The Greater Bay Area: Developing Infrastructure Promotes Great Brands

Luxury goods companies are very interested in the development of the Greater Bay Area (GBA). They believe the integration of less mature markets, such as Guangzhou, Shenzhen and Zhuhai, with Hong Kong and Macao will create many new potential consumers for their products.

That’s the view of Christian Foddis, Chief Executive Officer for Asia with Italian luxury goods retailer Salvatore Ferragamo and an executive committee member of the Italian Chamber of Commerce for Hong Kong and Macao. Foddis pointed out that Hong Kong and Macao are mature markets for luxury goods that have traditionally acted as showcases for luxury brands and remain leading centres for Asian fashion and product development. He claimed the creation of closer links between them and other GBA cities will benefit companies like his, saying: “Integration of the less mature cities will be a great opportunity for luxury goods retailers, particularly with inter- and intra-city rail, air travel and other communication links and more stable infrastructure, as potential consumers have rising expectations.

“Shenzhen will be entering a new economic phase which will mean a greater choice of retail goods, while Guangzhou – which already has good consumer flows – is set to become an even more significant market. Zhuhai, which is expected to see its traffic with Hong Kong and Macao increase via the Hong Kong-Zhuhai-Macao Bridge and other inter-city connections, is also seen as a good potential centre for the luxury industry as it becomes a city for prosperous retirees.”

Arrival of Major Developers

Foddis cited Hong Kong-based Swire Properties ’ giant Taikoo Hui project in Guangzhou as the sort of development that will encourage the growth of the luxury goods market. The large-scale project brings together high-end hotels, offices, shopping malls, apartments and a cultural centre. Mandarin Oriental Hotels has already opened in the area. Food and beverage outlets and entertainment are important, too, as they attract both local residents and tourists. Guangzhou is also a centre for large trade events, such as the China Import and Export Fair (Canton Fair) .

Highlighting what he sees as the project’s advantages, Foddis said: “It’s a perfect example of how malls can work in mainland China. On the mainland it is important to provide scale: community hubs and opportunities for a diversity of brands to appeal to consumers.”

‘Quality mixed development’ seems to best describe what’s needed to attract the kind of high-end Western brands that will appeal to mainland clients living in or visiting GBA cities, with quality players such as Hong Kong’s Swire Group and the mainland’s China Resources group leading the way. Guangzhou’s status as a Belt and Road and global resources allocation centre integrating and distributing the flow of resources in Guangdong Province, means the city has attracted increasing international investment and trade. China Resources dominates sectors such as power, ‘green’ innovation, healthcare and infrastructure development, and has helped to create a conducive atmosphere for the kind of quality brands and sales that will attract large numbers of global players. A similar model is being used in Shenzhen to support business with quality building management and services.

Development Champions

Foddis pointed out that as consumer expectations evolve cities such as Guangzhou and Shenzhen are becoming “global champions of development,” including engagement with international brands and using profile databases to encourage higher quality building environments. “Having worked with partners for over 20 years we have constructive dialogues with landlords as buildings arise and are open to the public to encourage how to improve facilities in the mix of retail products, both ‘software’ and ‘hardware’.”

The concept of ‘mixed city’ development has proved to be a very successful international model. Foddis pointed out that it is consistent with the aim of continually improving services, saying: “For example, public washrooms and toilets that are clean, tidy and well managed epitomise the quality of management. Similarly, the efficient management of car parks shows how a shopping mall is developing.”

This model of development is important for the growth of the luxury goods sector, as Foddis explained, saying: “Luxury brand retailers represent less than two per cent of the overall mix of retail in such malls and centres but the industry is committed to the concept of ‘clustering’ to ensure an attractive presentation of brands, so we are always in dialogue with competitors to discuss overall opportunities in local environments. We look at the demographics to discover the best prospects. Landlords such as Swire Group and China Resources are experts in guiding these requirements.”

Hong Kong’s “Seamless Advantage”

Fully integrating the different jurisdictions of Hong Kong, Macao and the mainland cities in the areas of customs regulations, the movement of people and boundary controls is likely to be a major challenge in the development of the GBA. Foddis, however, is optimistic that solutions will be developed to allow barriers to be removed. These solutions could include the advent of ‘face recognition’ technology, which would make it easier for professional staff and consumers to cross borders without hindrance. This should further the development of innovative technologies and the expansion of retail services in the GBA.

Foddis believes that Hong Kong is in a prime position to encourage integration within the GBA. Pointing to the city’s location, access and importance to the entire Asian region, the absence of value added taxation on goods and its simplified regulation of products, all of which are big advantages for luxury brand retailers, Foddis said: “I have been in Hong Kong for 16 years and I have experienced the smooth border controls prevalent here as a great hub for the region. I would expect that Hong Kong authorities will take further steps to seamlessly connect with the GBA for everyone’s mutual benefit.”

Foddis added that brands being able to circulate freely throughout retail centres in the GBA will also bring in a greater mix of potential consumers, saying: “We expect older customers and prosperous millennial customers to make up a multi-dimensional market for our products as we develop the range of what we offer. We do not expect any particular class of products, such as handbags, watches or fashion garments, to make a specific impact; instead, we see a general trend among consumers towards ‘casualisation’ that embraces technology-related items like wallets for mobile phones and cables.”

The intense use of online, particularly mobile usage in mainland China, is likely to encourage luxury goods retailers to study macro- and micro-economic models as they evaluate the GBA’s exposure to online as opposed to offline sales. While online selling can deliver efficiencies and greater convenience, and can be integrated with offline selling channels, Foddis said the traditional bricks-and-mortar outlet is particularly relevant in the GBA, where providing an in-store experience and interaction with the product are crucial when selling luxury items.

Frontier for Flying

The rise in mall development is not the only driver behind the growth in luxury goods retailing in the GBA. The region’s new airports are also important. The new airport terminal at Baiyun International Airport in Guangzhou is designed to handle 100 million passengers by 2025, many of whom will be tourists. Foddis is impressed with the project, saying: “The new Guangzhou terminal is amazing and Shenzhen airport is an incredible piece of architecture.” He sees these airports as central to the rise of new luxury brand outlets, connected to international travel. He also believes that the development of mainland high speed rail links with Hong Kong will have a positive effect on opening new shops in Hong Kong and across the border on the mainland.