Friday, January 14, 2011

How many Armani shops does Shanghai need?

Another building site
There is no doubt the market for luxury products is growing fast in China. A recent Hurun report documented just that. China counts almost a million millionaires, who seem to be willing to spend part of their capital on consumer goods. But luxury goods for the very rich are just a limited part of a very special market.
For the luxury market a lower segment of the consumers - some might call it the middle class - are needed to draw their wallets and let that industry run.
Early in my latest Shanghai trip I wondered already how all those new luxury stores in Huaihai Zhonglu would draw enough customers to make a living. Later I would be running into the International Finance Center(IFC) in Pudong, and next door the Super Brand Mall (that had forgotten about its troublesome start) and was now swamped with potential buyers.
And it did not stop there: I could not turn a corner or yet another shopping mall with new stores for Armani, Louis Vuitton, Hermes, Chanel, Cartier, Gucci were under construction. Obvious, every district in Shanghai - where most real estate related matters are decided - thought it needed a shopping mall like their neighbors.
For any count, Shanghai seems to be heading for a glut in the luxury market, and the situation might even be worse when the analysis of economists like Huang Yasheng are correct. Most of Shanghai's GDP is spent by the government, more than on wages for the Shanghainese who are expected to purchase those Gucci bags.
In the past I have been wrong more often, for example when the first waves of giant 5-star hotels moved into Shanghai. Initially, we could not imagine those hotel chains would survive. They did and perhaps only after the WorldExpo, there might be a bit of an overcapacity for 5-star hotels. But I still keep on wondering: how many Armani stores does Shanghai need?
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