Why Luxury's Needs to Watch Xi'an - China's Northwest Gateway

With Beijing unwavering in its zero-COVID policy, and cities going back into lockdown, luxury is at a crossroads: How can it connect with an increasingly remote China? Given that, Jing Daily offers an indispensable guide to its lesser-known destinations by highlighting the key figures, consumer insights, and retail properties that make them luxury’s next big opportunity. Next up is Xi’an- no better example of the collision of old and new. Once the starting point of the Silk Road, the imperial capital has maintained its standing as inland China’s economic and cultural hub, interspersing modern developments around its ancient sites. Although Xi’an lags behind Shanghai and Beijing in GDP, it holds its own in luxury consumption. This has been boosted by SKP Xi’an, a 20-story department store that has attracted industry titans like Louis Vuitton, Hermès, and Gucci. In fact, when the mall opened in 2018, the Prada Group was quick to inaugurate seven new stores there, attesting to the city’s luxury potential. An announcement in March that Swire Properties will bring its fourth Taikoo Li to the Shaanxi province capital should further facilitate high-end shopping. If anything, Xi’an’s strength lies in the fact that it isn’t Shanghai or Beijing. Because China’s northwest region lacks a heavy luxury presence, the emerging new first-tier city is able to pull in luxury shoppers from neighboring areas. At the same time, those who live in Xi’an are made to feel special, as they have a better chance of becoming VIPs at malls than in markets with a higher purchasing power. Read on for more. Key Takeaways: Xi’an’s rising disposable income has translated into greater luxury sales, making it 10th in the nation in luxury consumption. As Shaanxi province is rich in coal, Xi’an’s earliest group of luxury consumers were mine owners who profited from skyrocketing coal prices during China’s economic take-off. These “Coal Bosses” were known for their love of big-name brands, although their ostentatious displays of wealth have cooled since Beijing’s anti-corruption campaigns. A commercial and cultural hub, Xi’an also attracts consumers from neighboring areas that lack a substantial luxury presence. Here, shoppers have a better chance of becoming VIPs than in Beijing or Shanghai, where the overall purchasing power is much higher. Although Xi’an has a host of high-end retailers, SKP Xi’an outshines the competition in performance, reporting a whopping $1.26 billion in sales in 2021. This success is driven by its extensive portfolio of global brands and VIP black card services, which help secure customer loyalty. Xi’an’s key statistics Luxury Presence Many iconic luxury houses have stores in Xi’an’s high-end shopping malls, such as SKP Xi’an, SAGA International Shopping Mall, and Zhongda International Shopping Mall Xi’an also has seven outlets malls, the most among China’s 15 sub-provincial level cities GDP $167.82 billion (1.069 trillion RMB) in 2021, a 4.1 percent increase compared to 2020 and a 13.7 percent increase compared to 2019 24th largest GDP among provincial capitals and major municipalities in China (2021) Population 12.95 million (as of May 2021) 8th most populous city in China Wealthy population Ranked No. 36 in the nation in producing rich people (Hurun Wealth Report 2021) Ranked 10th in the nationwide fashion consumption index in 2021 (China Chain-Store & Franchise Association) Ranked 10th in luxury consumption among Chinese cities in 2019, contributing 1.4 percent of total luxury spending, right behind Guangzhou (Deloitte & Secoo) Average disposable income $6,091 or 38,701 RMB per capita disposable income (2021) 18th largest per capita disposable income among major Chinese cities (2020) Who is the Xi’an luxury shopper? The “Coal Bosses” With Shaanxi province and its neighboring Shanxi province being rich in coal and other natural resources, the earliest group of luxury shoppers in Xi’an were mine owners. In late 1990s and the early 2000s, these “Coal Bosses” accumulated considerable wealth after the price of coal skyrocketed, fueled by high demand during China’s economic take-off. To highlight their superior socio-economic status, “Coal Bosses” would purchase large amounts of luxury products at once without too much concern for the story or culture behind the brands. Although Xi’an’s luxury consumption data from that period is hard to come by today, plenty of anecdotal observations reflect this staggering purchasing power. For instance, a “Coal Boss” would park his Land Rover outside of a high-end shopping mall and carry bags full of cash inside luxury stores, where he would then pick out items as if he was ordering off a restaurant menu. Interestingly, this fixation on big-name brands was cited by local news outlets as the primary reason why luxury houses initially chose to underinvest in Xi’an. However, as the Chinese government started to regulate the energy industry in the late 2000s and initiated waves of anti-corruption campaigns, extravagant spending by “Coal Bosses” became a much rarer sight. This does not mean that high-net-worth individuals have decreased in Shaanxi; in fact, a 2017 survey suggests there were at least 14,000 Shaanxi residents with personal wealth over $1 million, and a further 117,000 with annual income exceeding $85,000. Many “Coal Bosses” have also diversified their business portfolio, which requires more business interactions outside of the Shaanxi-Shanxi vicinity. Thus, they have started paying more attention to how luxury products can help them showcase their personal style instead of viewing them simply as tools to flaunt their wealth. Rising Middle Class Xi'an is also an important city for China’s logistics and technological sectors, hosting regional offices for tech giants such as Alibaba and JD.com, as well as several leading STEM-centric universities such as Xi'an Jiaotong University, Xidian University, and Northwestern Polytechnical University. This has given to Xi’an’s local middle class which contains many affluent consumers. Granted, their overall purchasing power still lags behind those in Beijing or Shanghai. In the fourth quarter of 2021, Xi’an’s average monthly income was $1,431.40 (9,120 RMB), ranking the 19th highest in China — well behind Beijing’s $2,105 (13,412 RMB) in first place and Shanghai’s $2,071 (13,195 RMB) in second. However, this rising disposable income level permits Xi’an’s middle class to purchase more luxury goods. Management-level personnel at renowned enterprises’ local offices and big state-owned enterprises, as well as successful internet entrepreneurs, form the backbone of Xi’an’s luxury consumption. Northwestern Luxury Shoppers Besides serving the local population, Xi’an is an ideal destination for luxury shoppers living in China’s northwestern provinces — such as Gansu, Ningxia, Qinghai, Xinjiang, and the western part of Inner Mongolia — where luxury brands have yet to establish a substantial presence. Geographically, Xi’an is much closer to these areas than Beijing, Shanghai, or Guangzhou. More importantly, luxury stores in Xi’an can offer more selections and personalized services than their counterparts in Beijing or Shanghai, where the much higher overall purchasing power is likely to “drown out” the demands of northwestern luxury buyers. According to Jing Daily’s survey respondents, affluent northwestern shoppers have a higher chance of becoming VIPs and subsequently acquiring the most trendy luxury offerings at Xi’an’s luxury stores than in first-tier cities. Retail snapshot SKP Xi’an SKP Xi’an is the second SKP store in China after SKP Beijing. With 20 stories and 250,000 square meters of retail and event space, the department store is almost three times the size of Harrods. Opened in 2018, SKP Xi’an encompasses two stand-alone main blocs, which specialize in womenswear and menswear, and are connected by an enclosed walkway that can hold pop-up stores and exhibitions. SKP Xi’an boasts over 1,000 high-end international and domestic fashion brands, 60 percent of which entered Xi’an for the first time. Major luxury houses like Louis Vuitton, Prada, Dior, Hermès, Valentino, Céline, and Gucci have all unveiled storefronts in this mall for good reason: in 2021, SKP Xi’an reported sales revenue of $1.26 billion (8 billion RMB), placing 18th in revenue among Chinese malls. During its two-year anniversary celebration weekend in April 2020, Xi’an SKP achieved sales over $15.72 million (100 million RMB) for both days, breaking China’s weekend retail record. Many attribute SKP’s success to its notable membership policies. SKP issues special “VIP black cards” to top-spending consumers, reportedly those who spend above $78,600 (500,000 RMB) per year at the mall. VIP members at SKP can exchange their accumulated points directly for luxury products, such as Qeelin and I Do jewelry pieces, Cartier watches, and MOYNAT handbags. Some VIP members have also remarked that their chances of winning limited-edition sneaker drops are considerably higher than average SKP members. Offering this preferential treatment ultimately helps SKP Xi’an secure the loyalty of China’s top spenders and create exclusivity. SAGA International Shopping Mall Opened in 2013, SAGA International Shopping Mall is located at Xi’an’s Xiaozhai commercial zone, which sees a daily passenger flow of between 300,000 to 500,000 even outside of the holidays. It has a commercial area of 180,000 square meters and nine stories in total, seven of which are above ground, making it one of the largest commercial real estate projects in western China. SAGA boasts an impressive number of luxury brands, including Emporio Armani, Chanel, Burberry, Balenciaga, Bottega Veneta, Gucci, Valentino, Prada, Versace, Dior, and Coach. However, it should be noted that SAGA’s luxury stores are almost exclusively multi-brand stores, rather than stores directly managed by brands like at SKP Xi’an. On the one hand, this means that SAGA may not have the most complete collections or be as fast in presenting the latest collections compared to SKP Xi’an. On the other hand, Xi’an consumers told Jing Daily that SAGA offers more discounts and flexibility in terms of tailoring items to new consumer trends, giving it a more approachable vibe. Since its opening, SAGA has maintained double-digit growth for four consecutive years. In 2021, SAGA reported sales of over $1.57 billion (10 billion RMB) for the first time, ranking 11th in revenue among Chinese malls. However, in terms of overall emphasis on luxury, SAGA understandably falls behind SKP Xi’an: luxury stores make up just one of many sectors within SAGA’s diverse offerings, whereas SKP Xi’an has been luxury-centric since day one. That said, SAGA can be an ideal choice for brands that wish to maximize their public recognition and nurture new luxury buyers. Zhongda International Shopping Mall Located in Xi’an’s High-tech Industries Development Zone, Zhongda International Shopping Mall is one of three major bodies of Xi’an’s premier urban complex called “The City,” together with the adjacent Ritz Carlton hotel and the Zhongda International No.9 luxury apartment complex. It should be noted that Zhongda International was the company that introduced luxury brands such as Louis Vuitton and Gucci to Xi’an for the first time in 1998 through its old mall. With “The City” project, Zhongda International seeks to reclaim its title as the foremost luxury experience destination in Xi’an. Currently, luxury and designer brands such as Emporio Armani, Michael Kors, Max Mara, Kenzo, MCM, and Issey Miyake are present at Zhongda International Shopping Mall. In 2021, Zhongda International Shopping Mall had a revenue of $33 million (2.1 billion RMB), a 46.8 percent increase compared to 2019. While Zhongda International Shopping Mall hosts fewer high-end brands in comparison to SKP Xi’an and SAGA, its competitive advantage lies in its location within a larger complex that emphasizes luxury lifestyle. As such, it presents opportunities for niche and designer brands to connect with luxury consumers in Xi’an. What Xi’an residents say about luxury shopping “I think the Xi’an luxury market still has enormous room to develop. Most customers prefer trending items from big-name houses when they have the purchasing power and desire. At SAGA, which is ranked within the top 10 nationally in terms of annual revenue, and SKP, big logos are extremely popular. On the contrary, niche luxury brands have a much lighter presence in Xi’an, and their public recognizability is much lower as well.” —Crystal Wang, Hylink Senior Planner, female “I enjoy spending time in shopping malls, such as SAGA International Shopping Mall or SKP. Second-hand luxury stores are also places I love to visit. Many younger buyers are willing to purchase their first luxury bag there. But I do not pay much attention to the Chinese designer brands because I feel it is hard to find suitable clothes for me. Their sizes are much better for models instead of me.” —Aurora, Art Buyer, female, age 25 “Xi’an’s historical context and architecture are highly suitable for the development of Hanfu culture. Xi’an was the capital of 13 ancient dynasties, and therefore enjoys an edge over other first-tier cities in terms of Hanfu market potential. At the same time, Xi’an is innovative, vibrant, and young, making it an ideal city for multicultural development. Classical culture, modern trends, and sub-culture all have their sustained presence at Xi’an.” —Zhang Shiyu, Fashion enthusiast, female What retailers say about Xi’an “Currently, two cities in China have SKP: Beijing and Xi'an. In light of this, I suppose that Xi'an will evolve into a fashionable, international metropolis. So we chose to establish GCWZ, the multi-brand boutique, in this stunning city. At present, millennials and Gen Z are our main customers. These people live in a non-first-tier city and do not have a lot of pressure to buy a house. Due to less mortgage pressure, they have more available cash for consumption.” —Lao Gao, Lao Chai, Design director of Xian GCWZ multi-brand boutique “Xi’an’s Wenchuang (cultural IP creation) market has witnessed significant development in recent years, and it is collaborating with other sectors like fashion, luxury, and high-end book stores. If luxury brands can cooperate with Xi’an in Wenchuang, it will set a remarkable precedent.” —Jiang Jinze, Entrepreneur of Xi'an Cultural and Creative Company “Unlike Beijing and Shanghai, the luxury buyers in Xi'an have careers that are more stable, such as leaders of state-owned enterprises or civil servants. The shopping demographic is not as varied as in first-tier cities. Besides, many local shopping centers are trying to get closer to high-end shopping malls. They use two ways to achieve the goal: by inviting luxury brands or by placing niche brands in their malls. In this respect, there is fierce competition in the shopping industry.” —Juan Er, Marketing manager in Xi’an’s shopping center Reported by Zihao Liu, Emma Li, and Julienna Law

Why Luxury's Needs to Watch Xi'an - China's Northwest Gateway

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Published April 28, 2022

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Why Luxury's Needs to Watch Xi'an - China's Northwest Gateway