Chinese cities will join luxury club

Warc, 22 July 2014

SEOUL/PARIS: Six out of the seven new cities that will join the list of top cities for luxury goods over the next decade will come from China, although mature markets will still remain highly relevant, a new report from McKinsey has forecast.

The management consultancy used its CityScope proprietary methodology to predict that Beijing, Chongqing, Guangzhou, Hong Kong, Shenzhen and Tianjin will be among the world's top luxury cities in ten years' time – and Rio de Janeiro will be the seventh new entrant.

Furthermore, of the top 20 luxury apparel growth cities, seven will come from "Next 15" countries – or the 15 top growing emerging nations – China foremost amongst them.

However, cities in mature countries will remain "critical" in terms of the absolute size of their luxury market, McKinsey said.

For example, it expects Paris to be the top market for luxury women's ready-to-wear (RTW) in 2025, followed by Tokyo, Milan, London and New York. In fact, McKinsey said, no Chinese city will be included among the top 20 in this category by then.

Similarly, by 2025, American cities are expected to dominate the market for luxury spirits – the top six places going to New York, Los Angeles, Chicago, Washington, Houston and Dallas, with London coming in seventh.

But it's a different story for luxury beauty products where Hong Kong is expected to be the most important market in 2025 with Shanghai and Beijing ranked sixth and seventh respectively.

McKinsey went on to predict that the world's top 600 cities will account for 85% of luxury apparel growth in 2025 versus 66% for luxury beauty products and only about 40% for FMCG.

Important as mature cities will remain for luxury goods, the report still identified steady growth in emerging countries.

For example, it said that emerging markets' share for spirits and high-end cosmetics will double over the next decade to 44% and 47% respectively while RTW fashion will grow to 32% from less than 10% a decade ago.

Data sourced from McKinsey; additional content by Warc