For luxury brands on the lookout for the next big cities for growth in the next decade, a new McKinsey report finds that China is still the place to be. According to the consultancy’s recent paper called “The glittering power of cities for luxury growth,” six out of seven new cities that will be added to its list of the top urban centers for luxury growth between now and 2025 are located in China. These include not only Hong Kong and first-tier Beijing, Shanghai, Guangzhou, and Shenzhen on the mainland, but also the lower-tier Tianjin and Chongqing.
‘Next 15’ (Source: McKinsey 2014)
Despite China’s current luxury slowdown, the report finds that these cities are vital for global luxury growth in the long run. It states that the world’s top 600 cities by absolute GDP size will drive 85 percent of the luxury apparel market and 66 percent of the luxury beauty market by 2025. While only four out of the top 25 top cities for luxury growth are currently from emerging markets, the report predicts that 21 of them will be from these economies by 2025—with a significant portion coming from China.
When the market is broken down by category, the countries in the “Next 15” category—the top 15 emerging markets—will drive 90 percent of global luxury growth across the beauty and women’s ready-to-wear categories. Half of this growth will be coming from China. These high growth rates will have a significant impact on the market, since Chinese cities will also be making it onto the lists of the largest markets in the world for luxury spirits and beauty. The list of top cities for spirits will feature both Beijing and Shanghai, while beauty will have these cities as well as Hong Kong and Shenzhen.
Despite the high growth rate, the biggest women’s luxury fashion markets won’t change much: McKinsey reports that Paris, Tokyo, Milan, London, and New York will remain on top, but that doesn’t mean China doesn’t have a role to play in these cities as well. One of the main groups propping up sales in these cities will be, of course, Chinese tourists shopping abroad.