While investment by global brands has traditionally been highest in Tier 1 cities, explains Shaun Rein, managing director of the China Market Research Group, these days, most growth is happening in Tier 3 cities — defined as medium-size cities such as Dalian that are highly entrepreneurial. And it’s luxury that sells.
“The concept of an emerging middle class in China is a myth, says Rein. “In the U.S., blue-collar workers are happy to shop at Macy’s [department store] for life. Here everyone wants to be rich. It’s why middle-class brands like Marks & Spencer and Calvin Klein haven’t done well.”
Louis Vuitton has 17 thriving stores in Tier 2 (in developed capital cities such as Chengdu) and Tier 3 cities in China. That’s a good measure of the “luxury readiness” of smaller Chinese cities. Swarovski crystal can be be found in about 200 shops spanning 35-40 Tier 1 through Tier 4 cities (such as Jinhua). Luxury brand consumption is linked directly to the development of cities and commercial real estate, specifically malls and shopping centers.