Beijing, Shanghai, Guangzhou and Shenzhen have long been recognized as the “blue-chip” cities for luxury retailers to expand into, but with market maturity and saturation, the big question is: which cities are best for luxury retail expansion in 2014?
As the competition in retail markets in tier 1 cities gets tougher, focus has shifted to other tiered cities. In particular, we will have a look at Chengdu, Chongqing, Hangzhou, and Shenyang, as these are the cities we feel have the most luxury market potential in the coming years.
As the capital of the Sichuan province, Chengdu was once better known for being one of the country’s leaders in economic, transportation and communication services than for its retail industry. That being said, in the early 2000s, the market in Chengdu was ‘ripe for the picking’ and since the expansion of the second ring road, the tier 1.5 city has become an attractive investment option for retailers and developers. Furthermore, the selected luxury store count increase from 2011 to 2013 was also one of the highest in the country, which could be attributed to the city’s rising popularity as a tourist destination by wealthy Chinese people with interest in luxury goods and considerable spending power. From our point of view, expanding into Chengdu is a must. Considering current urbanization rates, the EIU predicts that Chengdu will have a population comparable to the UAE by 2020, and with a healthy supply of future retail development projects, as Jones Lang LaSalle (2012) predicted, the retail market is expected to more than double in size by 2016.
Although Chongqing’s retail sales in 2012 were the fifth largest in mainland China, the city is still relatively unpenetrated by luxury brands. What does this mean for luxury retailers wishing to expand in the future? Lower market entry costs and less competition. Luxury brands that were quick to capitalize on the retail market in Chongqing have been handsomely rewarded, with Armani having its highest store sales in the country there, and Burberry Chongqing recording better end of year sales than its partner stores in Beijing and Shanghai.
What’s more, newly developed shopping malls are predicted to double the retail stock levels from the beginning of 2012 to 2016. Considering the many more people that will come towards the CBD as a result of urbanization, in 2020, urban Chongqing is predicted to have a population comparable to Portugal and thus the city presents itself as a great opportunity for retailers to tap into.
As a major hub city in China’s North East, Shenyang has great potential to be the one of the country’s premier shopping destination for luxury goods. Being a tier 1.5 city, the 2012 consumer goods retail sales in Shenyang seem surprisingly low, placing it just ahead of tier 2 Ningbo and tier 3 Wenzhou. In spite of this, Shenyang has a prosperous luxury retail market, with one of the highest concentrations of luxury stores in China. This is reinforced by the number of selected luxury stores increased from 21 in 2011 to 39 in 2013.
Shenyang’s urban population is set to exceed 10 million and become one of China’s many megalopolises by 2020, making it comparable to the size of Greece. With the city’s total stock to double by 2016, Shenyang’s claim to being the major hub in Northeast China remains relatively unchallenged.
An interesting fact is that Hangzhou is the only city in China whose habitants spend more money each year on fashion items than food. Like Shenyang, Hangzhou is a tier 1.5 city but falls into the lower end of the spectrum regarding annual retail sales of consumer goods. Despite this, Jones Lang LaSalle claims that Hangzhou has the most developed luxury retail market amongst all tier 1.5 cities. As shown in the graphic, luxury brands are continuing with their expansion into the city, with an additional 7 selected luxury stores established between 2011 and 2013.
The city is also known for having strong private enterprise and the rising standard of living in recent years has contributed to Hangzhou being the main hub for shopping in the Zhejiang province. According to Jones Lang LaSalle, there is ample space for more shopping centers to be established, considering the city’s abundance of wealthy people.
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.
Note: Opinions expressed by contributors do not necessarily reflect the opinions of the Red Luxury editorial team.
image credit: dvyang