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TESS VIGELAND: Today's numbers on consumer spending prove there's no sector of the retail economy that's not taking its lumps in this downturn. For a while it looked like designer labels might be somewhat recession resistant. Now, however, they're looking at a decidedly unluxurious 2009, with sales projected to fall 5-, possibly 10 percent.
As the fallout from the financial crisis spreads, everyone's looking for places to cut costs. Rolex and Chanel have laid folks off, and many top brands are shifting production to China. Yes, even the ones that used to pride themselves on being European through and through.
Our China correspondent Scott Tong reports.
SCOTT TONG: Shop at Burberry or Louis Vuitton, and you're buying a piece of Old Europe, right?
Retail consultant Paul French says not exactly.
PAUL FRENCH: Burberry will always show people out on English country estates. Louis Vuitton will always show people looking very glamorous walking through streets in Paris. Just don't confuse that with the fact that the bag is now made in China.
Bags, sweaters, shoes. . . . In the last decade, most European designers have shifted production to China. Brands like Dolce & Gabbana, Prada, Armani and Bally. In some cases, they hide it.
Giorgio Bonacarso is a chemical supplier. He sells to Chinese shoe factories that make Italian brands.
Giorgio Bonacarso: Today, many of these brands will do some part of the operation here in China, and they will finish the shoes in Italy to be allowed to still put "Made in Italy," even if it is not made in Italy.
It's not illegal per se. Labeling laws have wiggle room, depending on the country. They're based on the final point of production, or what percent of a shoe's value is added where.
Critics find it all misleading. But to Bonacarso, the real untold story here is that China is increasingly making the best stuff in the world.
Bonacarso: China can offer something that Italy absolutely now cannot offer. That is, to be flexible. It means to be fast and precise.
Take the Risen Shoe factory in the southern city of Dongguan. Chinese workers shape and stitch coral pink sandals that'll go for $250 this summer at Bloomingdales. That's double each worker's weekly income.
Dorothy Goh helps manage in this workshop.
Dorothy Goh: These shoes are high-end brands. This shows that China's factories are capable of making high-end shoes.
The brand in question demands confidentiality from its suppliers, so I can't name it. But you've heard of it before.
Shoe supplier Bonacarso says factories like this can adjust easily to last-minute changes to an order, say, an extra stitch. He says try that with an Italian workshop.
Bonacarso: The mentality is, "Not so fast. We have to do very easy. I want to know when you will pay me. I want to know if the shoe is fine." They are very complicated. In China, no. Everything works much more fast.
But Bonacarso says 9 out of 10 of the top European brands now make their shoes in China -- just very quietly.
Consultant Paul French explains why.
French: There might be a backlash, where people say, "Well, hang on a minute. We know that your heritage is luxurious. You started in the backstreets of Paris or Milan or wherever. But now you're just producing out of factories in China." And if people start to question that, then they feel they could have a problem. So it's better just not to talk about it.
But will luxury consumers really get turned off?
Shanghai art gallery owner Gan Weiwei owns 25 Louis Vuitton handbags.
She doesn't care where they're made.
Gan Weiwei: Made in China is not a problem for me. We all know it's a global village, about low-cost production. To me, buying brand names is about buying design, philosophy, trends.
Increasingly, shoppers like her matter. By one measure, China is the number three luxury market in the world, right after Japan and the United States. So for designer brands, making the goods and selling the goods here offers one extra perk: It cuts down on shipping costs.
In Dongguan, southern China, I'm Scott Tong for Marketplace.