This week in the news, Costa Coffee hopes to make China its second home by opening 400 more stores by 2017; Chengdu, Chongqing, Hangzhou, and Shenyang are the four cities with the most luxury market potential; luxury shopping lists have changed as China’s luxury consumers mature; the connection between millionaires and luxury stores is examined; and e-commerce is booming in China’s lower-tier cities.
British coffee chain Costa Coffee started opening shops in China six years ago as part of a strategy to ‘make China our second home’, according to Andy Marshall, managing director of the company’s international franchise business. The company will open 400 more stores in China, bringing its store total to 700 by 2017. Costa Coffee will compete with rivals like Starbucks, which has been very successful in China by building stores to suit local preferences and elevating the experience factor. Starbucks is the standard for coffee sellers in China, but new entrants are arriving every day with Chinese coffee consumption skyrocketing. Based on research from Mintel, the number of coffee shops in China has doubled from 15,898 to 31,283 between 2007-2012.
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 lower-tiered cities. In particular, Chengdu, Chongqing, Hangzhou, and Shenyang are the cities that will have the most luxury market potential in the coming years.
Chinese travelers have long become equated with their extensive shopping lists. Getting onto the luxury shopping list used to be top priority for luxury executives. How has this list changed as luxury matures in China? Women traveling for the first time have between 2 and 30 items carefully researched and prepared on their list. Most travelers who have been abroad more than 5 times only have 1 or 2 prepared items on their shopping list. These women continue to spend the same amount on each shopping trip, they just indulge more in impulse buying as they become more comfortable with overseas purchasing.
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. 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.
Low-priced, high-speed smartphones are driving explosive growth in online purchases among the residents of China’s smaller cities and rural areas, which is causing international brands to rethink their business strategies in China. China’s relaxing of restrictions in cross-border e-commerce in 2013 has led a number of international brands, such as Gap and Zara, to establish e-commerce platforms through their own websites or third party online retailers like Tmall.com. With this new influx of international brands, the McKinsey Global Institute forecasts that China could generate $650 billion in online revenue by 2020.