What: Lower-tier Chinese cities are emerging as new luxury retail powerhouses, driven by stronger purchasing power and cultural adaptation.

Why it is important: This evolution signals a new era in luxury retail where brands must balance expansion with local cultural integration to succeed in the Chinese market.

China's luxury retail landscape is undergoing a significant transformation, with lower-tier cities emerging as key growth drivers for international brands. Cities like Chengdu, despite their second-tier status, have become luxury capitals due to lower living costs and stronger consumer purchasing power. This shift is exemplified by Ralph Lauren's success in these markets and Lemaire's strategic entry into Chengdu, where the brand created a culturally integrated store design incorporating local elements like Cizhu bamboo and Tanzi pots. The evolution marks a departure from previous mass expansion strategies, with brands now adopting a more nuanced, culturally sensitive approach to growth. Industry experts emphasise the importance of understanding regional differences and creating resonant cultural connections, moving away from the standardised global marketing campaigns of the past. This transformation reflects broader changes in Chinese consumer behaviour, where local cultural elements and thoughtful brand positioning have become crucial factors in retail success. The trend has prompted luxury brands to reconsider their expansion strategies, focusing on creating unique, locally relevant experiences rather than rapid store proliferation.

IADS Notes: Recent market data validates this strategic shift in China's luxury retail landscape. As reported in January 2025, while Tier-1 cities experienced a 4% decline in luxury spending, Tier-2 and Tier-3 cities saw remarkable growth of 9% and 22% respectively. This trend is further supported by March 2024 findings showing increased purchasing power in lower-tier cities. The success of this approach is evidenced by SKP's August 2024 expansion into Wuhan, generating significant opening day sales. Meanwhile, July 2024 reports highlight how luxury brands are deepening their investment in local cultural integration, demonstrating the industry's commitment to this new strategic direction.

Succeeding in China’s new reality