Retail opportunity doesn’t stop in the luxury stores of Beijing and Shanghai. A robust middle class offers international brands profit potential nationwide.
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By Mary Scoviak
For decades, China’s international retail sector was defined by one word: luxury. And the status market isn’t going away; Ernst & Young showed the nation’s estimated 300,000 millionaires to be virtually bullet-proof as they poured $6 billion into luxury purchases last year. High-end retail potential should only get stronger as the ranks of the ultra-rich swell nearly 20 percent annually, states Capgemini and Merrill Lynch’s 2008 “Asia-Pacific Wealth Report.” Their willingness to spend some of their $1 trillion wealth on brands such as Hermès, LVMH’s portfolio, Ermenegildo Zegna and Versace will make China the world’s largest consumer of luxury goods by 2015, projects Goldman Sachs.
While all these zeros are tantalizing, they’re also misleading. “Luxury brand sales account for significantly less than 1 percent of total retail sales in China,” says Paul French, founder and publishing/marketing director for the market research firm Access Asia China (Shanghai). So what’s driving a retail sector French predicts will fast-track from today’s $824 billion to 2016’s $1.4 trillion? A middle class that’s expanding exponentially faster.
Mass Appeal
The number of mid-level wage earners in China is poised to skyrocket (see sidebar, below), and this group is ready to shop. Upper mass market fashion retailers have a wide-open playing field. “The likes of Zara and Mango are hot,” says French. “Currently there are no local challengers. We’re seeing growth by outdoor brands such as Columbia and The North Face as Chinese consumers diversify away from sportswear somewhat. Footwear is another good sector, and in sportswear, Li Ning, Anta and others have done well copying Nike and Adidas.”
Overall, the odds-on favorites will be retailers that address pent-up demand for aspirational purchasing, allowing consumers “to have that celebrity look, especially that of Chinese and Korean movie stars,” says Song Pak, chief creative officer, AMM Asset Development Inc. (Seoul).
Cho Suzumura, designer, retail environments, MulvannyG2 Architecture (Bellevue, Wash.), sees a big gap between supply and demand. “China lacks the happy medium between high-end luxury brands and typical low price-driven Chinese retail brands,” he says. “There’s a lot of upside for international brands that deliver value while providing a total experience.”
Western Retailers’ Competitive Advantage
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