NEITHER PHILADELPHIA nor Nashville rates a Louis Vuitton store yet, but the 338th boutique of the world's largest luxury brand is minutes away from opening for business in Qingdao, a Chinese sea resort whose best-known export is Tsingtao beer, the beverage of choice with Chinese takeout. As luxury events go, today's festivities are peculiar. A feng-shui master dressed in a fleece jacket and brandishing a Budweiser lighter presides over a makeshift red satin altar with 15 offering bowls of rice and vegetables in the parking lot of the 38-story Crowne Plaza Hotel, where the boutique is located. With Scarlett Johansson looking on from an advertising light box, the master waves over two of Vuitton's top Asia executives to light incense sticks. Water is sprinkled in the far corners of the boutique, and a troupe of lion dancers wearing gaudy costumes and accompanied by drums and cymbals leaps around at the entrance to the store. The papier-mâché lion's head "eats" a red envelope of "lucky money," then unfurls a banner proclaiming RICHES, HEALTH AND PROSPERITY.

After the traditional ceremony, the scene shifts dramatically to something very New China. Vuitton's local partner, Sandy Kuk, a scion of a Qingdao family with interests in shipping and transportation services, mingles with an Italian entrepreneur who is building marinas and sailing schools along the coast. (Qingdao, pop. 7 million, will play host to the sailing events of the 2008 Olympics). Editors from Chinese Marie Claire have flown in from Beijing. In walks Qingdao's vice mayor, Yu Chong, with several Communist Party officials. He is quickly introduced to the young actress Li Bingbing, who is shod in mint green feather mules. Toward the end of the glamour-filled evening, a party official comments that Vuitton brings prestige to the city. François Delage, Vuitton's Hong Kong— based executive vice president for Asia-Pacific, who has pushed for a store in Qingdao for years, is so delighted that he high-fives the startled vice mayor.

Although most fashion headlines trumpet the monumental luxury shops opening in the capital, Beijing, and in China's most glamorous metropolis, Shanghai, the real news is the brands' push into the provinces, to cities like Dalian, Chengdu, Xi'an, Hangzhou and Qingdao. Harbin, in the far north, is next. Establishing a store in a capital city can be many things besides a business venturea prestigious calling card, a listening post or sometimes a token of wishful thinking back in Paris or Milan. But rolling out products and hiring teams in secondary cities signals a company's conviction that there's serious profit potential. Are the luxury brands overdoing it by launching stores in far-flung outposts? Marie Claire's fashion director, Angela Liu, in Qingdao for the Vuitton opening, looks surprised at the question. "Oh, no," she says. "I think it's just beginning."

Experts say China is the best thing to happen to the luxury companies' bottom lines since the Japanese became addicted to logos in the 1980s. China will be the new Japan, suggests a report published in December by Goldman Sachs. Japanese consumers currently account for an estimated 41% of global luxury sales. The Chinese (including residents of Hong Kong) already account for 12% of the total, most of which is generated by travel purchases. Noting a penchant for status symbols and a rise in conspicuous consumption, Goldman Sachs analyst Jacques-Franck Dossin estimates the Chinese will account for 20% of total sales in 2008 and "become as important as the Japanese by 2015." Affluent Chinese tourists are already spending more than Japanese tourists, according to Vuitton's Delage. If the brands play it right in China, says Dossin, the valuation of some luxury stocks could increase 15% in the next few years. Most likely to benefit are Vuitton's parent, LVMH Moët Hennessy—Louis Vuitton, and the Swatch Group, which owns Omega, Longines and Rado, the watch brands with the biggest sales in China.

Thus the ribbon-cutting frenzy among European chief executives and fashion designers. For years, most Chinese luxe consumers were male, often businessmen and government officials, so men's fashion brands such as Hugo Boss did particularly well. But the gender gap is closing as economic development—and household wealth—increases. Giorgio Armani traveled to Shanghai last April to open his fifth store in China, with flower and chocolate counters at Three on the Bund, the renovated former Union Insurance Co. building. Though he has been relatively late to the market (his first store in mainland China opened in 1998), the Italian designer plans to have a total of 30 stores for his various lines by 2008. Italian footwear firm Tod's opened its second mainland store in December and plans to open 20 more in China within five years. Prada chief executive Patrizio Bertelli can top that. He says he's gunning for 13 store openings by the end of 2005. Gucci's new chief executive, Robert Polet, told analysts in December that China will be a focus for store openings. Chanel, with two stores on the mainland, is treading more cautiously, focusing expansion on perfumes and cosmetics rather than fashion.

Given the explosion of new retail outlets where dusty, state-owned stores not long ago sold a narrow selection of frumpy clothes, the Chinese are becoming born-again shoppers. At Hangzhou Tower shopping center in the wealthy lakeside resort town of Hangzhou, two hours from Shanghai, the sales staff is dragging; the mall's management asked stores in December to extend the usual 10 a.m.-to-10 p.m. hours to 1 a.m., seven days a week. Those contraptions the cashiers are hoisting onto the counter? Money-counting machines. Most Chinese consumers still have not warmed to credit cards and prefer to pay in cash, even if the tab is the equivalent of several thousand dollars.

In Shanghai, the luxury-brand roll-out has become one of the main engines of the social scene. The night after Vuitton's opening in Qingdao, the most sought-after invite was for Cartier's "Rouge" party to celebrate its store opening on the Bund, the historic row of banking and shipping buildings along the Huangpu River. Neglected for decades under communism, the Bund is fast becoming the most prestigious address for luxury brands and swish restaurants, even though insiders say steady traffic into the stores is several years away. Cartier's Shanghai party was the largest of a pack of openings in China—seven in two months. Perched amid the gold palm trees and go-go dancers at the gala was Nora Sun, granddaughter of Chinese revolutionary Sun Yat-sen. (Fashion trivia: he's credited with designing the Mao suit.) An ebullient woman who tops the guest lists of Shanghai hosts, she moved to the city in the 1980s as a U.S. consulate official and now has a private consulting business. "Never when I returned could I have imagined this," she says.

There are continual reminders that the market is still fragile, however. Machines spritzing disinfectant at the entrance of the luxury Plaza 66 shopping center recall SARS (severe acute respiratory syndrome), a disease that devastated Asia in spring 2003. The passenger-car market increased more than 70% in 2003, but the growth rate slowed to less than 20% last year after the government tightened car financing (a reminder that it can handily rein in consumption whenever it decides to), says Hachette publisher Hugues de Vautibault.

Expect hiccups, shrugs worldwide Vuitton president Yves Carcelle. Fashion managers, like those in other sectors, have been waiting on China for decades. In hindsight, Pierre Cardin's splashy runway shows in Beijing and Shanghai in 1979 seem naively optimistic, coming, as they did, only six years after bell bottoms were banned as symbols of decadent Westernism. Vuitton had planned to be a pioneer too but scrapped an '89 store project after the Tiananmen crackdown that year. When the company finally moved into China, in '92, it chose a basement location at the Palace Hotel in Beijing. "We had launched in so many markets before, but China was very different," Carcelle says. "When the [first] store opened, I called the store manageras I always do on the first dayto say, 'Good luck,' and she was very emotional. I thought perhaps she was nervous to speak to the president. I was told, No, it's her first call from abroad."

Without glossy magazines for advertising, Vuitton orchestrated two public relations events that competitors agree helped cement its position as a market leader in China. For two months in late 1997 and early '98, a touring exhibition on the history of luxury and Vuitton pulled in 45,500 people in five cities. Later in '98, Vuitton sponsored the five-day classic-car China Run from Dalian to Beijing, which drew more than 6 million people. "Some mayors gave the day off," Carcelle remembers. "Today we can't know the time frame. Ten years is probably safe. But now I think the development of the Chinese economy is irreversible."

When brands decide to step up their presence in China, they often come to see Lawrence Lam, general manager for China retail at Imaginex, which oversees 200 stores for upscale brands, including Hugo Boss, Coach, Gucci, Chopard and Marc Jacobs. Lam tells new arrivals to put away their grossly simplified population statistics—that 1% of 1.3 billion people equals 13 million luxury customers—and cautions that many brands take five years to break even in China. He points to Sichuan province's Chongqing, with an official population of 31 million but per capita buying power of only $631 a year, as an example of how population statistics can be misleading. Other smaller, wealthier cities hold more immediate potential for expensive brands, Lam says.

That said, the rapid increase in travel points to a changing Chinese lifestyle—one that is on the move, in which shopping will feature more importantly than ever before. Some 20 million Chinese traveled abroad in 2003. The projected number for 2008: 49 million. By 2015, Chinese tourists will number 100 million, according to the Economist Intelligence Unit, a research arm of the Economist magazine. Travel is sure to heighten interest in luxury goods.

In such a rapidly evolving environment, anticipating retail locations for any brand is challenging. "At any moment you have 300 major shopping projects being built," says Vuitton's China general manager Christopher Zanardi-Landi. "In other fashion capitals of the world, you don't see streets changing overnight." Vuitton has often opted for hotel locations. Typically, hotel groups are financially stable partners, allow brands more control over the look of their boutiques than shopping centers and, with a substantial business clientele, guarantee minimum traffic levels of target customers. In Hangzhou, Gucci and Prada are part of a new, smart-looking store built by Lane Crawford, the Hong Kong department-store group that is sister company to Imaginex. But the entrance to the Gucci store is littered with paper and smells of French fries. McDonald's has moved in next door.

The luxury brands know that stores are one of their most important ways of communicating with future customers. On a Sunday evening outside the ritzy Plaza 66 shopping center in Shanghai, a young Chinese couple pauses in front of Vuitton's dramatic optical-illusion glass façade and looks in the windows. She's toting a fake Gucci backpack; he's got the camera. They don't go in, but they ask a stranger to take their picture with Scarlett. The purveyors of Western luxury are betting that someday soon, they just might buy. •