Two customers have close
looks at a pair of diamond bras at a high-end store in this undated
Not Beijing, Shanxi.
That's the strategy Beijing's Scitech Plaza, one of the city's oldest high-end
department stores, employed when it celebrated its 14th anniversary last year.
In promoting its 25 percent anniversary discount, the store skipped Beijing
altogether and concentrated its ad blitz on Shanxi, an interior province in
North China once mostly known for its dry hills and grim coal mines.
As the management correctly gauged, there's more juice in Shanxi's nouveau
riche than the salaried of Beijing. Hundreds of Scitech faithful from Shanxi
flocked to Beijing, many flying in for the yearly bash. They stayed at an
adjacent luxury hotel, also owned by Scitech, and splurged on 14,000-yuan La Mer
cosmetics, 20,000-yuan fur coats and 7,000-yuan shoes.
Together with an army of the fellow moneybags from Hebei, Inner Mongolia and
Tianjin, the shoppers from Shanxi sent Scitech's sales figures soaring to 20
million yuan on the anniversary day, the store's highest-ever single-day
Scitech's anniversary strategy reflects a larger trend - of wealth spreading
from a handful of traditional urban centers such as Beijing, Shanghai and
Guangzhou to the so-called second-tier cities, and even obscure small towns.
Pick any weekend and check the license plates at the parking lot of Yan Sha
Outlets on Beijing's 4th Ring Road. You will be surprised how many of those
shiny sedans are from out of town, mostly from neighboring Hebei Province.
Clearly, for the have-money-will-spend class in second-tier cities, driving to
Beijing to shop for luxury brands has become the new Sunday morning sport.
Follow the money
The rapidly growing purchasing power and appetite for high-end products in
small cities have drawn the attention of top international luxury lines, which
are increasingly gravitating to second-tier cities.
Louis Vuitton, which entered China 15 years ago and has 16 boutiques spread
across 13 cities, has opened shops in three new cities in the last two years -
Wenzhou, Kunming and Shenyang. The company's next targets are Chongqing, Harbin,
Sanya, Suzhou, Ningbo, Nanjing and Urumqi, according to the company's CEO Yves
French luxury giant Hermes chose Kunming, capital of Southwest China's Yunnan
Province, to open its first watch boutique in China two years ago, selling
timepieces for up to 260,000 yuan each. The following year, it expanded to
Anshan, a steel manufacturing base in Northeast China's Liaoning Province.
Writing instruments giant Montblanc last year took over all its outlets from
local partners and started operating directly, both in first- and second-tier
Hugo Boss' strategy in secondary cities is simple: be the first, according to
Lars Larsen, managing director of Hugo Boss Hong Kong Ltd. At the end of last
month, Hugo Boss had 75 points of sale in nearly 40 cities.
The huge population base in small cities is the main attraction for the
luxury segment. China's second-tier cities are huge compared to those in Europe
or the United States. Luxury brand executives point out that China has over 100
cities with populations of over 1 million, opening up immense possibilities.
Economic liberalization has spawned tens of thousands of private
entrepreneurs in Zhejiang, Jiangsu, Fujian and Guangdong provinces. In Northeast
China's Liaoning, Jilin and Heilongjiang provinces, there is a long tradition of
ostentatious consumption. In Shanxi, the ultra rich, mainly mine owners, are
known to flaunt their Ferraris and flash their Omegas.
The demand for luxury products has been growing so rapidly
in secondary cities that it has already exceeded the level of demand in
first-tier cities 10 years ago. If high-end brands were eager to enter main
cities a decade ago, it's thus hardly a surprise to see them flock to small
cities now, says Liu Wei, chief analyst with Shanghai-based Integration Strategy
Consulting Co Ltd.