Shaping The New Looks; The new rich of the developing world are not only attracting posh brands but helping determine luxury trends.(Cover story)

Byline: Emily Flynn Vencat (With Quindlen Krovatin in Beijing)

At a swish Paris dinner on the eve of L'Oreal's annual financial-results announcement in February, guests drank champagne and mingled over canapes--but that's where the resemblance to a typical Parisian luxury event ended. Guests chatted in English, German and Mandarin as well as French. One managing director paused before handing out his business card to make sure it was the French, not the Chinese, version. Most notably, the consumer everyone was discussing wasn't the stylish European mademoiselle worrying about wrinkles but the young Chinese woman craving whiter skin and the Indian lusting after bright Bollywood-style eye shadow. Thierry Prevot, managing director of L'Oreal Asia, noted that L'Oreal's definitive "wet lipstick" look last season arrived in Europe and America by way of the Asian market, where it launched first. Cracking a playfully contentious smile, he added: "Asian women are the [world's] most sophisticated consumers."

Shanghai, Mumbai and Moscow are set to join Paris, London and New York as luxury style capitals of the world--not only getting the latest Prada show, Armani boutique and Bentley dealership, but also setting the agenda for what the rest of the world wants. At Mumbai's Lakme Fashion Week last month, buyers from Brown's in London and New York's Saks Fifth Avenue kept a close watch; already they carry a handful of collections by innovative Indian designers like Abu Jani and Sandeep Khosla. Western arbiters of beauty now covet distinctly foreign models. Chinese "Memoirs of a Geisha" actress Ziyi Zhang, Indian Bollywood star Aishwarya Rai and Russian supermodel Natalia Vodianova recently landed top spots on the "Most Beautiful Women" list compiled by Britain's blueblooded Harpers & Queen. All three appear in the global marketing campaigns of such companies as L'Oreal and Calvin Klein. The advertising campaign for Motorola's eye-poppingly popular RAZR phone (a best seller in Asia, America and Europe) was originally designed for the Chinese market. "Today, if a product doesn't work well in every market, it's not well conceived," says Bernard Fornas, CEO of Cartier International. "Beauty has no borders."

Does that mean the developed world is losing its hold on luxury? Already the third biggest luxury-goods consumers, the Chinese are on their way to displacing the Japanese as the world's highest-spending buyers of luxury products by 2014, when analysts expect the country's rich to account for almost a quarter of global luxury sales. By 2010, China will have a quarter of a billion consumers who can afford luxury products--17 times the present number, predict analysts at Ernst & Young. Experts estimate that India--where half the population is under the age of 25--is as little as five years behind China. Already, China has 300,000 millionaires, Russia has 88,000 and India has 70,000. All in all, says Merrill Lynch analyst Antoine Colonna, there are 15 million consumers in China, Russia and India who can afford to buy luxury goods today. And they are more willing to do so than their developed-world counterparts; it's not uncommon for affluent, educated young Chinese to spend a month's salary on a Gucci belt or Louis Vuitton handbag. Russians spend 13 percent of their household budgets on clothes and shoes--more than double that of the Japanese and British.

The never-ending list of luxury stores opening in China makes it seem as if the streets there are now paved with platinum: Giorgio Armani has plans for 30 new stores by the end of 2008; Louis Vuitton hopes to open 13 next year; Bulgari is planning six for this year alone; Dolce & Gabbana is moving into Shanghai and Beijing later this year for the first time, and Montblanc says it will have 200 boutiques across China by the end of the decade. Bentley sold more of its $1.2 million Mulliner limos in Beijing than in any other city in the world last year. Cartier expects 10 percent of sales to come from China as early as 2012, and has begun branching into other developing markets including Ukraine, Georgia and Kazakhstan.

If China's streets are ...