back to the list send to a friend print


- 9 Jul 2010
- by
- by

Chinese Retail: Street-side Advertising or Misunderstood Strategy?


How LS members explain the seemingly ‘empty’ luxury shops in boom markets

It’s the sort of scene that makes even seasoned luxury veterans pause to scratch their heads. Dotted across some of the world’s most dynamic growth markets are cavernous monobrand boutiques where you can hear the proverbial pin drop and lavish luxury malls that look like ghost towns. Not long after heady ribbon-cutting ceremonies and launch parties trumpet the birth a new retail mecca, why is it that store traffic seems so sluggish in places that the market researchers said would struggle to cope with a frenzied mob of shoppers?

Recently, LS members have been weighing in on this puzzling topic via a thread in our forum called “Too many (empty) luxury flagship stores in Shanghai”, posted by China Elite Focus’s Pierre Gervois. “Living in Shanghai I can see nearly every month a new flagship store bigger than the previous,” writes the luxury tourism agency CEO. “And I rarely see a Chinese customer inside.”

Pondering whether the investors behind these apparently “empty” mega-shops filled with “bored staff” had planned their expansion on “false statistics” or if they had “seen too big”, Gervois suggests that domestic luxury consumption in China isn’t living up to expectations. With prices much cheaper overseas and fewer foreign travel restrictions to pose a barrier, many more wealthy Chinese are doing their shopping abroad than brands anticipated, he offers.

Felice Jiang, a social media strategist for the Chinese luxury news source Jing Daily, agrees that “shopping tourism” is the main cause. “It is not an issue with demand. We’ve covered outbound Chinese tourists extensively, with most predictions showing that they will be on the rise. As much as 75% of Chinese businessmen are planning to travel even more this year.”

Indeed, Chinese tourists are fast supplanting Arabs, Russians and Japanese as the most valuable foreign shoppers in many luxury boutiques across cities in Europe and North America. Not to mention the hordes who descend on closer destinations like Hong Kong and Singapore.

 Buying in China for the richest doesn’t provide the international clout they have when travelling abroad 

Price and practicality are not the only considerations when choosing to shop abroad, according to a media manager for the supercar show Top Marques Monaco. “Buying in China for the richest doesn’t provide the international clout they have when travelling abroad,” says Ahn’na Hargrove who recalled how a partnership with the Hurun Report helped to attract a client list of Chinese HNWIs to the recent Monaco exhibition. “Everyone at the show loved them and sought them. They loved the publicity and the cameras on them as they shot from one supercar to the next.”

Considering all the business that luxury brands seem to be enjoying from Chinese who drive past their new shops in Shanghai and Beijing, could they have vastly overestimated footfall in their race to outdo one another’s local footprint? Or, as Timothee Semelin seems to believe, is footfall not a reliable instrument to measure performance in markets like China?

“What we can say is that the huge amount of money those brands make are not coming from the outstanding number of clients they have but more on the few BIG clients that they have,” writes the account manager for outdoor advertising firm JCDecaux Airport China. In other words, perhaps it is a small number of big spenders tucked away in the VIP areas who are keeping sales figures buoyant enough to warrant the scale and spectacle of these sparkling retail spaces.


Soumya Jain, chief editor of LuxuryFacts, an online luxury news source in India sees parallels in that market where a burgeoning luxury consumer base also goes abroad to shop for preferred luxury brands. “Some of the biggest luxury brands have a presence here, but very few buy stuff from here. They just visit the store to find out more about the new collection,” she says. “But yes, it is those few Indian consumers who buy loads from luxury brand stores in India, which keeps those stores running.”

Whether it’s the spa town turned oligarch luxury village called Barvikha on the outskirts of Moscow or the sprawling Daslu complex in downtown Sao Paulo fit with a helipad, operators in other emerging markets give a similar explanation when fielding queries about their seemingly quiet emporiums.

From his vantage point as a manager of retail properties at Savills’s Beijing office, Timothy Coghlan says that, in China at least, it’s more a matter of prime real estate. “Brands are snatching up locations now before they run out even if it means operating at a loss for a few years.”

And in some cases, he says, development costs are not as staggering as they might seem. “The malls will agree to a percentage of revenue (usually 5% or less) only as rental fee. For the top 10 or so luxury brands, developers will also pay €3000-4000 per square metre ‘fit out fee’ for the stores. Therefore the top luxury brands get the store built for them and only have to pay a percentage of what they make.”

 The stores are more for show and prime streetside advertising space than as a revenue earner 
“It’s essential for the brands to have presence in the big cities,” he adds, because “the stores are more for show and prime streetside advertising space than as a revenue earner… They often make most of their revenue from 2nd and 3rd tier cities, where the consumers are wealthy but not so sophisticated and [not] prone to overseas travel."

With the bigger players enjoying so many advantages when it comes to expanding into essential new markets like China, it’s enough to cause concern for niche luxury brands, says Jerome Mackay, a marketing manager for British leather goods company Ettinger.

“Hearing about all these huge flagship stores does put off smaller brands who somehow get the impression that these big empty shops are the only way to do business in China and that it’s extremely costly.”

What are your views? Does the sight of yawning sales assistants in some of the most prestigious and powerful luxury boutiques have you worried? Would these new flagships be little more than white elephant projects if they weren’t subsidised by the advertising value they confer to Chinese shoppers abroad?

Perhaps they are necessary loss-making machines which will inevitably pick up in the long term. Is a mood of anticlimax just a normal symptom of the early investment phase in emerging markets? Or do we misunderstand the footfall equation in places where the mega-rich can swoop in and clean out half of the shop’s stock in one credit card transaction? Why not join in the discussion?