The scene of luxury has changed.
10 years ago, luxury brand were surrounding luxurious hotel and clients could buy any brand in any part of the country without leaving their hotel. Now that the market is fully mature in the main cities of China, brands are expanding into tier-two cities with Chengdu in the top position ! Therefore, now that the market has been invested, those provinces destination are experiencing an over-saturation.
The McKinsey & Company released a report saying that China had recently surpassed Japan as the world’s top consumer of luxury goods. This is partly due to the spending growth coming from second and third-tier cities. Max Magni, one of the principal associate at McKinsey in Hong Kong, added that « China’s tier-two cities are becoming extremely important. It’s the natural evolution of the market. In Beijing or Shanghai, consumers were already spending a good amount of money five or six years ago. But now consumers in tier-two cities are spending to show off their wealth »
The trends are changing
Before Chinese luxury customers were mainly doing their purchasing abroad during holidays in Europe or America. On of the reason why was because of the huge import duties that luxury goods had. The prices in China were between 10% and 40% more expenssive than the Western prices. Nowadays though, Chinese no longer limit it to trips abroad. They are getting welthier and lazier and do not hesitate to treat themselves with a good life style and fancy gifts near by their home.
They usually prefer to buy smaller luxury goods, like accessories, than larger ones, like vehicules or properties. As Paul Husband, managing director of Husband Retail Consulting firm in Hong Kong, says : « You can’t wear your yacht or your car the same way you wear your Cartier watch ». Starcom MediaVest Group, a global marketing and media company, records that more than 1/3 of the luxury spending in China is coming from outside of the 3 main cities : Beijing, Shanghai and Gangzhou. In those last cities, customer spending should increase by about 8% per year and in other smaller cities, the growth rate will double before next year.
A delicate market
Therefore, this increadible growth isn’t going to last for ever as the market will eventually get stuck. Tier-two cities will soon get inundated. There are already 47 Louis Vuitton stores from which 36 are situated in second and third-tier cities, 105 Tommy Hilfiger stores in 79 cities and even 300 Armani stores located in 60 different cities of all part of China. Even in th autonomous area like Tibet or Xinjiang. This bubble will sooner or later explode and luxury brand won’t have any other choice but closing stores. Experts recommend to approach this market carefully and to be wise when choosing the cities you want to settle. The customer experience has to stay as unique and authentic as the one they will find in big capitals of the Western world.
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