By  on December 29, 2010

SHANGHAI — It was once the case that cities like Shanghai, Beijing and Guangzhou represented the biggest opportunities for luxury brands in China.

Not anymore.

Now China’s increasingly wealthy second- and third-tier cities are the new battlegrounds for luxury retailers trying to capture a share of the country’s nouveau riche, who have buying power combined with a voracious appetite for high-priced products that show off their fortunes. Sixty percent of new growth opportunities for luxury companies are in such cities, according to research from Bain & Co.

“In Shanghai and Beijing, it is all done,” said Eugene Tang, Jones Lang LaSalle head of retail for China. “They [luxury retailers] are having very good sales in the second-tier cities and also the demand is tremendous. These people have been used to going to Hong Kong or tier-one cities to shop, and now they can actually do it at home.”

Figuring out when and where to expand to can often be a challenge. Beyond Shanghai and Beijing, cities like Hangzhou, Tianjin, Nanjing, Dalian, Suzhou and Shenzhen have long ranked at the top of the list for opening new locations among luxury brands. But beyond those locales, nearly everyone has a different take on where the next hot spots for luxury retailers will be.

WWD compiled a short list of six cities that were mentioned frequently by industry insiders due to their high proportion of wealthy residents, existing presence of luxury retailers or future potential for growth. The cities, profiled below, are Wenzhou, Zhuhai, Chongqing, Hangzhou, Urumqi and Fuzhou.

Still, analysts warned that luxury brands should proceed with caution. There are considerable hurdles when it comes to expanding in China, and experts said retailers need to be cautious about the purchasing power of consumers, the availability of appropriate real estate and finding and training suitable staff as well as many other factors.

“In each of these cities, there are multiple considerations going into opening a store,” said Yuval Atsmon, an associate principal in McKinsey’s Shanghai office. “I would be careful. They [luxury retailers] need to make sure they have fully exploited the opportunities in the top cities first.”

Here, a look at some of the cities that are seen as potential fertile ground for luxury brands.

 

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