Luxury Market Shifts to Second-Tier Cities in China

China's second-tier cities, including Nanjing and Changsha, are increasingly becoming focal points for luxury goods vendors as middle-class consumers seek high living standards in these lower-cost locales. Recent data indicates that luxury spending in these cities has surpassed that of traditional economic powerhouses like Beijing and Shanghai. Notably, Nanjing's Deji Plaza has emerged as a leading luxury shopping destination, achieving sales of over 24.5 billion yuan in 2024, outpacing Beijing SKP's 22.2 billion yuan.

First-class goods in second-tier cities as luxury goes local in China

The shift towards second-tier cities is driven by a demographic change, with a growing number of middle-class individuals moving from first-tier cities to benefit from lower living costs. Research from MDRi revealed that luxury shoppers in second-tier cities spent an average of 253,800 yuan in 2024, marking a 22% increase from the previous year. In contrast, spending among first-tier consumers fell by 4% to 250,200 yuan. This trend reflects a broader economic shift, as consumer confidence remains stronger among younger and middle-income shoppers in these regions.

First-class goods in second-tier cities as luxury goes local in China

Luxury brands are responding to this evolving market by adapting their marketing strategies. For instance, Burberry has introduced innovative experiences, such as a branded ice rink and pop-up shops in ski locations, to attract consumers in these emerging markets. James Macdonald, head of Savills research for China, noted that recent earnings indicate a modest recovery in the luxury sector, attributed to targeted strategies in top malls in lower-tier cities.

First-class goods in second-tier cities as luxury goes local in China

Zino Helmlinger, head of China retail at CBRE, emphasized the significance of this shift, stating, "It really shows China is going through a wide change in consumer behaviour, and in where money is localised and spent." He further predicted that many more second-tier cities would rise in prominence as they become the new centers of luxury spending.

First-class goods in second-tier cities as luxury goes local in China

Despite the positive outlook for luxury brands in second-tier cities, some analysts caution that the overall economic environment remains fragile. The luxury sector has faced challenges due to sluggish sales following a post-pandemic boom and ongoing economic uncertainties stemming from a property sector crisis. Critics argue that while second-tier cities present new opportunities, the luxury market's recovery is not guaranteed.

First-class goods in second-tier cities as luxury goes local in China

As the luxury market continues to evolve, analysts anticipate that second-tier cities will play an increasingly vital role in shaping consumer trends and brand strategies. The ongoing demographic shifts and improvements in local shopping experiences suggest that luxury brands will continue to invest in these emerging markets.

First-class goods in second-tier cities as luxury goes local in China

• “The fact that you have all these second-tier cities now in the top 10 (luxury sales) ranking - it's crazy if you think about it,” — Zino Helmlinger, Head of China Retail at CBRE

First-class goods in second-tier cities as luxury goes local in China

• “Deji has the highest luxury sales density in China. They have an ultra-strong VIP ecosystem, deep brand partnerships, frequent store upgrades and they basically dominate commercial efficiency,” — Zino Helmlinger, Head of China Retail at CBRE

First-class goods in second-tier cities as luxury goes local in China

• “In the coming few years we're going to see many more second-tier cities rising, because that's where the money is.” — Zino Helmlinger, Head of China Retail at CBRE

First-class goods in second-tier cities as luxury goes local in China