Economy

Smaller cities to be new battleground for luxury brands

By Xu Junqian (China Daily)
Updated: 2010-11-10 14:58
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SHANGHAI - Luxury goods sales in China are expected to rise 23 percent year-on-year in 2010, business consulting firm Bain & Company said on Tuesday.

The world's leading adviser to the luxury industry attributed the strong growth mainly to continuous and aggressive expansion of international premium brands.

In 2009, despite the impact of the global economic crisis, luxury goods sales in China achieved 10 percent year-on-year growth to hit 156 billion yuan ($23.39 billion).

The report suggests that the battleground for luxury customers in China is shifting to the nation's second and third-tier cities as consumers' brand awareness and attitudes toward luxury and wealth there display a growing similarity to the levels in Shanghai and Beijing.

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According to Bain's survey, conducted on 1,471 people from more than 10 cities, families in second and third-tier cities with a monthly income of more than 100,000 yuan ($14,993) spend 186,000 yuan annually on luxury goods, 20,000 yuan higher than that of families with the same income in first-tier cities.

Although 56 percent of the sales revenue stems from overseas consumption, including Hong Kong and Macao, domestic purchases are picking up speed and are likely to be a continued trend in the future.

Analysis shows that lower prices and better product selection remain the top two reasons for overseas spending, while impulse shopping and access to after-sales service account for major reasons for domestic purchases.

In response, some brands have lowered operating margins to narrow the price gap between China and other markets, and many retailers are buying back franchise operations to regain brand control to meet with the maturing market and increasingly sophisticated customers.