Brands consolidate retail in 1st-tier cities, others explore newer markets

Luxury brands expansion strategies in the Chinese market are changing and adapting to the current climate. First-tier cities may offer a concentrated, wealthier and fashion-savvy demographic, but lower tier locales offer less luxury saturation and thus more opportunities for creating hype and education. Balenciaga for one has begun renovations for its new store at Urumqi Mei Mei Shopping Center, marking its first boutique in Xinjiang. The brand’s Chinese retail expansion has been a key driver of it’s global business growth. Taiwanese-American designer Alexander Wang announced that it’s also following suit at the same Xinjiang mall. Wang’s label has expanded aggressively across China with openings in new cities including Hangzhou, Ningbo, Wuhan, Zhengzhou and Changsha since 2023. Other luxury and designer labels such as Vivienne Westwood and Isabel Marant are making retail footprints in Chinese non-first-tier cities like Hefei, Wuhan and Tianjin in a bid for new growth opportunities. Lower-tier cities present untapped potential in terms of purchasing power for many brands, being home to 70 percent of the country’s population. These cities have also hosted much of China’s commercial construction boom - reportedly over 500 new shopping malls will be built in lower-tier cities by 2025. Accessible luxury brand Coach has ambitious Chinese lower-tier city expansion, in 2022 announcing plans to open 30 new stores with a focus on cities like Baoji and Daqing. This strategy leverages Coach’s competitive pricing and accessible luxe appeal. However, the strategy is by no means uniform across the luxury market. Hefei city has seen Loewe and Etro both opening their first stores. Balmain went a step further, opening in both Nanchang and Hefei, while Bottega Veneta chose to open a store inside the MixC mall in Nanning, Guangxi. As China's economic recovery remains uncertain, many top-tier leading luxury brands like Chanel, Louis Vuitton, and Hermès have turned more cautious, focusing on consolidating their existing market in first-tier cities by upgrading and expanding their stores to enhance brand image. Chanel has done both, with consolidation and geographic diversification - evident from the opening of its first store in Zhengzhou, Henan in Central China (at David Plaza) in late 2023, following from the likes of Dior and Hermès. When opening new stores, more often than not, these top brands are choosing to work with long-term partners and concentrate expansion into new first-tier cities. For instance, Chanel and LV have both opened new stores at Nanjing’s International Finance Center, Louis Vuitton made its a fresh footprint inside the newly opened Wuhan SKP, while choosing to withdraw from Haikou’s Wanda Plaza after a year of renovation. Despite economic challenges and shifting consumer behavior towards value-oriented purchases, many brands still see potential for growth in new first tier cities and lower-tier cities. Dependent on their clientele profile, it’s a matter of balancing more conservative investments during luxury’s rocky period and seizing the opportunity to capture new growing purchasing power all over China alongside the development of new shopping malls and destinations cross country.

Brands consolidate retail in 1st-tier cities, others explore newer markets

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Published August 07, 2024

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Brands consolidate retail in 1st-tier cities, others explore newer markets