Forget stimulus checks; local Chinese governments are encouraging luxury buying as a means of increasing revenue. While there may be rumblings in top-tiered cities like Beijing about discouraging luxury spending, lower-tiered cities are preoccupied with raising money and their status – and bringing in luxury shops is the answer. A shining example of this is Chengdu, a second-tier city in southwest China.
The Chengdu government, according to Chengdu Today, has set a goal to bring 20 famous international brands to Chengdu every year. The magazine also reports that by 2015, primacy ratio of international first-tier brands will reach 80% or above in western China. According to the Chengdu Retail Industry Association, 80 percent of international luxury brands already operate in the city, which is ranked third behind Beijing and Shanghai in luxury sales.
The plan is already working. Chengdu’s retails sales for 2010 reached $5.8 billion. Much of that went to luxury brands like Hermes, Burberry, and Prada. Chengdu’s Louis Vuitton store alone earned $138 million, and the city’s Cartier location generated more revenue than any other location in China.
Chengdu Today magazine recently profiled the city’s luxury consumers. While their incomes range from zero to 6 figures, residents on average spend between 10 and 16 percent of their annual income on luxury purchases. Those with wealthy spouses or parents to supply additional income spend considerably more.
The success of this government initiative is bolstered by Chinese society, which tends to be very conscious of status.“When I left China 20 years ago, I was considered too ‘burgeois’ because I liked to put on pretty clothes while others still wore Mao suits. Those days are long gone,” says Helen H. Wang, an author and expert on China’s middle class. “Today not being ‘bourgeois’ is a subject of public ridicule.” According to Wang, fashionable Chinese women pair Gucci and Versace accessories with their favorite jeans just to assert their place in society.
Whether students or business owners, members of the Chinese middle class are freely participating in the luxury-buying phenomenon. Thanks to this demographic’s response to the government’s encouragement, McKinsey estimates that China will trump Japan as the world’s largest luxury goods market by 2015. Middle-class consumers surveyed by Chengdu Today called luxury goods “necessities,” “investments,” and a way to achieve “spiritual satisfaction.” In that case, Chengdu is nothing short of heaven.
photo: shangri-la hotel chengdu