Last week, global media was abuzz with the news that Alibaba had filed for an Initial Public Offering in the USA. The IPO is expected to bank more than $20 billion for a 12% stake, seeing it overtake Facebook’s $16 billion IPO to become the largest tech offering in history.
Analysts value the company at an average of $168 billion, with some estimates placing it as high as $245 billion. Around a year ago when people were starting to talk about Alibaba’s IPO, analysts’ average value was $62.5 billion. The rise in value over the past 12-months is just one sign of how fast the company, and China, is growing.
Alibaba is one of the biggest success stories of the new face of China. The company has always understood Chinese consumers exceptionally well and catered to their needs, seeing them beat formidable global competitors such as eBay and Amazon in China. Last year, $248 billion worth of goods and services were sold through Alibaba platforms – that’s more than Finland’s GDP. The company had revenue of $7.95 billion and a profit of $3.56 billion – a 45% margin – about twice Google’s margins, and 45 times Amazon’s.
Perhaps the most remarkable point to note is that it is still early days for Alibaba. China’s middle and affluent classes are expected to grow 18% a year until the end of the decade, with incomes twice what they are today. With more cash, Chinese consumers will continue to buy more goods and services, which Alibaba is well placed to get a growing share of. By 2017, an estimated $713 billion of transactions will occur through Alibaba platforms, almost three times its 2013 value.
Just how Alibaba will spend its IPO purse will be interesting to watch; Alibaba’s purchases usually represent some overall trends in China well. Retaining and growing its 76% share of mobile shopping will obviously be top of the list, with WeChat becoming more and more entrenched in Chinese consumers’ lives. There is even talk that it could be used to fund Jack Ma’s global ambitions. One thing is for certain, Alibaba will continue to innovate in China, driving mobile and offline integration.
Our apologies to some readers last week who were unable to click on links for a couple of hours. The technical glitch has been fixed and everything is working again now. Finally, China Skinny will be in Guangzhou on May 26 and 27 as part of the Australia-China Business Week 2014; we look forward to seeing some of you there. We hope you enjoy this week’s Skinny.
China Plans Measures to Boost Trade After Unexpected Drop: The Chinese Government will accelerate the development of cross-border e-commerce, further streamline trade processes, reduce the types of merchandise that require inspection, improve trade financing and encourage trade in services to support growth in a bid to boost trade, according to a statement posted on the State Council website.
Top Brands in China: China’s Ministry of Industry and Information Technology published a report covering 178 industries and 8,500 mainstream brands, to determine their influence on Chinese consumer behaviour. 35% of brands were from outside Greater China, with international brands scoring highest in the household goods, food and ‘other’ categories. American brands accounted for the highest percentage of top international brands, followed by Germany, South Korea, The Netherlands and Japan.
5 Things That are Huge in China, But Not U.S.: More examples of how different Chinese consumers are to those in the USA: 1) Shopping malls – roughly half of the world’s new shopping centre area was built in China last year; 2) Buicks – 810,000 sold in China last year, more than four times the number in the USA; 3) Mink – China’s demand contributed significantly to tripling of mink prices between 2007-2013; 4) KFC – the most popular fast food chain in China, and just 8th in the USA where it isn’t even the top chicken palace; 5) Mary Kay Cosmetics – 25 years after being big in the USA, popularity is soaring in China.
David Beckham and Royal Family Help Sell UK Luxury Brands Abroad: Chinese consumers who travel to the UK are influenced by its cultural icons. Britain’s cultural capital represents a number of unique qualities that is difficult for competitors in France, Italy or the US to imitate.
Chinese Culinary Adventures: Testing Burger King’s ‘Poo Poo Smoothie’: Burger King’s delicious sounding beverage is another example of the importance of getting both the Chinese and English translations right in China.
Internet, Mobile, Social Media & eCommerce
Alibaba Avoids Facebook Miss as Mobile Focus Yields $37 Billion: Mobile transactions on Alibaba’s platforms hit $37 billion last year, accounting for 76% of China’s mobile retail market. Mobile users accounted for 19.7% of Alibaba’s total transactions in Q4 2013, up from 7.4% a year earlier.
Alibaba, Ma to Pay $1.22 Billion for Stake in Youku Tudou: Alibaba has added another jewel to its crown, paying over a billion dollars for a 16.5% share of the hugely popular Youku-Tudou online video sites.
What is Alibaba?: It is a marketplace, a search engine and a bank, all in one.
Poll: More Chinese Purchase Books Online: Online book sales in China grew more than 30% in 2013, at ¥17 billion ($2.7 billion). Over 60% of men search for arts books, teaching materials, science and technology information, and literature. 60% of women search for books about social science. Beijing online readers opt for literature, children books, political and military books, while Shanghainese choose books about literature, family education, parenting and social science.
Half of Urban Chinese Children Use Social Media: 51% of urban Chinese children aged 6-12 have microblog accounts, with 51% on Weibo and 45.7% on WeChat. 68% have access to tablets, 44.5% have access to mobiles and 80% search for information online every day.
Food & Beverage
As China Cracks Down on Official Extravagance, Scotch Sales Suffer: 16.7 million bottles of Scotch were sold in mainland China last year, 27% less than 2012. Chinese consumers spent 539 million ($87 million), 41% less than the year before. Blended Whisky, often seen as cheaper, experienced the biggest dip.
Disney Increases Shanghai Park Investment to $5.5 Billion: Disney is spending an additional $800 million to add attractions and increase capacity, due to the bullish outlook for travel and tourism in China. Affluent households are expected to increase 18% annually between 2012 and 2020. Loosening of Government policy to enable more families to have two children, will create more customers for Disney, with estimates of as many as four million more births annually.
The Beverly Hills Economy Depends on … China: Stores on Beverly Hill’s Rodeo Drive are reporting as much as two thirds of revenue comes from Chinese shoppers, with 60% of overall turnover on the strip coming from overseas tourists. 25-37 year-olds are generally doing it independently. Further west, Hawaii isn’t China-friendly enough according to the Hawaiian Airlines’ CEO.
Welcome to the Haiyatt. In China, It’s Not the Hotel It Sounds Like: Haiyatt and Marvelot Hotels are further examples of Chinese brands hoping to ride on the back of better service and standards associated with Western brands.
China Home-Price Rises Slow as Demand Eases: Average new-home prices in 70 of China’s larger cities rose 7.3% from a year earlier in March as lending limits and discounts undercut demand. Prices rose 0.2% on a month-to-month basis, compared with about 0.3% in February.
The Truth Behind This “Shocking” Asian Beauty Trend: The “Beauty And Ugliness Identification Method,” where you touch your finger to your nose and chin to determine if you’re ugly has shown up in more than 200,000 Weibo discussions in China.
Chinese Consumers are the Most Concerned About Climate Change: Following an international survey of 48,000 respondents, Chinese consumers were the most environmentally engaged with 64% identifying as environmentalists. 31% of Europeans and 29% of Americans claim this. 75% of Chinese claim that they try to live eco-consciously, while 74% worry about the damage humans cause to the planet.
Red Ribbons Fly as Chinese Consumers Buy: Chinese consumers’ top considerations when buying a car focus on image: exterior styling and brand reputation, driving growth of larger and more expensive vehicles. Fuel economy and value for money are the main considerations in the USA.
Crackdown on Online Sexual Content Creates New Job in China: The Chinese Government’s new crackdown on sexually suggestive online content has seen more than 4,000 people apply for the new jobs created: appraiser of online sexual content. Appraisers will be seeking out content such as depictions of young women or female cartoons wearing sleeveless T-shirts, shorts or bikinis which is now deemed inappropriate.
That’s The Skinny for the week! We’d love to discuss how we could help with your marketing, online initiatives or research to take advantage of China’s opportunities. Just email us at email@example.com or call us at +86 21 3221 0273 so we can learn more about your objectives and let you know how we can help.
If you’ve missed earlier news or need to learn more, there’s a library of information about Chinese consumers in prior China Skinny Weekly’s right here. You can have this delivered to your inbox each week by subscribing for email updates, or if social media is more your thing, please follow us on Twitter, Facebook, Linked In or Google+, or subscribe to our RSS feed. If you have any feedback or suggestions for future articles, please let us know.
If you needed further proof that China is constantly changing, look no further than consumer habits. The Luxury segment, not long ago a bastion of guaranteed growth for western businesses in China, has hit the brakes. Chinese consumers are increasingly looking beyond the most expensive wares as the only ones to be seen with. For the first time in recent history, mid-range retailers grew faster than luxury retailers in China. Even in Hong Kong, where 35 million Chinese tourists annually have a big impact the retail industry, outlet stores are seeing much faster growth than mid-level malls, which are growing faster than high-end ones.
While most Chinese shoppers aren’t going for the worker-from-the-fields-look, they are becoming less inclined to spend 3-months salary on a handbag, confident enough as consumers to shop at H&M, Zara, Gap and a string of promising local retailers. Is it the crackdown on corruption that’s driving it? Partially, but the trend runs much deeper. Increasingly discerning Chinese consumers are looking for more than just a shiny label when they shop; they’re looking for value and quality. Its a habit closely mimicing consumers in more mature markets, but there are still many distinctively Chinese characteristics.
Nevertheless, Luxury sellers shouldn’t be crying into their cocktails just yet – most luxury segments are still growing faster in China than any other major market. It’s likely to be a while before we again see the luxury hyper-growth of the past 5-years, but those who understand Chinese consumer changes and adapt to them, are still sitting on a golden goose. As always, below you may find some news and views to further that understanding. We hope it helps. Enjoy!
Asia’s New Affinity For Cheap Chic: Asia is the biggest retail market in the world, accounting for $3.8 trillion in 2011, or 41% of retail on the planet. The number of luxury stores in China has doubled in the last 5 years, but for the first time in years, mid-range retailers’ growth rates are faster than luxury retailers, as Chinese consumers increasingly turn to cheap chic and embrace local brands.
On Fleeting Hong Kong Trips, Chinese Make Frugal Fashionable: Of the 35 million Chinese tourists who visited Hong Kong last year, 20 million of them came and left on the same day. They’re not going for the luxury goods to the extent they used to, with many opting for cheap fashion. Citygate, an outlet store, saw sales rise 22% last year, versus -1% for high-end Pacific Place and 3.5% for mid-level Cityplaza Mall.
The Chinese Balancing Act: Economic rebalancing in China to rely less on overseas manufacturing exports, and more on sectors like services (shops, education, insurers, etc) appears to be paying off. In Q1 this year, services accounted for a record 47.8% of GDP, up from 45% last year. For the first time, it overtook the growing industrial output and construction at 45.9%. Agriculture shrunk from more than 10% in 2012 to 6.3% (although it was the winter quarter).
Internet, Mobiles & Social Media
Baidu Acquires PPS.tv For $370 Million: The Youku-Tudou gorilla, may no longer be the biggest ape in China’s online video space. Baidu’s acquisition of PPS has it claiming that it is now China’s largest online video platform.
Amazon Beats Google With China Apps: Amazon has become the first western tech firm to offer paid-for Android apps in China, even ahead of Android’s creator, Google.
Amazon’s Kindle Likely To Fizzle In Chinese Market: Nevertheless, Kindle’s entry into China doesn’t guarantee success. With nearly 200 million regularly read online in China last year and digital publisher revenues soared 31% in 2011. Kindle will struggle to make inroads past the established Shanda & Dangdang who have better brand recognition in China, and better relationships with local publishers and regulators. Regarding readers, smartphones remain by far the most popular way Chinese read books online.
China’s Changing Internet Landscape: Good overview of China’s Internet, some trends and the challenges & opportunities for the big players.
WeChat Now Has 190M Active Users, Close To Passing Whatsapp: WeChat now has 190 million active users a month, with total users picked to surpass 400 million later this month.
Food and Beverage
Chinese Consumers Don’t Trust Products Bought In China Either: It’s no longer enough for Chinese consumers to buy foreign food & beverage in China, many only buy certain products from overseas.
Police Destroy Counterfeit Red Wines In Shanghai: There’s now 3,000 less bottles of fake plonk in the market in Shanghai – $6.5 million worth. Still a long way to go, but it all helps…
Wal-Mart Bolsters Food Safety In China: The 3rd largest retailer in China, Walmart, is investing $16.3m into its China stores to improve food safety management following a string of food scandals including mislabeling cheap pork as the organic stuff. The latest was being accused of using expired eggs in baked goods.
Tainted rice scandal hits Guangzhou eateries: First the meat, now the staple. Chinese inspectors find tainted rice and noodles in Guangzhou, with cadmium content exceeding national standards.
Starbucks, Nestlé Square Off In Bid For Dominance Of China’s Coffee Market : China’s coffee market has been growing at around 15% a year, and is picked to rise from the current $11 billion to $161 billion in ten years. Instant coffee accounts for 80-90% of China’s market. Starbucks have traditionally targeted higher end consumers, versus Nestles mainstream approach, although their strategies are becoming more similar. Starbucks aims to have 1,500 stores by 2015. Costa: 2,500 by 2018.
Sea Cucumbers, Abalone Off The Menu In China Frugality Drive: Long live the sea cucumber.
Chinese Online Searches For Australian Property Up 61% As Macquarie Targets Significant Investor Visa Applicants: Australian property searches by Chinese on overseas property portal Juwai.com have increased 61% since the start of the year, with property viewings up 162%. It’s all related to the better Australian visa policies for wealthy investors spending more than $5m and Macquarie’s investment funds aimed at the investors. Chinese born people living in Australia has increased 54% between 2006 and 2011.
Chinese Economist Proposes Limits On Overseas Investment For Individuals: Influential Chinese are advocating limits to overseas investments by Chinese to reduce risks. These recommendations cap overseas investment at $100-$150K or 50% of portfolios. 51% of Chinese with investible assets of more than ¥100m ($16.3m) have overseas investments.
Seeking Visibility For China’s Art: Although China’s art market dropped 24% last year to a little under $14b or 25% of global sales, Chinese buyers can still be found everywhere looking for art from small European towns to NY and HK. China doesn’t yet have a culture of passing art down through the generations, so when they realise something has value, collectors turn to the market and “go shopping”.
The Bling Dynasty: An HSBC report on luxury retail trends found Chinese tourists spent more than one third of their travel budget on shopping, versus 11% on food and lodging – no doubt it’s skewed by short stay destinations such as HK, where 57% of Chinese visitors are in and out on the same day. Hong Kong’s tax-free shopping is wooing increasingly more of the customers from Europe. 75% of watches and 60% of handbags and accessories sold in HK are to visiting mainland Chinese tourists. Chinese tourists to HK increased 25% this year over the Spring Festival.
What’s Behind China’s Luxury Slowdown? Look To Several Factors: Looking deeper into the slowdown of China’s luxury growth, just 7% this year, there is a lot more to it than just the Government clampdown on corruption. Before the change of guard, we were already seeing less craving for bling, representing further change of Chinese consumer behaviour and sentiment.
Weird & Wonderful
Kiwi Booster Firm Targets Chinese: At risk of ending up in your spam box: A kiwi company is targeting the 200,000+ Chinese tourists who visit NZ each year, with a natural booster for nighttime activities. The company is hoping to capitalise on the New Zealand’s reputation of high quality health products and China’s love of herbal medicines.
That’s the skinny for the week!
If you’ve missed earlier news or need to learn more, there’s a stack of information about Chinese consumers in prior China Skinny Weeklys right here. You can have this delivered to your inbox each week by subscribing for email updates, or if social media is more your thing, please follow us on Twitter, Facebook, Linked In or Google+, or subscribe to our RSS feed. If you have any feedback or suggestions for future articles, please let us know.