China Luxury Store Openings Continue Despite the ‘Slowdown’

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New MCM Store Opening Soon in Beijing's Intime Lotte Department Store

2012 was record year for luxury brands operating in China. As written about here, here and here! During 2011 and 2012 year luxury brands were making a land grab for retail space across China, primarily for mega flagship stores in the first tier cities like Beijing, Shanghai and Guangzhou, plus building bigger regional flagship stores in the 10 – 20 most promising second tier cities.

At the end of 2012 the new Chinese Government lead by Xi Jinping (who has lately been sporting a Mao Suit) came into power and promptly embarked on campaign to eradicate extravagant and corrupt practices amongst government cadres and other bureaucrats.

By late 2012 Maosuit.com was also reported that Chinese fashion consumers were beginning to find their voice and experiment with brands and looks that didn’t necessarily rely on famous labels and logos. This came at a time where there was a shift in fashion trends globally and the notion of ‘logo fatigue’ amongst fashion consumers began to spread.

In the last week two articles (here and here) in the Financial Times have highlighted the fact, that while Chinese consumer’s appetite for consumption at home is subdued, consumption by Chinese internationally continues to show unabated growth.

Combined, the anti-corruption campaign plus pivot in consumers tastes during 2013 and more spending offshore created a perfect storm type scenario that battered the Chinese Mainland sales of selected fashion and luxury retailers. Coming off the back of 2012’s record sales, there is no wonder that many pundits and equity analysts went into panic mode and the ‘China slowdown’ became one of the most talked about topics during last year. I was constantly amused by doomsday reports on China’s luxury and fashion market slowdown quoting  ‘experts’ based in New York, Paris or Geneva who, may be apt at looking at spreadsheets yet have never set foot  in China and fail to understand that China has to be a decade-long (not quarterly) play for retailers.

Long term, I have absolute confidence that Chinese will continue to develop a finely tuned taste for fashion (well beyond 1st and 2nd tier cities) and luxury brands whether foreign or domestic, still have plenty of room to expand and grow in China, albeit it a less frantic pace than before. As cases in point, take the current burst of store expansions underway in Beijing alone. In multiple locations across the city, new luxury stores are being built and unveiled as retailers themselves remain positive about the market.

One point of differentiation to the current wave of openings in Beijing versus those in  2012 is that they are happening in existing shopping malls that are being repositioned or renovated, and not in new shopping malls. However, in other cities like Chengdu, new store openings in new malls continues to be the main path of expansion.

In Beijing’s Shinkong Place (that holds the title of China’s top selling mall for luxury goods), the painstaking task of relocating existing tenants and introducing new brands to create a stronger trade mix of women’s fashion and accessories on 1F, men’s on 2Fand a mixture of other retailers on ascending floors is nearing completion. For some brands such as Dior this has enabled duplex stores with women’s on 1F and men’s directly above on 2F to be created, while for other brands their men’s and women’s stores are located separately within the premises.

The Intime Lotte luxury department store that floundered over recent years due to the lack of a distinctive luxury offering, has also been completely redone and now boasts an impressive line up of brands including Prada, Miu Miu, Cartier, Coach, MCM, Karl Lagerfeld, Tiffany and Valentino etc. with huge facades facing the bustling Wangfujin street and a stone’s throw from the new Waldorf Astoria and Beijing Peninsula hotels.

The third and most dramatic renovation being undertaken in Beijing is to the China World Trade Mall. Colloquially referred to as Guo Mao, the China World Trade Center Mall was the centre of Beijing’s CBD and a major business and trade landmark for the entire country. Over the next year or so China World Mall will undergo a major renovation that will allow more space for prestige retail including flagship stores with prized façade spaces facing Beijing’s busiest East – West traffic corridor – Chang’an Avenue. Hoarding for brands such as Louis Vuitton and Ermenegildo Zegna for their new China World Mall stores is already up and other major construction works are also underway. Some renderings of the finished renovation are here.

Not all mall operators are favoring to stick to luxury though. After five years of lackluster performance, Beijing’s City Mall adjacent to the Beijing Westin Hotel has recently closed to undergo repositioning that will not include the array of luxury brands such as Gucci and Burberry that were previously present.

Overall, I see the slowdown in luxury sales in China more as a maturation of the industry and Chinese consumers tastes and spending patterns. As the government continues to deliberately slow GDP growth over the coming years, retailers should accept current growth levels as the ‘new normal’, focus on consolidating operations and continue with strategic store expansions in a calculated (rather than haphazard) way.

While I see the validity in pouring over spreadsheets of sales and performance data to extrapolate a course for China’s fashion and luxury industry, all it takes is a bit of  old fashioned people watching on the streets of China to understand that the growing sophistication and appetite for brands amongst Chinese young people just isn’t stopping and only has one direction to go, and that is up!

Disclosure: The author works for a real estate company that offers location services for luxury brands expanding in China.

 

Miu Miu and Dolce & Gabbana Stores Under Construction in Shin Kong Place

Dior Men's and Women's Duplex Store in Shin Kong Place Beijing

 

New Karl Lagerfeld Store Opened Recently in Lotte Intime Mall in Beijing

New Valentino Store Under Construction at Intime Lotte Department Store in Beijing

 

New Prada Store Under Construction at Intime Lotte Department Store in BeijingMajor Renovations Underway at Beijing's China World Trade Center Mall

New Louis Vuitton Store Under Construction at China World Mall in Beijing

New Ermenegildo Zegna Store Under Construction at China World Mall in BeijingNew Chrome Hearts Store Under Construction at Beijing's Yintai Mall

New Ermenegildo Zegna Store Under Construction at Beijing's China Central Place Mall

 

New Dolce & Gabbana Store Under Construction at Beijing's Jinbao Place Mall

 

 

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