Shanghai might be all dressed up with nowhere to go

Shanghai is fast becoming a perfect storm for luxury brands, resulting from growing local affluence at a time of global recession. And the city’s mix of wealthy locals, a large expat community and business travellers is encouraging brands to further diversify their offerings.

In January, Shanghai Tang launched its first own-brand café in Xintiandi, the city’s popular upmarket retail zone, while the flagship Alfred Dunhill store, launched in October, includes a restaurant, bar and even traditional barber shop among its branded offerings. Similarly, Dolce and Gabbana has opened a Martini bar for the fashion-forward crowds. Even the Barbie store, which opened last year, is getting in on the act, selling a Vera Wang wedding collection and hosting a spa and bar on its top floor.

Ed Tam, director of invention, Mindshare, who works on the Rolex account, argues that luxury brands in China are evolving in this way due to simple mathematics.

“The affluent population in China is sizeable and growing”, he says. “These brand extensions, although costly, can provide new revenue streams. They are amplifying the dream of the brands, but these dreams are difficult to create for brands purely in the 30-second spot or in a print ad. Creating these brand experiences helps people to see and live the dream.”

Viveca Chan, chairman and CEO of WE Marketing Group, explains that brands are diversifying because consumers are increasingly less driven by logos and more by an enhanced brand awareness. “Chinese consumers are attracted by brand stories and need to be educated on the brand essence. Providing a holistic experience is the best way.”

According to Rohan Lightfoot, business director at Carat China, the goal for luxury brands is personalisation - letting luxury consumers know that they’re getting something that other people cannot get. “The social currency of luxury consumers is exclusivity, and one way to differentiate your brand is to offer a tailored service that other competing brands can’t or don’t offer,” he says. “This type of service increases loyalty and also creates social currency, which is vital in a culture where ‘face’ plays such an important role.”

But why is luxury diversification mainly happening in Shanghai, rather than other Chinese cities?

Lightfoot points out that the obvious answer is the 8.7 per cent GDP growth in 2009 and a projected GDP growth of over nine per cent in 2010. In addition, last year’s Hurun Report, China’s rich list, said that there are now 116,000 millionaires living in Shanghai. When you add another 170,000 millionaires in neighbouring Zhejiang and Jiangsu Province, you have an enormity of affluence centred around Shanghai, and more than twice as many millionaires as Beijing.

Moreover, Shanghai enjoys an undeniable lead over Beijing in terms of fashion and trend setting.

“Shanghai has always been at the forefront of lifestyle in China,” says Florence Paget, luxury brand director for China at Emotion, part of the Publicis Groupe. “Consumers are seeking differentiation as luxury goods become more widespread; logos are still important but an elite is already moving beyond that stage to reaffirm its status.”

Karl Cluck, head of invention, at Mindshare China, says that the recent luxury initiatives in Shanghai are the first steps towards creating a luxury infrastructure.

“You need to give people a space to feel and be luxury, a space where they can live the brand. Otherwise, rich people in China will still only only go to KTV,” he says. “[Brands] need to develop more opportunities for consumers to display and show off, rather than just selling more products.”

This article was originally published in the 11 March 2010 issue of Media.