Global brands wishing to open flagship stores in the Chinese luxury market should be aware of where most millionaires are located in China.
It is in the best interest for luxury brands to expand into cities that not only boast strong economic growth, but they are homes to many of China’s wealthy individuals; the Hurun Report in 2012 revealed that China is now home to over one million millionaires.
It is also important to determine the number of luxury stores at these locations, as this will give an idea of the level of market saturation and competition future stores face.
So is there a direct relationship between the number of millionaires and luxury stores in China? We think so. The figure below shows the millionaires in China worth over 10 million RMB and the number of selected luxury stores* present in these cities.
As seen, the majority of Chinese millionaires reside in the tier 1 cities, with Hangzhou also making it into the top five. Not surprisingly, Beijing and Shanghai have the largest retail footprints (112 stores) and share a combined total of millionaires closing in on 340,000. There is also some correlation between the millionaires and luxury stores for the first seven cities, ranging from Beijing to Wenzhou, but the trend becomes less apparent from Ningbo onwards. Why is this so? We believe the consumer behavior in each city is greatly influenced by its geographical location in China; that is, North, South or West of the country’s center.
Consumers of Southern tier 1 cities Guangzhou and Shenzhen have a stronger tendency to travel to neighboring Hong Kong to buy luxury items at cheaper prices due to lower import and consumption taxes. There is also a cluster of top-ten-millionaire cities (Hangzhou, Nanjing and Suzhou) surrounding Shanghai that have well developed luxury markets. In fact, a recent profiling of the Chinese retail market (Jones Lang LaSelle, 2012) affirmed Hangzhou as having the most developed luxury retail market amongst the other tier 1.5 cities.
What about the Northern Chinese cities? Shenyang – which doesn’t have enough millionaires to make the top ten – is considered as having one of China’s largest concentrations of luxury stores and retail space, making it an important destination for luxury shopping in regional China. This is supported by the graphic, where we can see that Shenyang has the third most number of selected luxury stores in the country, despite having fewer millionaires than the majority of cities.
Also situated in the North, Beijing’s neighbor Tianjin has received considerable interest from international big name brands, with the recently opened Galaxy Shopping Mall bringing in dozens of luxury brands. However, a presence of supply doesn’t necessarily mean that there is demand, and while the luxury retail landscape of Tianjin is slowly evolving, it is still in its early stages of development.
In the West, Chengdu also shows a similar trend to Shenyang, with only 16,000 millionaires, but has 55 selected luxury stores. In fact, a case study by the Economist Intelligence Unit identified Chengdu as a premier real-estate market and a place for luxury shopping, especially since big-name boutiques such as Burberry, Louis Vuitton and Prada have opened up flagship stores in the luxury shopping mall, Yanlord Landmark (bottom).
Aside from the top tier cities, we can also see that tier 2 Ningbo and tier 3 Wenzhou have a healthy number of rich Chinese individuals but a relatively low number of selected luxury stores. This is because their respective luxury markets are still in the early stages of development. Perhaps then, 2014 isn’t the year for these lower tiered cities, but if the favorable growth rates China has experienced in recent years continues, then it won’t be long until we see them enter the luxury market as real contenders.
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: yanlord landmark