Laura Cui, a mid-level manager earning 600,000 yuan a year working for a Chinese financial firm, has an eye for western luxury brands such as Hogan, Burberry, Armani and Givenchy when she shops for apparel and shoes in her home town of Shanghai. The 34-year-old, educated at an esteemed university in China, often shops in full-price luxury stores and outlets both at home and abroad as she is a firm believer in designer brands and quality products. “I buy half my designer brands domestically and half abroad,” said Cui, who takes three to four leisure trips a year to Europe or the United States with her middle-class family. “When I shop at home I do most of my shopping at downtown, full-price stores close to my apartment,” she said. “Sometimes I also go to discount outlet malls in Shanghai to spend the weekend and seek out some bargains.” She said the discounted price was the biggest attraction of the outlets when compared with full-price stores. Growing middle-class customers like Cui are the demographic that retailers and mall operators aim to attract in a recovering domestic luxury goods market. Consultancy Bain & Co said in a report that the mainland luxury goods market grew 4 per cent in 2016 at constant exchange rates, the first sign of revitalisation in three years. However, when taking exchange rates into account, sales volume slipped slightly in 2016. “It will increase at an even faster pace this year,” said Bruno Lannes, a Bain partner based in Shanghai. Bain noted that the mainland China market witnessed a “re-localisation” trend last year when the growth rate for local luxury sales exceeded that of overseas purchases by Chinese tourists by 5 percentage points, the first time that has occurred since 2001. Fitch Ratings said this month that sales reports from international brands such as Coach, Swatch Group and LVMH suggest that luxury spending in China is beginning to recover after a few difficult years caused by Beijing’s anticorruption campaign and weak consumer sentiment. In January, Burberry said its mainland China fiscal third quarter sales increased by a high single-digit percentage. This month Swatch Group also spoke of “very good growth” in mainland sales for the three months ending January in its watches and jewellery segment, with a substantial improvement in operating margins. Last month LVMH also highlighted its “better momentum” after a tough 2015 in its wines and spirits segment. Fitch said the recovery, partly driven by Chinese consumers bringing home some of their overseas spending, was bolstered by a weaker yuan, jitters over terrorist attacks abroad, the narrowing gap between domestic and international prices, and Beijing’s stricter approach on taxing overseas purchases. The yuan depreciated nearly 7 per cent against the US dollar in 2016, its biggest such loss since 1994 and the worst performing major Asian currency last year. A less valuable yuan reduces its buying power in overseas markets. On Friday Kering Group, which owns the Gucci and Yves Saint Laurent brands, said in its latest financial performance report that the Asia Paciﬁc region, excluding Japan, accounted for 26 per cent of total consolidated revenue in 2016 and posted comparable-basis growth of almost 11 per cent, led by the upswing seen in mainland China. The outlet mall segment is seeing sizzling growth which bolsters luxury goods sales in mainland China, analysts said. Benoît-Etienne Domenget, CEO of Swiss-based Sommet Education which runs a luxury brand management course at Glion Institute of Higher Education, said outlets in China have been booming and are expanding their presence to third-tier cities after experiencing slumping sales at main street boutiques over the last few years. “The growth is a result of the country’s changing economy and a rising middle class and upper middle class, who are nurturing their taste with a wider range of luxury brands and entering into the high fashion market via entry-level discounted outlet prices,” he said. He noted that discount outlets are still underdeveloped and said higher domestic consumption might offer a viable solution for international brands, which are reducing price differences between Chinese and international markets. Outlet malls typically offer off-season or factory excess goods priced at a discounted rate compared to in-season products by the same brand. Zhong Beichen, chief executive of outlet developer Beijing Capital Juda, said earlier that there were only about 40 such factory outlet malls in China last year compared with as many as 300 in the US. RDM Asia, operator of the luxury discount mall chain Florentia Village, is eying the “re-localisation” trend by targeting China’s rising middle class who want deals on designer brands such as Prada, Gucci, Saint Laurent and Salvatore Ferragamo while shopping at its malls, which are decorated with Italian-style piazzas, fountains, gondolas and porticos. With three outlets in Tianjin, Shanghai and Foshan, RDM plans to open new malls in Wuhan, Hubei province and Chengdu, Sichuan province this year and extend into Chongqing in 2018. A boutique outlet in Hong Kong, its first outside the mainland, is scheduled to open in late February. RDM Asia managing director Maurizio Lupi said additional expansion is also in the works as the firm believes opportunities outnumber risks. Our confidence in China comes from the numbers, in the sense that we are consistently growing every year in terms of turnover and the number of customers visiting our centres Maurizio Lupi, RDM Asia managing director “Our confidence in China comes from the numbers, in the sense that we are consistently growing every year in terms of turnover and the number of customers visiting our centres,” he told the South China Morning Post in an interview. Lupi shrugged off the hit from Beijing’s anti-corruption measures, noting the company’s major target customers are not heavily impacted by the crackdown on graft. The firm’s three outlets generated a combined turnover of 5.5 billion yuan (HK$6.2 billion) in 2016 and welcomed 11 million shoppers. Sales turnover is expected to rise by 20 per cent in 2017, while foot traffic is expected to grow 15 per cent in the same period. In May last year rival Value Retail opened its second store on the mainland, Shanghai Village located close to Shanghai Disney Resort. The European-based company has already experienced China as its major source of customers at its Bicester Village outlet near London. Now it aims to attract Chinese buyers in their home market. It has also operated an outlet in Suzhou, Jiangsu province since 2014. “We couldn’t be more thrilled to see double digit growth in both villages month after month since Shanghai Village’s soft opening in May 2016 and Suzhou Village’s opening in May 2014,” said Gary M. Rosen, chief operating officer of Value Retail Management (Shanghai). He said he projects the double-digit growth to continue for its operations in Europe and China in the coming years. Value Retail will also begin construction on the expansion of its operation in Suzhou later this year, reflecting its strong belief in the potential of the local market there. According to Bain, were it not for purchases from Chinese consumers, the overall global market for personal luxury goods from 2012 to 2015 would have contracted by an average 2 per cent annually. Despite the growth potential, challenges remain ahead. Yeeman Chin, a Fitch Ratings analyst in Hong Kong, cautioned that the sector is facing problems such as an oversupply in retail space, while structural challenges from the e-commerce boom are far from disappearing. She also noted that the price gap at home and abroad is another hurdle. “Prices at home are often not as attractive as those in other countries, such as the United States,” she said. “Consumers don’t necessarily want to spend money [at home].” Caddie Yu, a 30-something Shanghai housewife from a middle class family, said she prefers overseas shopping because of lower prices and there’s no need to worry about knockoffs. “I do almost all my big-ticket shopping abroad and seldom visit bricks-and-mortar stores in Shanghai nowadays,” said Yu, who travels overseas five to six times a year for leisure, buying everything from designer brand handbags to children’s products for her sons.