Global real estate advisory firm CBRE recently published their 2011 edition of How Global is the Business of Retail report, and for the second year running Hong Kong has topped the list of retail destinations for luxury brands, attracting 84% of luxury companies surveyed. In the overall rankings Hong Kong placed 6th, with 41% of international retailers having a presence there. The report now in its fourth year the report surveyed 323 major international retailers across 73 countries to asses retailer presence and expansion plans across the globe. Consistent with China’s booming luxury sector, Beijing was ranked as the 10th most attractive city for luxury retailers in a list that included many of the worlds wealthiest such as New York, Paris, Moscow and Tokyo.
The survey reflects the ongoing penchant for everything luxury amongst the Chinese who are making staggering amounts of purchases in both the Mainland and Hong Kong. The flagship stores in Hong Kong for brands such as Louis Vuitton are reportedly their best performing stores in the world, with Mainland stores not far behind. It is sales figures like these that are driving all international luxury brands to search for flagship and other store location in cities across in China. (See here the best looking flagship stores in Beijing and Shanghai)
Within China, second tier cities also rose in importance with the Northern industrial city of Shenyang warranting several mentions in the report. Shenyang has a highly concentrated and fashion savvy population and its well developed infrastructure makes it highly attractive for retailers. Sales for luxury brands have risen drastically in Shenyang over the last 12 months and many brands now report that it is the third most lucrative city for sales turnover after Beijing and Shanghai. This is also consistent with The Maosuit’s recent piece on L Real Estate’s (owned by LVMH) activities in Shenyang.
Despite promising cities like Shenyang, China’s second tier cities largely remain elusive to many retailers, luxury and otherwise. The major hindrance to brands wishing to enter these cities is the lack of prime retail spaces where retailer demand far outstrips supply.
Normally the retail environment in second tier cities consists of one or two outdated department stores and a handful of existing malls. Most cities also have between five and ten new shopping malls in the pipeline and set to open in the next two to four years. The trouble then for retailers is whether or not to enter the market now or wait a few years for one of the new malls. If they chose to wait then they still have the dilemma of deciding which new mall is most likely to be successful and then competing for prime locations with the plethora of other luxury brands also vying for the same space.
For the first time this year the CBRE report also looked into the global footprint retailers have with their e-commerce business. In mature markets with sophisticated multi-channel retailing, successful e-commerce is causing retailers to rely less on physical stores.
The report also found China lagging the world in e-commerce. Although 80% of retailers had catalogs available online in China (its uncertain if these 80% were actually in Mandarin – probably not), only 8% were able to deliver products in China that were sold online. The Mandarin language barrier combined with China’s sheer size has created logistics and other challenges that retailers are yet to overcome.
As Chinese wealth and fashion sense continue to rise, China and Hong Kong will no doubt continue to attract the world’s top retailers for years to come.