Top luxury brands target smaller Chinese cities

By Jiang Jingjing (China Business Weekly)
Updated: 2007-05-21 06:39

Two customers have close looks at a pair of diamond bras at a high-end store in this undated file photo.

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 revenue.

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 Carcelle.

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 cities.

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.

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