China the world's new 'Big Spender'

Xi'an (CNS) -- To cope with the shift in demand for luxury goods from developed Western countries to China, and from first-tier Chinese cities to inland regions engaged in economic catch-up, international luxury brands have had to adjust their marketing strategies to satisfy their new 'gods.'

Mainstream luxury brands such as Louis Vuitton (LV) and Gucci have been reporting a decline in sales in first-tier cities in recent years because local high-class consumers are seeking more distinguished and unique products that put their outstanding taste in sharper contrast with the fancies of the general public, said CEO Michael Ouyang of the World Luxury Association.

It is high time that these traditional popular brands took the purchasing power emerging in second or even third tier cities more seriously, because that's where their future is, added Ouyang.

It is not a negative measure, he says, but a very appropriate choice. The world's largest consulting firm, McKinsey, found in a survey it conducted that merely 30 percent or so of China's rich live in the so-called first tier cities of Beijing, Shanghai, Shenzhen and Guangzhou. Furthermore, by 2015, 75 percent of the country's well-heeled will choose to live in non-coastal cities of the lower tier groups.

Expert Fang Haiyun at the Shanxi Provincial Academy of Social Sciences pointed out that the lower cost of living in less high-profile cities means residents have more disposable income and are more willing to spend on personal luxuries. Even average employees in petroleum, power, and telecom companies earn more than their counterparts in first-tier cities.

LV and Hermes, catering to the trend, now run 27 and 18 exclusive stores respectively, covering not only China's first four cities, but also reaching out across the country to consumers in such places as Ningbo, Hangzhou, Xi'an, Kunming, Chengdu and Wuxi.

China's domestic luxury consumption had rocketed to US$ 12.6 billion by the end of 2011, and that figure excludes private planes, yachts and supercars. The luxury consumption discussed here takes up about 28 percent of global luxury sales, and China has surpassed Japan and the U.S. to become the world's new 'big spender'.