Luxury brands spread
Design outlet operators put faith in second- and third-tier cities.
Chinese consumers are buying more as luxury brands continue to expand their presence in second- and third-tier cities.
A survey conducted jointly by Ruder Finn and Ipsos in June, found that consumers in first-tier mainland cities preferred to shop locally when buying luxury products, such as watches, cosmetics, clothing, shoes, and wine and cigars.
"Since the financial crisis in 2008, there continues to be questions from the luxury industry and consumer world about whether China would be able to pick up the pieces in consumption. So we started looking at patterns," says Jean-Michel Dumont, chairman of Ruder Finn Asia.
He says the company began working with the luxury segment in China about 11 years ago. "In the past two years, luxury brands have been creatively going into second- and third-tier cities to bring a closer footprint to consumers. However, in the past six months, we have observed a slowdown of openings."
He says that there has been a marked slowdown in terms of investment and a change in the shape of the retail as luxury houses switched from a presence in small-scale boutiques to custom-built houses in hub cities such as Beijing and Shanghai.
Meanwhile, design outlet operators in China remain optimistic about the market. "People want to shop closer to home and there is a demand for what we provide," says Ivano Poma, managing director of RDM, operator of the Florentia Village in Wuqing, between Beijing and Tanjin. The outlet has 180 stores, with a gross leasable area of 41,000 square metres.
"This is the first of many designer outlets our company is planning to open in China," Poma says. "It is authentically Italian as we were meticulous in the details of the design: marble façades, the artisans and architecture. This all leads to an authentic Italian experience. What we've created is a destination."
According to Poma, the catchment area of the Florentia Village draws more than 25 million people in a radius of 90 minutes; on weekdays, ladies from the cities lunching and, over weekends, families and friends for a day of enjoyment.
Stores at the complex include Burberry, Celine, Fendi, Giorgio Armani, Prada, Ermenegildo Zegna, Bottega Veneta and Gucci.
"In China, the word 'outlet' can have bad connotations, but at Florentia Village, we have drawn on the success from the models found in Italy. What makes us special is that we connect with the head offices of the brands in Europe and each store is managed by the brand itself. They control their own inventory and, therefore, control their luxury brand image," Poma says.
"We have plans to open design outlets in Chongqing, capturing a market of 32 million residents, as well as Shanghai in 2013."