A day after its worst financial report in years, management at Victoria’s Secret still woke up with a good reason to smile today: the “soft” launch of its first flagship Store in Shanghai signalled the prospect of better times ahead.

The long-awaited opening yesterday of the lingerie emporium on ritzy Huaihai Road attracted “thousands of shoppers,” according to the China Daily News, and generated buzz throughout China’s fashion sector. An official grand opening will be staged next month, with several of the company’s Angel models expected to be on hand to ensure a massive turnout.

The Shanghai store is housed in the former Louis Vuitton location on ritzy Huaihai Road, home to many foreign luxury brands (Hermès is across the street). With 16,000 square feet of retail space over four floors, it’s a far cry from typical Victoria’s Secret outlets found in malls across America.

The company tested the Chinese market by opening more than two dozen smaller “concept” stores over the past few years, selling only beauty products and accessories. The Shanghai megastore is the first to stock the brand’s complete lingerie and clothing lines, and will be followed soon with another flagship store in Chengdu.

The timing couldn’t be better for the world’s biggest lingerie retailer. Plagued by declining sales and a turnaround strategy marred by stumbles, the company has a lot to gain — and lose — in mainland China.

Yesterday, the annual financial statement from parent company L Brands showed an 8% drop in net income and projected a 20% year-over-year decline in February sales for Victoria’s Secret. The news deflated L Brands’ stock by 17% overnight, plunging to its lowest level in four years.

Much of the weakness in Victoria’s Secret’s recent results is attributed to its decision last year to abandon its swim and apparel categories and shutter its print catalogue — both moves that siphoned revenues. Its mid-year leap into the bralette market may have hurt, too, as the cheaper soft bras took sales away from the brand’s higher-profit structured bra collections.

China, however, holds enormous promise for brands like Victoria’s Secret. Its underwear and lingerie market is estimated to be worth $25 billion (USD) annually, double that of the United States, and lacks a single dominating megabrand. The Chinese market is also growing at about 10% per year, driven by Chinese women’s embrace of fashion-centric Western-style undies.

China has already proved lucrative for other lingerie brands, which can use rich profit margins to prop up their retail struggles in the west.

Agent Provocateur, teetering on the brink of insolvency at home in Britain, opened its first Hong Kong store two years ago and now runs 14 high-end boutiques in half a dozen cities, with plans to add another 20. Italian luxe label La Perla has dedicated enormous resources to establishing itself in China: since 2007 it has opened 11 stores, led by its opulent Russell Street flagship in Hong Kong. European brands like Etam, Triumph and Aubade have had a presence in China for years and even UK indie label Bluebella is planning to launch its sexy boudoir collection there this year.

The appeal of Victoria’s Secret in the Middle Kingdom may have a lot to do with its middle-class status in America — fashionable styles offered at relatively affordable prices — and its media saturation in the West, due largely to its busty supermodels.

But conquering the Chinese market also means careful handling of cultural values and consumer tastes that are particular to the country. For example, Chinese women typically purchase 70% of their undergarments online for reasons of privacy — a fact that may work against big retail palaces like the new Shanghai store. Another distinction it that Chinese women, on average, have smaller bust sizes than North American women, which will make Victoria’s Secret tailor its product offering to the marketplace.

And, importantly, it will have to rethink the kind of va-va-voom marketing that drives brand awareness in its Western markets. Those “bombshell” promotional campaigns for push-up bras won’t translate into the same kind of sales in China as they do in America, and some of its more explicit marketing — like last year’s lingerie-as-outerwear promos that encouraged women to show off their bras in the workplace — would be hugely offensive in a country where personal modesty is still important.

The company learned the hard way last fall how easy it can be to misjudge cultural sensitivities in China. Despite casting four Chinese models in last fall’s Victoria’s Secret Fashion Show to lure Asian viewers, it was the appearance of a modified dragon-like costume (top photo) that provoked outrage among many Chinese viewers and fueled accusations of cultural appropriation.

Judging by yesterday’s debut, though, that sin appears to be forgiven or forgotten. Instead, local fans are eagerly awaiting the next move in the company’s China strategy: longstanding rumours that this year’s VS Fashion Show may be held in Shanghai. Stay tuned.