Despite the global economic meltdown, the development of the retail sector in Malaysia continues at a phenomenal pace with over 1,000,000 square foot of additional mall space becoming ready this year. Passing almost unnoticed however is the proliferation of international luxury brands in many of those malls. Familiar international names such as Asprey, Giorgio Armani, Prada, TOD’s, Van Cleef and Arpels and so on, have all entered the local market in recent years, encouraged by the success of exclusive names such as Bulgari, Cartier, Hermes, Louis Vuitton, Rolex and other famous names already familiar to KL shoppers.

Unusually in Malaysia, The Pavilion has clustered its luxury boutiques into a high profile area facing Bukit Bintang. Globally, this clustering of stores is nothing new. For centuries stores have organized themselves into districts based on what they sell – think Saville Row in London (tailors), Faubourg Saint-Honore in Paris (designer boutiques), Deira in Dubai (jewelry), and so on. The cluster approach allows the rich and famous to be dropped off in front of the store, rush in and make a purchase that would make a small African country drool and then rush out into the safety of the limousine without having to rub shoulders with the rakyat.

With its double story street facing façade the luxury section or ‘couture precinct’ of the Pavilion is an exciting development in the evolution of the retail sector in Malaysia. But there is one thing missing from this development. That is a luxury Malaysian brand.

And as Malaysia moves from an Original equipment manufacturer (OEM) economy to an Original brand manufacturer (OBM) economy, and the government rams home the need to move up the value chain, the retail sector, where so many Malaysian OEM cut their teeth, should be at the forefront of this step up the value chain. Especially as according to the MasterCard Worldwide Insight report, the value of the market for luxury products and services in the Asia-Pacific region will jump from US$83.3 billion in 2007 to US$258.7 billion in 2016. Not a bad segment.

What’s more, there’s already a ready made market because the largest number of tourist arrivals to Malaysia is from ASEAN countries, followed by Japan and China with India and the Middle East not far behind. And the burgeoning middle classes from these countries are notoriously brand conscious.

This interest almost obsession with brands is likely to continue according to Radha Chadha, author of “The cult of the luxury brand”. She believes that the Asian interest in luxury products is because of the massive changes – social, cultural, economic and political that have been affected by the traditional attitudes to who you are and where you are in the societal food chain.

She believes that over the past 50 or so years, many of the traditional cultural indicators of social standing in Asia – profession, family, clan, caste have been eroded by the onset of globalization, migration and education. Free of rigid social hierarchies, mass migration and the development of urban areas, more people are making money and making it faster. The way to differentiate oneself is by purchasing a luxury product that shouted, “I’ve got money, respect me.”

Displaying one’s status through outward appearances of rank and wealth is nothing new but Asians seem to have taken to it like the proverbial duck to water. And those LV bags, Chanel suits, Jimmy Choo shoes aren’t simple female indulgences, they are part of a new world order that identifies the wearers position in society. Indeed, these luxury brands are a modern set of symbols that Asian consumers are using to redefine their identity and social position.

The Japanese have been devouring brands for years. 94% of Japanese women in their twenties own a Louis Vuitton bag. In fact, the Japanese as a whole are the most brand conscious and a staggering 92 per cent of Japanese women own a Gucci bag, 57 per cent own a Prada one, and 51 per cent own a Chanel bag.

In fact, Japanese passion for luxury brands is so huge that they account for over 40 per cent of worldwide sales for most major luxury brands. Meanwhile, Asia accounts for a third of Louis Vuitton sales worldwide whilst Cartier depends on the region for half of its worldwide sales.

And what of China? According to the China Brand Strategy Association, 175 million Chinese people can now afford to buy luxury products. By 2010 their number is projected to reach 250 million. Already, Chinese consumers are responsible for about US$10 billion of global luxury sales. Following the announcement of the US$586 billion stimulus that is expected to encourage increased spending, 70% of consumers confirmed that they will spend more in the next 6 months than they did in the previous 6 months.

Rolls Royce, the iconic British luxury brand owned by BMW, expects to double annual sales volume from 1,000 to 2,000 when the new, smaller ‘Ghost’ is launched in 2010, many of the early enquiries for the yet to be launched model are from Asia. Not bad considering each car will cost over US$200,000.

So, with all this new found wealth in Asia, the time is ripe for the development of Malaysian luxury brands. And the good news is, Malaysian firms know how to manufacture quality products. They’ve been doing it for years for iconic brands such as Apple, GAP, Guess, Ralph Lauren and other well known global brands.

But developing a luxury brand is also like raising a family – it requires a long-term commitment and investment, attributes that don’t sit well with corporate Malaysia. It also requires limited production, value over volume, even with a successful line. It also requires quality, not only in production but also in marketing and service, especially service. Training of staff is key. Walk into the Cartier store in Kuala Lumpur and the staff will assess you based on a number of pre-determined factors. Pass the test and they’ll offer you a bottle of champagne to anesthetize the pain of the purchase!

Ongoing research is also critical to the long-term success of the luxury brand. Back in 1837, when Hermes was building its brand, the founders lent new products to customers to get feedback on how the products could be improved. Zara applies the same tactics today. If a new line doesn’t sell, it is pulled off the shelves immediately and replaced with a new range based on customer feedback on styles.

One mistake many brands make is that they ignore existing customers, preferring to always acquire new customers. The successful luxury brands have an ongoing relationship with their best customers who become brand ambassadors and grow the family.

And for those cynics who don’t think Malaysians can build luxury brands or that there is any money in luxury brands, think of Jimmy Choo, the closest Malaysia has come to a luxury brand. Six years after Jimmy Choo sold his 51% stake in his own company for US$25 million, TowerBrook Capital Partners recently paid more than US370 million for ownership of the iconic brand named after the charming cobbler born in Penang in 1961. And with annual sales that have grown since 2001 at a compounded rate of over 45% to more than US130 million today, the purchase looks like good value.

Another British based private equity group, Permira, paid US$3.5 billion a couple of years ago for the Valentino Fashion Group. This was one of the most talked about acquisitions of the year because although Valentino is a well respected brand in Europe, it does not have the penetration in Asia of say Giorgio Armani. This is reflected in the global sales of US$340 million for Valentino compared with US$3.1 billion for Giorgio Armani.

There is also a strong argument to suggest that luxury brands are recession proof. At the end of last year, when the American economy was in free fall, Saks Fifth Avenue had a massive sale, offering huge 70% discounts on iconic brands such as Manolo Blahnik and even Prada. However, at the Louis Vuitton shop inside the luxury department store, nothing was reduced. Recently, Moët Hennessy Louis Vuitton announced that sales in its fashion and leather goods division, which includes Louis Vuitton, increased by 11% to $2.1 billion in the first quarter of 2009.

So, as the average tourist spends only 22% of his budget on shopping in Malaysia compared with 50% in Hong Kong and Singapore, the time is ripe for Malaysian firms to start building brands that can take pride of place alongside Canali, Ermenegildo Zegna, Jean-Paul Gaultier and Versace in places like the Pavilion, Star Hill and other prominent malls in KL.