A fair amount of luxury brands are highly considering to enter the 3rd tier and 4th tier cities in China
Expansion in smaller cities?
Over the past few years, many luxury brands have considered entering the 3rd and 4th tier cities around China, as they may offer some good market potential. Most of the time, these cities do not seem to be attractive for business expansion, but the trend is perhaps on a wind of change. Their number of potential customers have revealed fairly good figures as these shoppers are showing a growing interest into the purchase of high-end products. This is the current trend in 2nd tier cities such as provincial capitals, while Shanghai and Beijing are considered 1st tier due to their gigantic size and enormous market potential.
A real market potential?
Brands and marketers clearly define 1st tier and 2nd tier cities but when it comes to 3rd and 4th tier, they choose different ranking factors, some use average income and city’s development index, some others would just rely on population figures. If we are to follow this ranking system, 3rd tier cities are the largest or wealthiest non-capital cities in the province, the 4th tier cities seem to be the next largest (usually in terms of population). Although these cities seem to have some market expansion potential, luxury brands are being reluctant as regards their spread.
The reasons usually being brought up are the lack of proper retail space, unknown clientele and quite obviously the price of such a market expansion. Some world famous brands such as Louis Vuitton and Cartier adopted different expansion strategies, respectively extending their reach into 3rd tier cities and 4th tier.
Common ground in China
According to a Chinese fashion trend website, numerous brands have chosen to extend their market to 4th tier, where as much as hundreds of millions of inhabitants are potential customers. Such figures seem highly attractive although just a few luxury brands made the effort to enter these lower tiers.
Chinese Luxury consumers are everywhere
Consumers in these tiers remain highly diverse as their living expenses are different, so is their income. Which means that their potential shopping expenses might not be as high as the luxury brands are expecting. Even though most of these lower tier cities seem to have some potential room for expansion as they are not well dispatched when it comes to luxury brands. The companies that are planning on entering these luxury-brand-less areas have to remain cautious.
Looking at these smaller cities to expand a market without acknowledging the fact that the gap between higher-tier cities and lower-tier cities is not was wide as it used to be would be a serious mistake. Chinese market is currently shifting, rise of the middle-class, businessmen returning to bigger cities, new generations, e-commerce.
It would appear that moving too rapidly into a 3rd tier or 4th tier city, neglecting the market that 1st and 2nd tier cities have to offer would be an unwise strategy. Some sort of balance has to be found.