China is expected to become the world’s top buyer of luxury goods by 2015.
Luxury spending by Chinese shoppers is expected to grow by 20% to $15.6 billion this year, according to Shaun Rein, managing director of China Market Research Group.
Yet, only 40% of luxury purchases are made in China.
More than half of Chinese luxury consumers buy their goods either in Hong Kong or Europe because of hefty taxes at home, better selections abroad, distrust of luxury goods sold at home, and bragging rights. These shoppers are generally from bigger cities like Beijing and Shanghai where mobility — to leave the country — is easier.
Most of China’s 1.3 billion people live in rural areas and they travel less often compared to their urban counterparts.
Yet a growing number in China’s smaller cities like Chengdu are amassing tremendous wealth. They are eager to display their success and willing to spend in China. Those living in the smaller cities are expected to drive domestic luxury consumption growth.
“Purchasing power is moving from first-tier to second-tier cities,” said Rein. “People don’t know where to put their money so things are really going very high-end right now,” he added, referring to government sanctions on car and property purchases in some cities aimed at curbing traffic congestion and inflation.
Many consumers are convinced that luxury brands are made to last. “The top brands are really good in terms of the quality, the material and the style,” said a woman named Luo. “And they will not go out of fashion,” she added, showing off a silver Versace handbag costing over 10,000 yuan and furry lace-up boots worth “several thousand yuan”.
Big spenders in smaller cities are not only clamoring for fashion goods like clothes, handbags, shoes, and cosmetics; they are also in the market for fancy cars, which have seen their sales slowed in the bigger cities.
Despite price tags as high as two million yuan, the Jaguar Land Rover shop in Chengdu sold more than 1,100 vehicles in 2010. Bentley has 18 dealerships in China, mostly in second-tier cities.
Although luxury companies want to open more stores in smaller cities; so far, finding ‘fitting’ real estate has slowed their expansion plans.