With a heavy-spending affluent class -- which offers a $3 trillion retail opportunity by 2020, according to the Boston Consulting Group -- and a rising middle class that could surpass that of the US by 2025, China’s second-, third-, and now fourth-tier cities are primed for the next wave of luxury consumption. Last week, looking into not only the breadth of the opportunity but also its potential hotspots, China's Fortune Character Institute released an “expansion guide” for luxury brands in China, highlighting the key cities that companies should keep in mind when choosing their next steps. Called out as high-potential cities were huge cities often passed over by major luxury houses during the high-end boom of the last five years, including Wuxi in Jiangsu province; Hohhot, capital of Inner Mongolia; Xi'an, capital of Shaanxi, and Guangxi capital Nanning.
Despite strong demand for luxury goods among consumers in these markets, who are far less likely to jet off to Europe, Hong Kong or the US for retail tourism than their Beijing counterparts, brands have traditionally overlooked the potential owing to a range of issues. (Often unsuitable retail space not the least of them, though most high-end retail construction is now happening in second- and third-tier cities.)
According to the China Luxury City Development Index, which suggests how active luxury brands are in different cities, Wuxi ranks 27th among all 62 cities surveyed in Greater China. However, the city ranks fifth among all mainland cities surveyed for consumption activity. Similar cases can be seen in Hohhot, Xi'an, Nanning and other cities: Hohhot ranks sixth in the consumption activity rankings while not making it into the top 30 cities on the China Luxury City Development Index. Clearly -- despite the massive challenges that await adventurous brands willing to invest in new markets -- the mantra over the next decade will be "Go West."