Gucci Targets China's Tier Two Cities

BEIJING, China — China may have helped create the world's biggest shopping event online, but for Gucci's owner, physical stores are still the way to go in the most populous country.

A total of 14 new outlets are being planned for five of its brands across six Chinese cities including Dalian and Wuhan, according a note published by Kering SA, which also owns Bottega Veneta and Saint Laurent. Kering has been expanding its product offerings in the country since the Gucci opened its doors in Shanghai in 1997, the first retail location in mainland China. The brand now has about 50 stores.

"Real estate has to provide a showcase for luxury brands, wherever the shopper is," Sergi Villar, Kering's real estate director, said in the note. "China is still a key growth engine for the global luxury market."

Chinese shoppers are crucial for Gucci, Kering’s biggest brand that made up more than three-quarters of its operating profit in the first half of this year. That’s because the country’s millennial shoppers eagerly shell out everything they earn on items such as $1,400 crystal-studded sunglasses and velvet clutches that cost thousands of dollars.

Kering's note also pointed to a Bain & Co. report that showed Chinese shoppers accounting for a third of the annual global luxury spend of $260 billion.

In China, Kering said its strategy is to tap on the network it’s already built in top-tier cities such as Shanghai and Beijing, while opening new stores in so-called tier 2 cities.

Last month, Alibaba Group Holding Ltd., China’s biggest e-commerce company, logged more than 268 billion yuan ($38.1 billion) of purchases during its Singles’ Day 24-hour sales marathon, a record for the world’s biggest shopping event.

Kering's online presence isn't too shabby either. Gucci has more than 38.2 million Instagram followers, more than Louis Vuitton and Chanel. It also outpaced the other two luxury companies in brand value, according to marketing consulting company Interbrand.

By Hailey Waller; Editors: Linus Chua, James Ludden, Shamim Adam.