Forget about Beijing, Shanghai and Guangzhou, or rising retail hot spots like Chengdu and Xi’an. The fastest luxury growth is coming from cities even most Chinese scarcely know such as Kizilsu Kirghiz, Shihezi, Nujiang Lisu, Shannan, Rikaze and Kelamayi, according to a report from Deloitte and Chinese e-commerce luxury platform Secoo.
The report examines luxury goods consumption in markets across China’s lower-tier cities, and what brands can do to seize the opportunity. It was released during the second edition of China International Import Expo in Shanghai.
China spent $145.7 billion on luxury goods, or 42 percent of the $347 billion global luxury goods market in 2018, according to Deloitte. Thanks to technological advancement and favorable government policies, the online consumption growth rate of luxury goods in China reached 37 percent, accounting for nearly 14 percent of the total domestic market, and in 2019, online sales of luxury goods are expected to exceed $7.3 billion in China.
First-tier and second-tier cities represent 56 percent of China’s luxury goods consumption, but lower-tier cities show strong growth in spending and purchasing power, according to online consumption data collected by Secoo over the past year.
Third-tier cities and below in Xinjiang, Yunnan and Tibet autonomous region and Gansu and Guizhou provinces swept the top 10 spots in all three categories: annual purchase frequency, the number of repeat consumers and three purchases or more among customers.
Kizilsu Kirghiz, meaning red water in the local language, ranked number one in annual purchase frequency, and ninth in three purchases or more. It is an autonomous prefecture city in the west of Xinjiang, bordering with Kyrgyzstan and Tajikistan, with a population of around 500,000. Its unique location makes it a key trading spot with inner Asia countries.
Shihezi, which topped repeat purchasing and three purchases or more rankings, is a sub-prefecture-level city in northern Xinjiang. More than 90 percent of its nearly half-million population are Han Chinese as it is a key base for the People’s Liberation Army in the region. Residents here are not able to travel and shop easily due to Uyghur separatist conflicts in the region.
“The growth rate in third-tier cities has surged ahead and even greater development potential has appeared in fourth-tier cities. In fifth-tier cities, the proportion of luxury goods consumers has exceeded 20 percent. Regions without luxury brand stores have huge room for potential growth,” the report said.
This phenomenon wouldn’t happen without the precision marketing of social platforms, big data algorithms and a series of policies designed to move luxury consumption inside China and promote domestic economic growth.
“Through social media algorithms, it is possible for luxury brands to push content and goods to those who like them the most, achieving accurate, effective communication and interaction while creating the shortest marketing conversion path,” the report explained.
Such a tool is crucial for brands to target luxury goods consumers as there is a significant discrepancy in consumption characteristics and daily preferences between luxury goods consumers in various cities.
“Consumers in lower-tier cities are limited in opportunities to purchase luxury goods through off-line channels; they are inclined to gravitate toward online channels. Consumers in first- and second-tier cities, on the contrary, have a relatively diverse array of choices,” the report said.
Data from Secoo shows the majority of online consumers in low-tier cities are under age 30, and males account for a relatively high proportion. These males are under-educated and are newly married or in a relationship and prefer the classic luxury brands in terms of men’s clothing, digital products and skin care.
By contrast, online consumers in first- and second-tier cities are mostly over 30, highly educated, and mostly married.
Well-known luxury brands such as Emporio Armani, Ralph Lauren and Prada score high in lower-tier cities, while in first-tier cities, brands such as Kenzo and Canada Goose show a relatively good sales performance, according to Secoo.
“Luxury brands must carry out differentiated strategies targeting markets across low-tier cities if they are going to seize the opportunity,” the report concluded.