A new shopping complex set to open this year may play an important role in redefining the Chinese luxury market.
The privately owned Shanghai Zonfa Commercial Management plans to open the Outletmart in the Shanghai suburb of Fengjing within the next several months, and is expected to encompass 15,000 square meters of shopping space. The mall will serve as a distribution center for luxury goods, and is being developed as part of a joint venture with Firmati & Griffati, an Italian wholesaler and fashion supplier. According to the South China Morning Post, the Outletmart “is being touted as an attempt to redefine the mainland luxury market.”
Indeed, the Chinese luxury market could use some good publicity. Since the Communist Party’s “crackdown on conspicuous consumption and corruption,” luxury retail sales have decreased, and the word “luxury” itself is now often regarded with suspicion. A part of luxury spending (116 billion yuan or US$18.9 billion last year) has come from gifting. In 2013, luxury sales growth overall declined to 2 percent from 7 percent in 2012.
“The luxury market is related to design and creativity,” said Richard Ding, Zonfa’s chief executive. “Unfortunately, however, it is synonymous with lavish spending and corruption in China.”
As Ding also points out, luxury consumers in China aren’t necessarily corrupt public officials, but members of mainland China’s “increasingly affluent middle class.” McKinsey, a global management consultancy, noted that these are “new mainstream consumers” with annual incomes that exceed 106,000 yuan (US$17,280), the level above which people can purchase cars for their families and luxury goods. Their numbers are expected to rise to 400 million by 2020.
According to the Bain & Co. consultancy, the Chinese, including shoppers from Macau and Hong Kong, were the world’s greatest consumers of luxury goods in 2013, spending 350 billion yuan. However, most purchases were made outside of the mainland, as luxury goods are almost 40 percent cheaper in other countries, in part because of China’s high tariffs.
The Outletmart, which will offer relatively affordable Italian luxury goods, seeks to redirect international consumer demand to domestic spaces. China has produced no established luxury brands, and consumer tastes veers toward foreign brands like Louis Vuitton and Chanel. In addition to the new shopping center, “Zonfa also plans to establish an institute to develop mainland fashion designers.”
“A developed and healthy luxury market in China will benefit the country’s move to push its products up the value chain with excellent designs and creativity,” Ding explained.
Although some mainland retail properties are feeling pressure from China’s growing e-commerce sector, professionals like Duke Zhen, head of retail at the property services firm DTZ North China, say the luxury market has little to fear.
“Online shopping has only had an impact on the physical stores dealing with mass-market products, such as low-end clothing shops, but it won’t bring a sea change to the whole retail industry. Some developers and operators appear to be prepared for the upcoming challenges,” Zhen said.
image credit: matthew stinson