole global market.

BoF: What was your vision for MCM?

SJK: At the time when I bought the brand, in Europe MCM was tarnished in terms of its distribution channel and product quality. I knew that in order to recover its luxury positioning I had to clean it up. We closed down most of our wholesale accounts and made the global market zero [by closing down stores in many countries and terminating local licensing operations] except for Korea. I always recognised that the future market for MCM was Asia, so we began securing prime locations in top cities. We eventually opened our first boutique in China in 2010.

Headquartering a global brand in Asia was considered a handicap before, but suddenly it became a strength. The plan was to emphasise the brand’s German heritage and Italian craftsmanship while maximising its popularity in Asia, especially Korea and China.

BoF: Let’s talk about MCM’s positioning.

SJK: In the middle of the 1990s, our price point was higher than Louis Vuitton and we were positioned in a top luxury tier. Because the Korean business started with licensed product we had more affordable prices, but that doesn't mean we are positioning ourselves with Coach and Michael Kors. A recent internal study by AC Nielson found that the Chinese perceived MCM in the same tier as brands like Chanel and Prada. That being said, we are now elastic in terms of price range — we have lines at a higher price point but also more global lines in the affordable product range.

MCM is about unique luxury — we represent youthful luxury. Many old school European houses have great craftsmanship and heritage, but are becoming boring and too conservative for the emerging consumers in Asia. In Asia today it’s all about the young professionals who are the next generation of consumers. They have different needs and a new perception of luxury. That’s what MCM is feeding on.

BoF: China is MCM’s biggest customer base. Who is the MCM customer in China?  What are they buying?

SJK: China is interesting in that it’s different from Japan, Korea and even the rest of Asia. The Chinese have a very independent mind-set. Defining our customer profile has been interesting because they are not rich, poor or middle class — it’s about the emerging global nomad. It’s doesn’t just appeal to the young generation, but young-minded people.

Our customer goes beyond income level, age group, beyond east or west, man or woman. It’s very much about convergence: what’s strong about MCM is that the product combines European heritage with Asian needs and taste.

At the moment our major product group is backpacks. When we made the backpack into a luxury product people thought it was outrageous — but this really portrays this new lifestyle we are creating. It’s also unique in that both men and women can carry it.

BoF: What’s your strategy for appealing to both a logo-loving consumer and also a more discreet consumer who doesn’t want logos?

SJK: Globally, logos are no longer a status symbol, so we plan to minimise the logo and create what I call ‘brand art’. We approach the logo from a new perspective — pop art is a big trend and the more serious the world is becoming, the more people like to be playful and dynamic, so our logo products will cater to them.

At the same time, we have to service the needs of professionals, so we can’t have logos everywhere. As such, we have built a production base and creative centre in Italy, to allow us to tap into the best leather tanneries and production factories to produce top tier collections like our Gold line. It’s priced much higher and is aimed at the more discerning customer looking for high quality.

BoF: In recent years Korea has emerged as cultural leader in Asia. Do you think this has helped propel MCM’s expansion in China in particular?

SJK: Definitely. Like I said, the Chinese have their own mind-set, but it’s closer to the Korean thinking than that of Europeans or Americans.  They understand the Korean market, which is well exposed to European luxury. So while MCM is German, it’s also about Asian tastes and details that they can relate to.

BoF: What has been the biggest challenges launching the brand in China?

SJK: China has so many different economies within one country, so we’ve had to learn how to cater to semi-mature, mature and infant markets, all under one economy. The trick is to keep a cohesive brand identity and to merchandise and cater to those specifics. It’s also vital to secure our top luxury positioning without compromising. The market grows so fast and so many new cities are emerging, with huge opportunities to set up points of sale in new malls. However, our strategy for growth is about quality rather than quantity. By next year we will have 40 boutiques in China, and that’s growing too fast.

BoF: What are your plans for growth outside the core Asian and German markets, where MCM remains relatively unknown?

SJK: For the past nine years we have witnessed tremendous growth every year — more than 30 to 40 per cent. In the Korean travel market alone, which is worth 7 billion dollars, we just became one of the top three brands. We are bigger than Chanel and second only to Louis Vuitton.

Although Asia is important, our international expansion is already underway. We have opened several stores in Europe this year, including Paris and Germany, where we launched stores in Munich, Frankfurt and Berlin. In America we distribute the line through luxury department stores like Neiman Marcus and Bergdorf Goodman. We plan to open our Soho store in New York this December and launch our global e-commerce out of New York next year.  More stores will follow in key US cities.

When we have set up in key locations, it will be time to consolidate our management, infrastructure and quality of production in Italy, while building a global team out of Germany.

BoF: What legacy do you want to leave behind with MCM?

SJK: I want people to know that we are not just a European brand, but a truly global brand. As a brand owner I have always wanted to make social responsibility one of our core values: it’s not just about growing, but serving every market and society that we go into. I hope the spirit of the brand also carries a message of sharing in society. It’s all about balancing exclusivity, high quality design and craftsmanship, while still creating an aura of inclusiveness.

Disclosure: Divia Harilela travelled to Beijing as a guest of MCM.