Luxury brands should expand their store networks in China's first-tier cities such as Beijing, Shanghai and Shenzhen because shopping malls there are where the country's wealthy people really go to spend money on luxury goods.
The Chinese site Fashion Note compared and contrasted the performance of retail sales and the rental rate of shopping malls in mainland China owned by Hong Kong's Hang Lung Properties in the first half of 2017. This report included Shanghai's Plaza 66, Shenyang's Palace 66, Jinan's Parc 66 and Wuxi's Centre 66.
The difference in sales in the same retail chain in different cities sheds light on the store location strategy of luxury brands if they hope to profit further from this market that has shown signs of recovery in recent quarters.
The findings suggest that only brands in Shanghai's Plaza 66 have seen an increase in retail sales, and rent rates at the mall have also gone up. The rest of Hang Lung-owned shopping malls located in China's second- and third-tier cities all reported less-than-expected sales growth. Their rents also dropped significantly with an average double-digit decrease.
Since mid-2016, renewed appetite for personal luxury goods among Chinese consumers have put the country's luxury spending back on a growth track. Consulting firm Bain & Company predicted in May that China's personal luxury goods spending will rise between 2 and 4 percent this year to reach a total of €254 billion to €259 billion (331 billion to 337 billion).
That bright prospect has led a handful of luxury brands to step up their digital efforts, as evidenced by the fact that more and more of them have launched sales on e-commerce sites and social media platforms such as WeChat, and have collaborated with celebrities and KOLs to push out marketing campaigns to reach millennial consumers.
In the brick-and-mortar retail sector, luxury brands that choose their store location wisely have also seen profits rising. For example, high-end jewelry brands Van Cleef & Arpels and Tiffany selling in another Shanghai shopping mall named New World Dawan reported a 100-percent jump in monthly sales in seven months last year. The sales reported by a Louis Vuitton store in a high-end shopping mall in Shanghai's Hongqiao district reached 100 million yuan (15 million) in January 2017.
Residents in China's first-tier cities have the most disposable income to spend across the nation, which is a reason luxury spending and rent in places like Beijing and Shanghai are robust, while in other cities, they're dwindling.
Domestic travel trends are another important factor, which is relevant to explaining why luxury consumption is high in China's top cities. Fashion Note said an increasing number of ultra-wealthy Chinese population from second- and third-tier cities designates Shanghai and Beijing as important domestic travel destinations and likes to purchase luxury items during the trips.
An employee of the Italian cashmere label Loro Piana told Fashion Note that its store in Shanghai's Plaza 66 Mall sold nearly 50 percent of goods to travelers, especially those from Northeast China who regularly spend at least 100,000 yuan shopping per trip.
Accordingly, shopping malls in Shanghai and Beijing have started to adapt to this trend to accommodate more luxury brands.
"We have received requests from Tiffany and Burberry to open more stores and expand the space," the management team of Grand Gateway Shanghai, a mall owned by Hang Lung Properties, told Fashion Note.
Grand Gateway Shanghai Mall is currently undergoing a renovation project. The upgraded space is set to increase the luxury brand penetration rate to around 40 to 45 percent from the current 30-percent in the mall.