“Black Gold” Fueling Luxury Demand In Third-Tier Daqing

“People From Daqing Buy Half Of The Luxury Goods Sold In Harbin”

New Mart, currently Daqing's only "high-end" mall

New Mart, currently Daqing’s only “high-end” mall

Founded in 1959 to house workers from the massive Daqing oilfield and as a model industrial center, the city of Daqing (大庆) in northeast China’s Heilongjiang province remains focused primarily on one thing and one thing only: oil. The petroleum industry still accounts for over 60 percent of the city’s GDP, which ranks among the top ten per capita in the country, and like the newly minted “coal bosses” in western China, Daqing’s oilfield (the largest in China and fourth-largest in the world) continues to make new fortunes every year. And as in other third-tier cities, the arrival of new money has been accompanied by the sound of luxury brands knocking. Though the city’s luxury malls and department stores pale in comparison to those in Beijing or Shanghai (or even nearby Harbin), rising demand and relatively high incomes mean Daqing — and cities like it — can’t be ignored.

From a profile of Daqing this week by Sina (translation by Jing Daily team):

Walking in front of the largest shopping center in Daqing, New Mart, we noticed lots of pedestrians carrying luxury handbags. Over the course of half an hour, we counted six Louis Vuittons, four Chanels, four Guccis, two Diors and two Celines. As the owners told us, since these brands don’t have locations in Daqing, they have to travel to Harbin, Dalian, Beijing or Shanghai to buy them. Since it’s only half an hour away, Harbin has become the first choice for luxury shopping.

It’s said that people from Daqing buy half of the luxury goods sold in Harbin,” one LV-toting woman proudly told us.

According to a 2010 Bain report, only around 30 percent of affluent Chinese live and work in top-tier cities like Beijing and Shanghai, with more than 70 percent living outside of these cities. Second- and third-tier cities are widely seen as the future of China’s luxury market, with consumer brand awareness and willingness to buy closing the gap with Beijing and Shanghai consumers. For shoppers at a similar income level, consumption is higher among consumers in second- and third-tier cities than in first-tier cities.

“Of the seven commercial buildings sold for more than 1 billion yuan (US$157 million) last year, two were in Daqing, including New Mart Shopping Center, which surpassed 1.6 billion,” Daqing Municipal Bureau of Commerce, Chen Wanli told reporters, adding that the growing purchasing power in Daqing is attracting the attention of many brands. Data shows that in 2009, per capita retail spending in Daqing reached 17,937 yuan (US$2,823), more than Harbin’s 15,207 yuan ($2,393).

The city’s purchasing power is so strong that some brands are willing to make exceptions to their typical ways of doing business to take advantage of the boom. At Daqing New Mart, brands like Omega, Longines and Girard Perregaux are surrounded by supermarkets and shanzhai (山寨) stores. Longines sits around 10 meters away from a supermarket, and Omega shares a wall with a McDonald’s. Still, this hasn’t reduced the city’s enthusiasm for luxury goods. According to a staff briefing, Ulysse Nardin — which has been in the mall for a year — sold a Tourbillon watch worth 2 million yuan (US$315,000) last month, and Girard Perregaux has recorded good sales performance for watches ranging in price from 140,000-400,000 yuan. Staff at Omega say they sell “more than 10 watches per day.”

“In addition to more purchasing power, herd mentality and brand recognition are other reasons why Daqing consumers are buying luxury goods,” said Chen Wanli. With luxury consumption in China rising rapidly in recent years, affluent consumers are increasingly becoming more brand-savvy, though many simply learn by imitation. So luxury consumption is still not in the rational stage, and the number of consumers in Daqing still in the conspicuous consumption phase is relatively high.

“Currently, first-tier cities in China are the heart of commercial real estate, and as such they’re battlegrounds for foreign brands. To set up shop there, the costs are high. But in second- and third-tier cities like Daqing, business districts are still new and on the rise, so brands can surround potential customers [more easily],” Chen Wanli said. Chen added that this month, a 160,000 square meter Wanda Plaza will open for business. In addition, another four shopping centers will open in Daqing by the end of the year, including Tang Center, the World Olympic Center, and a trendy shopping district. According to media reports, many international luxury brands, such as Versace, Vacheron Constantin, Cartier, Piaget, Rolex and Gucci may soon enter the Daqing market.

If these major luxury brands do decide to enter the young and relatively untested Daqing market, they’ll likely encounter the same nagging issues they come across in other second- and third-tier cities, namely little familiarity with the local retail real estate market, a dearth of attractive venues, and local talent with little or no high-end retail experience.

 

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