by Toffler



Shopping Malls & Luxury Retailers in China

October 18, 2006, by TofflerN, category Business Climate, Entrepreneurship & Business, Uncategorized

This article about shopping malls and luxury retailers in China both confirms and counters some of the statements I made in my post entitled Business in Shenzhen. This article from the International Council of Shopping Centers, titled THE HIGH-END ROAD TO CHINA: Western luxury retailers are finding a fertile market in China’s wealthy consumers asserts that the Chinese are indeed consuming luxury goods, contrary to the article about Shenzhen:

Jewelry from Cartier is hot. So are Burberry coats, Armani suits, Prada bags and just about anything made by French luxury juggernaut LVMH. There is demand even for the flat-out frivolous: Bejeweled Vertu cell phones — at prices ranging from $5,000 to $90,000, depending on their degree of ostentation — are selling briskly. … China is now the third-largest consumer of high-end goods in the world, accounting for 12 percent of the market, says a report by Goldman Sachs. By 2015 that could rise to 29 percent, the investment bank says.

Actually neither article is necessarily wrong. The Shenzhen article talked about consumption by the middle class, whereas this passage talks about consumption of luxury goods, only those items afforded by the truly wealthy. When these distinctions are made, both are articles are indeed correct. As the article indicates, China has a class of newly rich (from tech stock and other IPOs to real estate to the selling off of government assets):

[T]he number of millionaires [is] rising fast (Merrill Lynch estimates that there were just under 400,000 of them at the end of 2004)…Ernst & Young published a report last year on the Chinese luxury market that says 13.5 percent of China’s consumers can afford luxury items. Most of these are between 20 and 40 years old and have a “spend now and worry later” attitude, the report says. The most active consumers are men.

This is indeed true. When you look into the very high end stores it is almost always a man purchasing something for a lady. Rarely does the lady shop by herself. And they are buying, not just browsing.

The nouveau riche may be into luxury purchases, including $200,000 Ferraris (according to the article), but general consumption is typically driven by having a larger middle class. But China still lacks a substantial middle class. This is why some of the more mid-range malls, including those featuring brands such as Nike and Nautica (as mentioned in the Shenzhen article), aren’t selling much. But as China’s economy continues to grow and become more modernized, it is expected that China will develop a larger middle class, will spending power equal to or greater than that of the US. Thus hundreds of global companies, from retailers to clothing brands to restaurants to beauty and health care products have entered China in full force. Those who can build a successful brand name, protect their IPR, localize themselves in the culture, develop customer loyalty, and compete in this hyper-competitive market may still be able to find profitability over the next 5-10 years on the eastern coast and 10-15 years for places farther inland.

So, what do you think ?