China luxury market 2025: Lower-tier city growth analysis

When Shan Hu returned to her hometown of Qinhuangdao, a coastal city in north China’s Hebei province, for Chinese New Year, she was surprised to find an array of luxury watch brands in a local shopping mall. “I’m not surprised at seeing IWC, but there’s even a Jaeger-LeCoultre,” says Shan, a Beijing-based professional. She wondered who the latter’s clientele would be in Qinhuangdao, a city categorized as either Tier-3 or Tier-4, depending on the metrics used. Why high-end brands are targeting Tier-2, Tier-3 cities In recent years, more luxury brands have ventured into China’s lower-tier cities despite an overall slowdown in the luxury market. Chanel, for instance, expanded its cautious footprint by opening a boutique in Tier-2 Zhengzhou in 2023. Hermès relaunched its store in Wuxi, Jiangsu. By 2024, expansion ramped up even more: Moncler debuted stores in Jinan and Hefei, while German watchmaker Glashütte Original moved into four cities, including Dongguan and Yinchuan. And Balenciaga made headlines by opening in Urumqi in December. A recent report by business insights firm MDRi revealed that consumers in Tier 2 cities, ranging from Shenyang to Xiamen, spent an average of 253,800 RMB ($35,000) on luxury items over the past year, surpassing their Tier 1 (Beijing, Shanghai, Shenzhen, Guangzhou) counterparts, who spent 250,200 RMB on average, a decline of 4%. Even Tier 3 cities (all other cities in the Chinese mainland excluding Tier 1 and 2 categories) saw a 9% spending uptick. Luxe, a digital media platform focused on luxury fashion, found that in 2024, Nanjing (36) and Wuhan (32) led in luxury brand store openings, surpassing Shanghai (23), Beijing (19), and Shenzhen (11). Why are luxury brands pushing into these markets now? The answer lies in shifting demographics, economic factors, and evolving consumer behavior. Migration drives growth in smaller cities While migration from rural areas to cities continues, China’s four Tier 1 cities — Beijing, Shanghai, Guangzhou, and Shenzhen — have experienced slowed or negative population growth, leading to an expansion of the middle class in lower tier cities. Beijing’s population shrank between 2016 and 2022, according to National Bureau of Statistics data. In contrast, over the past four years, more than 8 million people have relocated to Tier 2 cities. For example, Changsha, the capital of Hunan province, alone has attracted 1.2 million new residents, an increase of 13%, according to Bain & Company. Many families are seeking a better quality of life, often due to rising costs and grueling work conditions in Tier-1 cities. Provincial capitals including Chengdu, Zhengzhou, Hangzhou, Xi’an, as well as economic outperformers like Dongguan and Suzhou, have seen their populations grow by as much as 20%, driven by more relaxed residency policies, housing incentives, and job opportunities. Economic struggles push families away from megacities Around two years ago, Lei Yang, a Henan native who had worked in Beijing for eight years, resigned his stable job and moved to Kunming, the tourist destination known as the “Spring City.” For middle-class families, living in a megacity has become less rosy. Many have seen their wealth shrink, or even swept away in the property market slump, leading them to either scale back on big-ticket spending to prioritize their children’s education, or to bolt for an up-and-coming city to settle down. Data show that in 2023, per capita disposable income made up a much larger share of total income for residents in Tier 3 and Tier 4 cities (63.3%) versus their Tier 1 (12.1%) and Tier 2 (24.7%) counterparts. The stable financial footing, coupled with growing consumer classes, is enabling more non-top-tier consumers to afford luxury goods. McKinsey forecasts that the number of upper-middle and high-income families (annual household income of over 160,000 RMB ($21,900)) may reach 260 million by 2030, while the number of high-income cities is projected to increase from 55 in 2020 to 82 by the end of 2025 and 93 by 2030, which will play a crucial role in sustaining long-term luxury spending. E-commerce revolutionizes luxury shopping in smaller markets Beyond shifting demographics, digital platforms are transforming luxury access in smaller cities. E-commerce giants like Taobao and JD.com have made luxury brands more accessible, driving up online sales of designer brands. In as early as 2019, 35% of consumers aged 18-38 in lower-tier cities purchased their luxury goods online, according to Statista. For the past couple of years, the rise of Xiaohongshu (also known as RedNote), where many users share their luxury shopping experiences, tips, and ideas, has boosted brand awareness and fueled this momentum. Brands have been leveraging its content-driven ecosystem to promote their “hit products,” making suggestions about "what to buy" to "elevate their everyday life. Livestreams by actresses and influencers are guiding consumers’ purchasing decisions. High fashion is increasingly capitalizing on the digital boom to create smooth online-to-offline shopping experiences. In 2024, Gucci’s livestreamed Milan Fashion Week show on Xiaohongshu sparked a fivefold surge in searches for its products. Consumer demand surges in new retail hubs like Wuhan SKP Additionally, 45% of middle-class consumers in second- and third-tier cities showed increased interest in luxury shopping, compared to 37% in Tier-1 cities, another Luxe report revealed. The launch of Wuhan SKP in mid-2024 attracted 100,000 shoppers, propelling sales past 100 million RMB ($13.7 million). Despite a market-wide luxury decline of 18% to 20% in 2024, Bain & Company noted strong growth pockets in lower-tier cities. As China moves closer to overtaking the U.S. and Europe as the world’s largest luxury market — by 2030 if PwC’s forecast proves correct — these emerging cities will play a vital role. However, brands must creatively tailor their strategies to this growing upper-middle class while preparing for potential market saturation.

Small cities, big spenders: China’s new luxury hubs

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Small cities, big spenders: China’s new luxury hubs