What Happened: SKP has announced it will open a flagship in Hohhot, the provincial capital of Inner Mongolia. Local media outlets reported that SKP Beijing garnered $2.7 billion in sales over 2020, surpassing famed luxury destination Harrods. And according to Beijing Business Daily, the high-end mall has been China’s top department store by revenue for the last ten consecutive years. SKP’s state-owned parent company, Beijing Hualian Group (BHG), is growing its luxury retail network by building additional sites in Hangzhou, Chengdu, and the new second-tier city Kunming. BHG owns two publicly-listed companies and several holding companies primarily focused on hypermarkets, supermarkets, department stores, and commercial properties.
Jing Take: The immense spending power of high-net-worth individuals in China is no longer disputable. Even COVID-19 did little to halt it. According to Bain & Company, China’s 2020 domestic luxury goods consumption went against the trend, predicted to achieve 48 percent growth ($53 billion). So the next piece of the puzzle for luxury brands and companies is where to find these new consumers in lower-tier cities. Recently, both international names (Maison Margiela, Gentle Monster) and local players (Harmay and Shang Xia) have opened stores in Central and Western China, and Chengdu in particularly has emerged as a viable alternative to Shanghai and Beijing.
But progress is slow, and brands are hesitant. After all, Chengdu has been tipped as a luxury hotspot for years. Hohhot, on the other hand, is less of a safe bet yet, still tantalizing. Ten year ago, Louis Vuitton tried it out for size and failed – it opened a boutique there in 2010 and shuttered four years later. And as the city commercializes, SKP will face competition.
However, the demand for luxury goods in lower-tier markets is undeniable and its residents have seen their incomes rise. Now too, the consumption landscape is dramatically different: In 2019, Deloitte found that third- and lower-tier cities had shown strong spending growth and purchasing power. That same year, Seeco reported that these cities were highly-ranked in annual purchase frequency as well. With its latest move, the influential SKP is beating a path into these cities, hoping to be –as the locals say – the first person to eat crabs. Let’s see if Hohhot is worth the risk.
The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.