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Jun
2015

H1 2013 Brand Reach Review

The 2013 H1 Brand Reach Review released on July 1st by Luxury Insights China, was the second of an on-going series to assess the expansion and migration of luxury retail stores across China. Although only six months since the first benchmark review, it highlighted that it will be some considerable time before the luxury retail market in China settles down, and that there will be an ebb and flow of influence of some of the tier 2 and tier 3 cities as brands firmly establish themselves.

In this issue of Luxury Insights China, we assess some of top 15 luxury retail dense cities in detail, identifying some of the peculiarities affecting those that have moved or remained stationary in the rankings. As with many things, life in China can be affected by influences that aren’t so important or critical elsewhere in the world, and the attraction of a city to a luxury brand just one.

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The graph above plots the current distribution of luxury retail in each city across the four sectors of autos, fashion and accessories, and watches and jewellery. The orange trend line plots the current average distribution trend by city, whereas the dotted black line is the trend of the review carried out in December 2012. In cities with a mature luxury retail market such as Beijing and Shanghai, we see as expected, that the luxury auto presence represent a much lower percentage of overall retail than other sectors.

Luxury car brands have historically been first movers into many cities, being followed by other sectors depending upon whether the city is principally male dominated or not. Dalian and Harbin for example, are Northern cities with a strong male orientation, hence the relatively high proportion of watch stores. By contrast, Tianjin is a northern male city, but due to its proximity to Beijing, the volume of watch retail in the city is lower than that of the jewellery presence.

Making generalisations about cities and the density of luxury retail is not possible, as some cities are obvious recipients of luxury stores, whilst others appear not to be. What has proven to be consistent so far is that luxury car brands enter early, build to an appropriate level and remain stable; the presence of stores of other sectors then catches up and passes them. We did see a Lamborghini dealership close in Wenzhou in this review, but that was because there were two, and only one was required.

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Cities that stand out

It would be expected that luxury retailers would have traditionally established a presence in tier one cities and then expanded into tier two provincial capitals and so on. In this ranking we see two cities that look a little out of place; Shenyang and Kunming.

Shenyang has been an anomaly for some time, and close on the heels of Beijing and Shanghai in terms of the volume of luxury products sold in China. In its own right, it is only ranked 16th in terms of GDP which is approximately one third of that of Shanghai. You can read about the city in the October 2012 issue of LIC, it is known in China as the “home of machinery”, a favoured destination of firms in the industrial sector such as General Motors, Coca Cola, BMW and Siemens. What is interesting is who is buying all the luxury products? The general population would appear not to have enough wealth to put the city so high on the ranking, the cities proximity to North Korea has generated rumours associated with spending from across the border, but we can only describe the city as unusual.

Kumming is situated at the South of the country, and has and remains a transport hub with other South East Asian countries such as Vietnam and Laos, its GDP is relatively low, yet it sits 12th on the retail density ranking list. The city has a smaller population than Chongqing ranked 7th in terms of GDP, yet it has the same density of auto dealers, and more watch and fashion retailers. Sitting within the ‘Golden Triangle’ some of its residents and those of the province may benefit from trade with adjacent nations, bringing money to a relative few.

Picking up on Guangzhou, the tier one city that dropped from 6th to 8th in the ranking due to its proximity to Hong Kong, and residents taking the relatively short journey to buy luxury and save the tax. The local government seeing that the cities luxury status has dropped compared to Beijing and Shanghai, made a recent announcement that 60 new luxury stores would open to rectify the problem. This is China and government has the money to make statements like this and change a situation. The question is and will remain ‘will luxury brands be attracted to open stores here, and what incentives will the government have to offer?’


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