China’s consumers have been featured on these pages before. We had luxury stores and the wonderfully wealthy , as well as the middle market. Now there is news from the Hong Kong Trade Development Council (HKTDC) about Wuhan, in Hubei, where the New World Center department store is soon due to open – with lots of luxury international brands.
Will there be a market for the expensive designer goods behind the shiny windows? If the following examples of Wuhan consumer purchases is anything to go by, the answer is yes:
• A pen at RMB198,000 (US$24,750)
• A watch at RMB200,000 (US$25,000)
• Chanel sold over RMB200,000 (US$25,000) of cosmetics on its launch day in Wuhan (having spent nothing on promotion)
• At Wuhan Square, total cosmetics sales are reported to be over RMB300 million (US$37.5 million) a year.
• Nokia launched its high-end phones in Wuhan at prices from RMB40,000 up to several hundred thousand RMB. “The first customer was a woman in her 30s who bought two phones priced at Rmb300,000 each (HK$291,000) [US$37,500] with cases made of gold and platinum respectively”.
The HKTDC report indicates that the luxury consumer market, while still small in percentage terms (perhaps the top 1 percent), is already significant in places like Wuhan:
“In the eyes of luxury goods retailers, the characteristics of the target consumers are: aged from 20 to 45, mostly well educated, with a monthly income of over Rmb8,000 (HK$7,760) [US$1,000], and with substantial bank savings. Sociologists consider this group to be a high income one because it is financially sound with significant consumption power.”
However, despite the obvious froth in Wuhan, all is not rosy for the luxury goods stores of China. Access Asia, in an article “China’s Luxury Illusion…Vindication” says of Shanghai:
“Nanjing Road’s Plaza 66 mall – known locally as the Ghost Mall…has lots of luxury stores – all empty, few paying anything more than a peppercorn rent and acting as a Potemkin Village of luxury to impress visitors and make the locals feel loved…According to a recent piece in the LA Times (07-13-2006): Some shops ‘don’t ring up a single sale for days’, …Plaza 66 and other malls like it in Shanghai ‘are solely a window for these brands.’”
So, is it seems that while there is plenty of pent up demand (and saved-up cash) for expensive luxury goods in cities like Wuhan, Shanghai may have reached saturation point – for the moment (and anyway, that top 1 percent still buy much of their stuff when overseas). That there are regional differences should be no surprise. China’s markets differ from place to place, just like they do in Europe or the US.
It all brings me back to my favorite answer to the question: “is there a market for my company in China?”. That answer is “yes…but”. The “but” is there because, while there is almost certainly a market somewhere (for just about anything) in China, the key questions remain:
1) How big is that market?
(A market of 1, or 1 million, might not be enough to make it worthwhile, while a market of 1 billion is still a fantasy).
2) How can that market be realistically accessed?
(Is it highly fragmented and expensive to get to, or conveniently centered around 2 or 3 big cities?)
Some nicely-tailored market research may be in order.
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