While lower-tier cities are becoming the future of China's high-end retail trade, Tiffany Tan reports mega cities are still the focus for major brands.

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As China's middle class expands, secondary Chinese cities are becoming the new battlegrounds of luxury brands. One company that's already in position is Ittierre, an Italian manufacturer and distributor of luxury and secondary luxury brands. It entered the mainland fashion market in 2004 and currently has 33 stores dedicated to CNC, Galliano, Costume National, as well as multiple brands at its Hit Gallery shops. For Costume National, CNC and Galliano, China is the No 1 market in the world, says company general manager Alessandro Locatelli.

But only two of the mainland stores are in a top-tier city (Shanghai). Everything else is in second- and third-tier cities, including five in Wenzhou, four in Hangzhou, three in Kunming and two each in Nanning and Changsha.

Market analysts say lower-tier cities are the future of China's luxury retail.

One, their moneyed class is growing.

Two, the top-tier cities such as Beijing, Shanghai, and Guangzhou are becoming oversaturated with brand names.

Three, sales in these metropolises have reached their peak since shopping habits have matured.

"Affluent consumers (in top-tier cities) have become more sophisticated, price sensitive and brand savvy, resulting in more rational consumption," Sara Beneroso, marketing and public relations manager at ICLP, an international loyalty marketing agency, tells a luxury product website.

"On the other hand, in lower-tier cities, luxury consumption is still very conspicuous and consumers are more impulsive."

By 2020, the government expects the number of middle-class Chinese to soar to 600 million, from today's 200-300 million. That's almost half of the country's population of 1.35 billion.

Already, China, including the mainland, Hong Kong and Macao, makes up the world's second biggest luxury market, after the United States.