Who are the most loyal consumers in China’s growing luxury market? The answer, according to Michael Cembalest, the Chief Investment Officer of J.P. Morgan Private Bank, is the fast rising Chinese middle class.
He wrote in a June 1 research note that luxuries are considered to be the second must-buy as soon as a Chinese hit the middle class. A car is the most desired.
Cembalest added luxury brands are highly recognizable among Chinese, especially Louis Vuitton and Gucci, which directly tells the reason that a string of luxury stores opened in downtown Shanghai in the past three months, including Gucci, Tiffany, Cartier and Louis Vuitton’s biggest flagship store in mainland China.
The official English language paper China Daily reported these high-end companies planned to get as many consumers as they could during the Shanghai Expo, a national event which is expected to lure tourists from all over the country.
Cembalest suggested in the note that companies should look out of tier-1 cities for new opportunities. Lu Xiaoming, CEO at Montblanc International’s branch in China, agrees with him.
“Around 70 percent of wealthy Chinese are living outside of tier-1 cities like Shanghai and Beijing, so tier-2 and tier-3 cities should be our next target,” he said at a luxury marketing conference held by China Europe International Business School in March this year in Shanghai.
A convenient and economic way to achieve it is through opening online stores, suggested Michel Chevalier, a professor at the University Paris Dauphine and an expert of luxury retailing, adding the monthly rental fee in China’s top shopping centers is too expensive for companies to make sweet profits.
“For example, a typical rental fee in a shopping center in Shanghai is close to 40% of it is in Tokyo, while these Shanghai stores only generate 20% sales of their peers in Tokyo,” he said at the conference.
But opening online stores could be risky. According to Chinese local media, a growing number of fake official websites, including fake Gucci, Omega, Louis Vuitton and even some famous cosmetics brands, have quickly gained access to consumers around China, posing a threat that can not be ignored.