Retail brands need to consider carefully whether to establish their China headquarters in Shanghai or Beijing. The majority of fashion brands has opted for Shanghai in the past, but Beijing, the country’s capital, has a lot to offer. In fact, Beijing makes more sense for certain brands.
Why? Let’s take a look at some of the characteristics of these two Chinese metropolises.
Today, with a large number of luxury and designer stores, Shanghai continues to lead the way as open and westernized fashion capital in China. But other cities are catching up rapidly. Beijing, Hangzhou, Guangzhou, Chengdu, and Shenyang, among others, all offer well-developed fashion and lifestyle brand landscapes, an appetite for foreign brands and more moderate government regulations than a few years ago. The argument of Shanghai’s openness and better developed fashion taste does not suffice any more to justify a brand’s investment into a head office location, or does it?
Shanghai’s strongest advantage that justifies the establishment of a local headquarter is its central geographic position in mainland China. So far, the majority of cities usually targeted for an expansion by brands are located in the East of the country, and all important cities in the North and South can be reached by plane in about two hours. Of course, this implies that the brand we are talking about does plan for a balanced expansion strategy into the North, South and West of the country. But should a brand plan its expansion like this?
This would depend on each brand’s unique positioning, financial resources and planned commitment to the Chinese market expansion, as well as their production capacities. In each case, a brand needs to analyze the different submarkets in Chinese cities and where the products might sell best based on local consumer preferences and culture. Marketing means and product offering may have to be adjusted accordingly, but need to remain part of an overall brand strategy and visual identity.
Many people know that Beijing, as the capital, is where most of the government and military bureaus are located and their employees are regular consumers of luxury brands. Furthermore, most media headquarters are based in Beijing. But it is also the city where most of China’s millionaires live and where most of the retail sales revenue is made (according to a report published by Hurun in 2012). People in the North travel less abroad and tend to spend a higher portion of their savings on luxury items as compared to residents in the South.
Shanghai has been promoted as China’s “Fashion Mecca” in the past, but the truth is, many luxury stores act as store front showcases only to create brand awareness, raise the image and pave the way for an expansion into smaller second and third tier cities. This sad fact is partly due to the fact that Shanghai is surrounded by other second Tier cities (Hangzhou, Nanjing, Wuxi, Suzhou, and Ningbo) which are all home to a range of luxury mall developments, and luxury sales therefore gets spread over the region.
By contrast, Beijing is a “stand-alone” market. It is no coincidence that most luxury brands have opened more and bigger stores in Beijing than Shanghai. These stores are designed to impress and showcase the brand heritage through oversized store dimensions.
China is a vast country with its submarkets comparable to Europe, and should be treated as such. To choose the best city for headquarters, brands would need to consider their requirements for government and media relations, availability of partners such as licensees or plants, and overall strategy for China.
Barbara Seidelmann is based in China since 2005 and has been working with different luxury brands. At 5 Star Plus Retail Design she advises on the Chinese luxury retail market, setup of stores and visual identity.
image credit: trey ratcliff