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In 2025, New York will remain the second-wealthiest city in the world after Tokyo — with Shanghai zooming up to the number-three position from 26th place now. So what does that mean for international expansion and growth?
This story first appeared in the January 8, 2013 issue of WWD. Subscribe Today.
Nathalie Remy, a principal at McKinsey & Co., who spoke on “Navigating the Fashion World, City by City, to Unleash Growth,” provided some insights.
“Growth is shifting [because] the world is changing. It’s more volatile,” she said, noting too the rise of digital and the shift from West to East.
The latter is somewhat ironic, given that the world’s center of gravity back over 2,000 years ago to 1 A.D. was in China. As the world evolved, that center of gravity has moved West, and by 2025 will have moved back to China, she said.
There is also the growing power of cities, with about “600 cities generating about two-thirds of global economic growth in the next decade,” she said.
Tianjin in China was cited as having the gross domestic product of Sweden by 2025, although now it generates only about a quarter of Sweden’s GDP.
While stores now are likely concentrated in cities such as Los Angeles and New York, emerging cities include Shenzhen, Dallas and Kuwait City. Also growing in stature are cities many are still unfamiliar with, such as Pune, the seventh largest metropolis in India; Harbin in Northeast China, and Puebla, Mexico, located between the port of Veracruz and Mexico City.
Remy emphasized that growth in 2025 is “not just an emerging market” story.
“Growth is granular,” with growth in the cities spurred by sociodemographic and economic drivers.
Remy noted that, by 2025, Shanghai will have the GDP equal to both Poland and Portugal, with Moscow four times that of Ireland. New York will equal three times Denmark’s GDP, and Paris will have a GDP of Norway and New Zealand combined.
Women’s apparel will be 85 percent of the growth in the 600 largest cities for the luxury category, but only 60 percent in the middle-market apparel sector.
“The more upscale, less basic, will have more of the future growth in the largest cities,” Remy said, homing onto the fact that luxury and midmarket apparel sectors aren’t driven by the same set of factors.
The top five cities that will see midmarket apparel growth are Beijing; Shanghai; São Paulo, Brazil; Moscow, and London. In contrast, the top five cities to see growth in luxury apparel are Paris, Moscow, London, Milan and Seoul.
Companies planning on growth need a starting point, and when planning on where that footprint of expansion should be, it’s not necessarily Asia or Europe, Remy concluded.
“Companies need to think about where are the next 10 cities [they] want to establish a presence in,” she advised, rather than focusing on simply the top cities in each category.
There are three top strategic factors that need to be addressed if firms want to be successful, with the first being resource allocation: Are you putting money where your strategy is? You can’t focus on cities if you don’t have a city-level budget.
Also important is the go-to-market consideration: Operational and financial constraints might mean having local partners to take care of the short-term financing issues.
Remy also said organizational structure is important in considering expansion options.
She queried: “If Shanghai is three times [GDP of] Switzerland, should you have the same level of focus as [your operation in] Switzerland? And should your Shanghai manager be as important, or more important, than your country manager in Switzerland?”