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Move aside, Paris and Milan: luxury brands are pivoting to Asia-Pacific as China splurges
LED by China, Asia-Pacific (Apac) markets are now grabbing the brightest spotlight in global luxury retail, with the region overtaking industry favourite Europe in physical store openings for the first time.
From January to October this year, Apac snagged the biggest share of luxury store openings - 38.9 per cent - compared to other regions. That exceeds Apac's 31.8 per cent share for the whole of last year, according to data from real estate firm Savills.
"For a number of years, Apac has provided luxury brands with a key contribution to their global business," said Anthony Selwyn, head of Savills' prime global retail team.
Now, the region is recovering from the Covid-19 pandemic, "stimulating further aggressive expansion and investment".
Apac's bigger share of brick-and-mortar openings was largely fuelled by retailers expanding their physical footprint across China. The country accounted for 18.8 per cent of openings worldwide in the year to date, almost half of the region's share and far outstripping the country's previous three-year average of 6.4 per cent.
And compared with 2019's level, China saw a 64.7 per cent surge in openings in just the first 10 months of this year, making it the only major market to grow over this period.
Many retailers this year expanded their presence in the country to meet demand, "particularly at a time when Chinese tourists are largely unable to travel long-haul to traditional retail destinations such as London, Paris and Milan", wrote Savills.
Domestic tourism has also recovered rapidly following lockdowns in the first quarter. Further boosting Chinese consumers' spending was the Golden Week holiday in early October.
The Greater Bay Area - including Hong Kong, Shenzhen, Macau and Guangzhou - has been particularly active in terms of openings since lockdowns eased, welcoming 11 per cent of new stores globally so far this year.
Nick Bradstreet, managing director of the Savills Hong Kong retail agency team, noted that the central government is also targeting the area to become a technology and financial powerhouse to rival Silicon Valley by 2035.
Key openings of late in the Greater Bay Area included Burberry's first digital-centric "social retail store" in Shenzhen in partnership with Tencent, allowing customers to interact digitally with products through QR codes and WeChat.
Singapore has experienced a similar trend of domestic spenders coming out in full force to splurge.
Given that luxury boutiques in Singapore for years depended heavily on Chinese tourists, it came as a surprise when long queues formed outside major stores here during the reopening, said Sulian Tan-Wijaya, executive director and head of retail and lifestyle at Savills Singapore.
"Singaporeans, unable to travel during the pandemic, have been contributing to brisk sales at Chanel, Louis Vuitton, Cartier, Dior and many more."
Moreover, Singapore is emerging as a hub for sneakers - a newcomer in the luxury market - as more brands hop on the bandwagon for this "highly lucrative" segment.
"Collaborations like Dior X Nike Air Dior sold out at S$3,500 a pair and quickly surfaced online at resale prices of S$12,500," Ms Tan-Wijaya said.
On the other side of the world, Europe, long a heavyweight in the industry, as well as the US continues to see a resurgence in Covid-19 cases, prolonged economic downturns and job uncertainty.
As a result, the global luxury market is set to shrink by up to 45 per cent in 2020, based on Boston Consulting Group's (BCG) forecasts.
In contrast, China's spending on luxury goods in 2020 could surge to 30 per cent above last year's levels, according to BCG. Bain & Co also predicted China could contribute half of the world's luxury spend by 2025.
"Ensuring that your brand has an excellent profile in China will therefore be a matter of survival for many luxury retailers," Mr Bradstreet said.
Savills noted that from July to September this year, there was a "strong bounce back" in global physical store openings, exceeding the quarterly average.
This followed global lockdowns which stalled openings during much of the first half of the year, with many brands now rethinking their retail investment in light of Covid-19-related headwinds.