Companies Can't Ignore Younger Consumers, Rise Of Smaller Cities, Decline Of Male-Led Spending#
Over the past five years, one of the most obvious trends in China's luxury retail market, primarily in top-tier cities, has been frenzied expansion. Gaining pace in the years preceding the 2008 Beijing Olympics, the Chinese capital has, perhaps more than any other city, seen its retail sector suffer from overcapacity, with new luxury-focused malls multiplying and ever more brands opening flagships and boutiques, even as the city's middle class has continued to search for deals online, done their luxury shopping in Hong Kong, and cultivated an increasingly vibrant second-hand luxury market.
With rent at Beijing's many high-end malls continuing to rise, and consumers often using these venues for window-shopping more than anything else, some are wondering how the situation in Beijing can jibe with the news we see every day about China's booming luxury market. Yesterday, the Globe and Mail noted that exorbitant rental costs and oversaturation are mainly to blame for the woes facing Beijing's luxury shopping venues. Interestingly, in the article, one of the factors blamed for fewer shoppers at Beijing's malls was the inland shift of both brands and shopping centers. As Matthew Crabbe of Access Asia told the Globe and Mail, “The real market for luxury goods has moved out of Beijing and what is left is oversupply.”
So, if oversupply in top-tier cities -- exacerbated by the fact that major brands have focused their expansion efforts on "blank slate" second- and third-tier cities, many of which are just now getting their first "real" luxury malls -- is an unmistakable trend, where do the key opportunities now lie in China's vast and balkanized luxury market? This week, a report released by the Boston Consulting Group singles out three segments to watch: younger consumers, women, and consumers in smaller urban areas. While there's nothing completely fresh here -- Jing Daily regularly covers the growing spending power of women, the increasingly young median age of Chinese luxury shoppers, and the promise of second-tier cities -- it bears repeating that luxury brands both large and small need to tailor their expansion and marketing efforts to these three emerging groups.
From China Daily's coverage of the new BCG report:
"Consumers in their late 20s to early 30s today outspent the national average by 18 percent, owing to structural changes in lifestyle: They know more brands, own more brands, trade up more often and have aspirations to upgrade in the future," said Zhou Yunling, project leader at BCG's Beijing office.
Zhang Zhifeng, chairman of NE Tiger Fashion Co, a Chinese high-end dress manufacturer, told China Daily that the younger generation is among their buyers, although their target consumers are the wealthy.
"We used to call young consumers the 'dream group' because our dress is more like a dream for them. They need to save money to buy a single article, which is usually priced at 20,000 yuan," Zhang said.
"However, the younger generation is now becoming important to our business," he said.
Currently, spending on women's apparel constitutes 54 percent of the total spending on fashion among adult urban consumers - menswear spending represents 46 percent.
Over the next 10 years, as women's incomes rise, it is expected that their apparel spending will pick up significantly, compared with that of men who earn the same amount, according to the report.
"We are seeing the trend that women will continue to outspend men on apparel in China. The spending ratio between genders will likely converge with that of the United States, the United Kingdom and Japan in the future, where women spend 1.5 to 2.5 times what men do on apparel," Zhou said.
Also, the report said that a much larger proportion of people who spend heavily on apparel will live in the country's lower-tier cities in the coming decade.
"To reach 80 percent of the market potential for mid- and high-priced apparel, companies need to increase urban coverage from 462 cities in 2010 to 568 cities by 2020," Zhou said.
The report goes on to point out that luxury e-commerce is another growing segment, with Vincent Lui of BCG saying, "In the following five years, nearly 40 million new e-shoppers will emerge [per] year, and the total e-shopper population in China is expected increase from roughly 145 million in 2010 to reach 329 million by 2015." Still, as Jing Daily has previously pointed out, though the luxury-focused online retail market may be a hot topic, it's by no means consolidated, and -- much like Beijing's luxury market -- is becoming more saturated by the day.
Still, going back to top-tier luxury markets like Beijing, we would say that ample opportunity still exists despite the current difficulties faced by high-end malls. Look for more wealthy top-tier residents to forgo the huge luxury malls for smaller, independent designer showrooms and curated multi-brand and multi-designer boutiques. While this trend might cause pain for some of the shopping centers built during the luxury frenzy of 2005-2010, and may even hurt the luxury giants who overextended in top-tier cities in recent years, it will benefit home-grown Beijing designers, lesser-known international luxury labels, department stores like Lane Crawford (and possibly the upcoming Beijing outpost of France's Galeries Lafayette), and more avant-garde chains like Dong Liang and Triple-Major.