Changsha, in Hunan Province, is the kind of place that doesn't get much attention until something big happens in the news - like the anti-Carrefour mob that gathered in neighboring Zhuzhou recently, to protest the French and their handling of the Olympic torch events. If you aren't up to date on this, Jin Jing, a young wheelchair-bound athlete tried to protect the Olympic torch while being pelted with debris thrown by French protestors. This triggered a rash of nationalism against the French, and a top French envoy arrived a few days later to deliver a personal letter of apology from President Sarkozy to Jin Jing.
Beyond this burst of attention, Changsha is usually in the top 20 list for 2nd tier cities in terms of economic development, consumer spending, and real estate development. One of our group's clients, a major sportswear brand, has 33 retail outlets there. Their competitors have even more. There are also 26 KFCs and 132 ICBC bank branches. So with 6 million residents, Changsha isn't really a sleepy cow town.
When investors complain that they aren't hitting their IRR anymore in Shanghai and Beijing, they have a couple of options. One, reduce their IRR expectations, or two, take the Wanda/Capitaland litmus test. What's this test all about? Pretty simple. If there's already a Wanda or CapitaLand mall in a city you've never heard of or been to, then you should probably get out there and take a look. You might be surprised, even if you can't order a cappuccino.
Some Changsha news that's come across my desk recently:
Changsha's "high end" sector moves still higher
After more than six months of refurbishment, the Friendship Store in Changsha has just opened for business. The opening of this high-end flagship store after its recent Rmb300 million facelift has plunged the city's competitive retail scene into another cut-throat round of re-fitting and re-pricing.
"Sales of leading brands at Golden Family [the group's parent company] have been growing at an annual rate of between 30% and 40%," said the store's assistant general manager, Li Wenli.
This suggests that luxury items are not without buyers in Changsha despite the fact that many people complained about prices as they finished a shopping run in the newly-re-opened store.
Changsha's pre-existing high-end stores are not busy every day and the Friendship Store was relatively full.
Luxury market has potential
The signs are still more pronounced that "luxury" is the sector to enter. Hong Kong's New World Department Store sold seven luxury mobile phones with a hefty unit price of Rmb43,200 each within one month. Major chain Bailian Dongfang managed to sell several expensive watches with price tags of tens of thousands of yuan every day during the Golden Week holiday.
Hunan's total retail sales of consumer goods were estimated at Rmb335.5 billion in 2007, a year-on-year increase of 18.2%. Worthy of attention is a newly-emerging consumption structure, with sales of jewellery, expensive cars, luxury watches and high-end clothing accounting for an increasing share of retail sales.
This huge market is pulling in increasing numbers of luxury brands and stores. Chanel is very careful as to who it chooses to carry its stock and it has identified Changsha as the location for setting up one of its counters away from the capital's Wangfujing Department Store.
Hennessy also opened its first liquor store near Xiaowumen last August. Major department stores such as Seibu and Maison Mode started preliminary investment studies in Changsha.
Competitive environment
The opening of the renovated Friendship Store seemed to represent a move by the Friendship Apollo Group to tap business opportunities. But there are plenty of competitive hurdles to negotiate.
"There's limited demand for upmarket department stores in a small place like Changsha, but high-end stores are opening one after another in spite of this," says Li Wenli, revealing the pressure of having to survive the competition.
Professor Zhu Guowei of the Business Management School, Hunan University also has his doubts. "The possibility that there is a glut of luxury consumer goods in Changsha is a grim issue facing high-end stores."
"How to identify its clientele, bring brand effect into play and optimise operation are issues the Friendship Store must carefully ponder," says Zhu. Compared with Wuyi Square, with its prime location and range of businesses, the Friendship Store seems to have limited supporting facilities.
However, as many luxury goods are purely a matter of personal taste, buyers are after uniqueness and exotic options. It seems the Friendship Store needs to do is to make the best of its advantages and allow consumers to shop in a hassle-free environment.
"Competition between high-end stores boils down to service and software," adds Zhu. Price aside, luxury goods also sell concepts and the finer things in life.
Li Wenli is convinced that upmarket stores must always put their customers first and provide consumers with personalised services of a high standard.
Rational spending
Luxury items are not necessities, but their existence is still necessary. Luxury is not wasteful, rationalists say. To the contrary, it's creative.
That's not the same thing as uncontrolled buying of luxury goods, which can send spending out of control.
In Professor Zhu's opinion: "these [shoppers] are not 'positive' luxury consumers and are not long-term consumers to be desired. Business operators should take the nurturing of rational consumers of luxury goods as their strategy for sustainable development."
Zhu reckons that the number of luxury consumers will grow as the middle-income sector expands.
Source: HKTDC
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