This Saturday marks the beginning of the Year of the Rat – the first animal in the Chinese zodiac cycle and an uncharacteristically long ‘year’, just two weeks shy of 13 months.
The current Year of the Pig was a particularly tough year for its namesake, seeing at least a quarter of China’s 500 million pig population culled and even a hog forced to bungee jump. Thankfully, there are some signs that the Year of the Rat may be a little kinder. While we’re not counting our chickens (and mice) just yet, there have been some positive developments which may see compulsory animal testing for foreign cosmetics phased out.
The new zodiac brings the usual roundup of pricy rodent-themed watches (including the Vacheron Constantin’s rat-themed time pieces priced from £85,000 ($110K)), expensive mice trinkets, lipstick embossed with CNY-themes, and rodent-embroidered sports shoes. Surprisingly, some brands have developed creepy, even scarily-realistic rats on their products, which has many consumers shuddering. But the least-scary merchandise has been some of the most popular – the repurposing of American ‘toons including Etro’s Warner Bros. partnership to create a Tom & Jerry collection, and Disney’s Mickey Mouse collaborations with countless brands including Gucci, Adidas (in 3D), SK-II and Miu Miu (x Minnie Mouse) – and a host of cheap Mickey Mouse rip-offs on Taobao. Even Moschino has jumped on the theming wagon with its Mickey Rat parody.
The Chinese word for rat, 鼠/shǔ, sounds similar to 数/shù, meaning to count. The wonderful Chinese language-plays on similar pronunciations have been popular in the lead up to this New Year, with common slogans such as ‘count as one of the best’, ‘you count as the best’ and ‘countless money/joy/happiness’ headlining many ads. Yet some of the most talked-about commercials have been from Western brands.
While there haven’t been the same high-profile cultural gaffs that have dogged foreign brands over previous Spring Festivals, a number of Western brands have tapped into that increasing need to remind Chinese consumers that the foreign brands are on their side. They have been sensitive to Chinese culture and not just wheeling out the common stereotypes about Chinese New Year in thinly-veiled attempts to demonstrate some cultural understanding.
Apple and Nike are the exemplar examples of executing this brilliantly. Apple with their ‘shot on an iPhone’ subtleness, encapsulated the romantic spirit of Chinese New Year with an 8-minute tear-jerking video seeing three generations love for their daughters in Chongqing. Nike on the other hand, captured a Chinese NY tradition of refusing red packets with good humour in their 90-second ad, cleverly weaving in Nike kicks throughout.
Although CNY is the most-cluttered and expensive time to advertise in China, no other occasion allows brands to better connect with Chinese tradition and consumers who are often more suspicious of foreign brands. Don’t leave planning for the Year of the Ox too long. We wish you a happy and prosperous Year of the Rat and will be back after the holiday in early February. Go to Page 2 to see this week’s China news and highlights.
Happy 2020! For those who managed a break and time with the family, we trust it was a good one. Our hearts go out to our Australian readers and those who have been impacted by the fires.
The start of the year has been accompanied by the usual slew of big China numbers and never-ending growth stories in China. Yet while ‘China’ and ‘growth’ have been synonymous with much of the last four decades, one rather large category just clocked its second year of contracting sales dragging down China’s overall growth story – the good old-fashioned automobile. Looking deeper into auto industry provides some interesting insights about selling in China that spans most other sectors.
Firstly, despite the 8% fall in overall car sales last year, demand from China’s young and affluent consumers is stronger than ever for luxury German brands. BMW, Mercedes-Benz and Audi all posted record China sales in 2019, up 13.1%, 6.2% and 4.1% respectively. Like in most categories in China, the premium end of market shows the most promise for budding brands.
Another interesting insight is the impact that the trade war is having on large, emotional purchases that project status and allegiances. While many lower-involvement American brands have been relatively unscathed by geopolitical tensions, the big American car brands haven’t fared so well: Ford’s sales dropped 26% last year (improving on the 37% decline in 2018) and GM fell 15%. Nonetheless, the new face of American auto – Tesla, is dancing. Sales grew 12.4% in the first 9-months of last year, and are expected to accelerate following the swift and relatively flawless opening of its $2 billion factory in Shanghai.
Whilst new car sales may have contracted, the overall number of private cars on the road has grown to 207 million. This reflects an increasingly willingness from Chinese consumers to buy pre-loved vehicles (among other things), which was almost unheard of as recently as five years ago. Almost 30 million more people got their driver’s license last year, with those licensed to drive now numbering 435 million. Although driver behaviour remains markedly different from other markets – i.e. we’re unlikely to see the proliferation of drive-thru services like in America, some brands that are assisted by car ownership will get a boost. Companies such as Costco are a good example, where consumers buy bulkier, larger products that would be difficult to carry on public transport and are often expensive to deliver. Licensed drivers are also likely to have an increasing impact on Chinese tourists taking self-driving holidays.
Although China’s growing middle class promises enormous potential, that growth won’t continue indefinitely. While the clichéd growth strategies can deliver sales, they don’t always live up to the hype. We only need to look at the affordable pastime of going to the cinema – lower tier cities had been held up as the driver of future growth yet tier-3 and lower cities’ share of box office dropped from 30% in 2017 to just 10% last year.
Slowing or even contracting growth isn’t bad news for everyone. Even in segments where the outlook isn’t so rosy, brands that connect and evolve with consumers can still experience healthy growth year after year, as the German auto brands can attest.
In short, the new decade continues to provide unparalleled opportunities in China. Yet brands will need to work harder and smarter than ever before. Blanket projections such as China’s enviable growth rates and the rise of lower tier cities wont apply for every category and will need to be tempered with deeper, more thoughtful and dynamic insights and strategies. China Skinny is here to assist, calling on our historic and future understanding of the market, coupled with our unique tools and methodologies. Go to Page 2 to see this week’s China news and highlights.
As 2019 draws to a close, it’s fair to say that it has been a year of twists and turns – even by Chinese standards. With the backdrop of a slowing economy and prolonged trade war, we’re happy to say that Chinese consumers have remained the main driver of the economy, spending over 8% more than they did last year, fuelled by a healthy dose of credit.
Trying to keep China’s ever-larger consumer market in good stead, foreign brands have issued more apologies this year than ever before. That’s been driven by unprecedented and often-polarising geopolitical issues covering Huawei to Hong Kong to Artificial Intelligence, increasing Chinese consumers’ patriotism and keeping crisis management teams awake at night.
Like years before, 2019 has seen many contradictions in China. Rising nationalism has been countered by more imported FMCG products selling than ever, and American brands accounting for more top-sellers on Singles’ Day than Chinese brands. As Carrefour and Metro divested from China, Costco and Aldi have taken an expansionary approach, right as the big tech companies further muscle into brick & mortar retailing, and livestreaming, social commerce and New Retail continues to alter the way consumers shop.
One of the most positive developments in China this year, was seeing more individual accountability for the environment with punitive recycling laws starting to be rolled out in China’s cities. In addition to worrying about how to correctly dispose of snack wrappers and apple cores, soaring food prices – particularly pork impacted by diseased hogs – have kept consumers grumbling on social media.
Beyond the continued falling birth rates, outrageous advertising claims, and slews of data continuing to be faked, 2019 has produced its usual trove of buzzwords, wacky viral videos and trending fashion topics which all help provide a glimpse into what matters and connects with the average Zhou on her smartphone on the street.
That wraps up our last Skinny for 2019 – thanks for reading this year, we hope you found it valuable. The Skinny team wishes you a wonderfully Happy Christmas, Hanukkah, Kwanzaa, New Year or whatever else you may be celebrating. We’ll be back again in 2020, take care until then. Go to Page 2 to see this week’s China news and highlights.
It wasn’t long ago when doing any daily task in China was a chore. Queues at banks rivalled wait times of popular Disneyland rides, supermarket checkout staff seemed to work in slow motion, and buying a train ticket felt longer than the journey itself. Then, almost overnight, day-to-day activities in China became some of the most convenient on the planet.
Consumers can now pull out a smartphone in the middle of the night and have fresh food and coffee, meds and adult toys, delivered in under an hour. Arranging a massage or dog grooming is just a few taps on WeChat. People can watch a livestream of their favourite influencer and simply click to buy the lipstick they’re wearing. Getting around cities has become a breeze on shared bicycles and expanding subway systems, with the number of Chinese cities with metros tripling in the last decade, and existing networks setting world records for growth (check out this animation illustrating Shanghai’s network expansion since 1993), where commuters can increasingly just walk on and pay with their faces.
The rapid transition has moulded consumers to expect things to be convenient. Retail, products and services that aren’t simple to research, buy and use are unlikely to get any traction in China’s hyper-competitive market. That is, unless they provide a unique experience, benefit or bring status/selfie opportunities – it wasn’t long ago people would queue for hours for cream cheese-topped tea.
Whilst most of the examples we hear about convenience in China are relatively recent innovations such as New Retail, ecommerce, personalisation and payments; good old-fashioned convenience stores shouldn’t be overlooked. China’s network of convenience stores is growing almost as fast as Shanghai’s subway system.
In any tier 1 city in China – and increasingly lower tier cities – you are never far from a convenience store. Many blocks have two, or even three stores. The market value for convenient stores is forecast to reach ¥246 billion ($35 billion) by 2024, from ¥140 billion ($20 billion) in 2018. The number of stores will grow from 75,000 stores to 117,000 over that time.
The most popular purchases in convenience stores are dairy, soft drinks and snacks – all products which are well-aligned with the imported products – but interestingly, foreign brands are yet to gain a stronghold in the channel. Reading the tea leaves would indicate that smart brand strategies and relationships with the Japanese chains that dominate the landscape, could lead to a lucrative new channel for foreign brands. Convenience stores’ cold chains can accommodate a wider range of premium foreign products, and increasingly affluent consumers are more prepared to pay for them. If we look online – often a barometer for changing Chinese consumer tastes – imported FMCG products grew 35% in the first nine-months of the year. Something to keep in mind when devising a channel strategy that plays to the need for convenience.
On the subject of speeding up processes, one of the last bastions of seemingly-unnecessarily long queues and admin in China, is on track to be streamlined. Plans have been rubber-stamped to cut work permit red tape for foreigners in the Yangtze River Delta, including Shanghai, as authorities recognise the value foreigners bring to the local economy. A positive move in all respects! Go to Page 2 to see this week’s China news and highlights.
Last April in the third-tier city of Nanchang, a man wanted for “economic crimes” was arrested from a crowd of 60,000 getting down to Cantopop legend Jacky Cheung. The 31-year old man had been pin-pointed from the sea of people walking into the stadium using facial recognition.
By next year, 626 million CCTV cameras are expected to be installed in China – almost one for every two people – ensuring citizens will think twice before jaywalking and even using too much loo paper in the John. China is already home to eight of the top-10 most surveilled cities in the world, with London and Atlanta coming in sixth and tenth.
Many western readers are likely to shudder at the thought of being watched by “big brother” – cities like San Francisco and Portland have gone as far as banning uses of facial recognition. On the contrary, most Chinese are accepting, even applauding of the increased peace of mind and security they bring.
Beyond the well-cited public safety functions of the technology, China’s tech companies are using it to keep the online masses a little more honest. Local Tinder-like service Tantan verifies profile pictures to ensure users aren’t luring in would-be dates with photos of super models when they actually look like hobbits.
Another common facial recognition application for businesses is to provide the convenience that Chinese consumers crave. In JD’s flagship cashless store in Beijing, shoppers walk in, take whatever they want from the weight-sensored smart shelves and then walk out of the store. CCTV cameras capture the face of the shopper and then charge them for the goods they selected on WeChat Pay when they leave. Easy and convenient.
Companies like Alibaba and Tencent-JD already have the facial profiles of more than 100 million people who have signed up to facial payments. It’s likely they will overlay these profiles with the other data they have such as ecommerce and mobile payments purchases, holidays taken, social media posts and a whole lot more, to provide truly personalised and customised experiences in the bricks & mortar retail world and offline advertising space. With chains like Hema rapidly expanding and even opening shopping malls, in addition to the wholesale acquisition of retail outlets by the tech giants, we can soon expect this to become mainstream.
Yet facial recognition isn’t all happy smiles in China. Last November, a well-known businesswomen was falsely accused of jaywalking after a camera scanned a bus advert which brandished her face. More recently, Taobao vendors were selling services which allowed the ‘hobbits’ to beat the facial recognition verifications on Tantan. The technology is improving all the time to counter such incidents, however there is also increasing pushback from consumers like the law professor who sued a wildlife park for their use of facial recognition. This is likely to drive more control and regulation of scanning faces from private businesses in China, but overall, nothing is going to stop the expeditious penetration and increasing uses for the technology in China. We’ll keep you posted. Go to Page 2 to see this week’s China news and highlights.
Long ago, Alibaba realised that to rule the retail world, they would need to be offline and well as online. Their first foray into the bricks & mortar world was through the part-acquisition of department store chain Intime in early 2014 and it hasn’t stopped since. It owns shares in leading grocery chains RT-Mart, Auchan, Suning and Carrefour in addition to countless partnerships with other retail chains, who utilise its logistics services such as Ele.me delivery and formidable data advantage through ecommerce sales, Alipay, Weibo, Youku, among others.
The most famous of Alibaba’s bricks & mortar pursuits is undoubtedly its Hema/Fresh Hippo New Retail chain. Due to smart use of its data, high use of its app and rich experience, Hema’s mature stores make about four times more revenue per square metre than other supermarkets. It is difficult for other retailers to compete. As a result, Hema has been expanding rapidly with over 171 stores by August, with 2,000 expected by 2022.
One of the most exciting developments in the Hema family happened on 30 November 2019, with the official opening of Hema Li or Fresh Hippo Mall in Shenzhen. It is the first digitalised shopping mall transformed by Hema and Shenzhen department store chain Shirble.
The centre is dubbed a ‘community mall’ due to the theme of families and parenthood, covering the four categories Chinese often refer to in life including eating, clothing, living and transportation. The centre covers 40,000 square metres, half of which is retail. The first floor is a “dining street” with 20 restaurants and snack stores. Up a level, the main focus is living services such as housekeeping, cleaning, digital maintenance, beauty and manicure. The third floor mainly covers children’s education and the parent-child experience area covering entertainment and games, in addition to training classes, early education agencies and shared classrooms. Nearly 60 brands have entered the Hema Li, including the digitalised Da Mu hotpot, the Nayuki, Uniqlo and the Huawei experience store.
The original Hema Fresh was focused on fresh goods, similarly the suburban Hema Vegetable market and metro Hema Mini, however Hema is evolving its structure from eating to “people.” Hema Li is hoping to appeal to the community, creating a neighbourhood that strengthens family relations. Hou Yi, the founder and CEO of Hema Fresh, said consumers come to the mall not for shopping, but for leisure, entertainment and experience, capturing the lifestyle centres trend that has been hot for a few years now.
70% of Hema’s sales in Shanghai come through its app, and within 12 months, Hema Li expects 30-50%. Shirble is reportedly rebranding and ‘digitalising’ their 12 stores in Shenzhen to Hema Li.
Contribution from 虎嗅/Hu Xiu.
Wandering though the library of a Chinese primary school, don’t be surprised if you encounter a 6-year old dusting up on their DNA-editing knowledge. The “Third-Generation Gene Editor CRISPR,” has made the list of recommended books for Chinese kids in elementary and middle schools, along with a host of subjects including quantum computing, drones and aerospace.
That 10-year old boy by the window – absorbing the pages of an industrial technology textbook – is 28% more likely to be obese than kids his age in 2015, and 5% more likely to be wearing glasses. Whilst increasingly affluent parents are spending more than ever on premium food and beverage with a healthy slant, busy lives and the resulting consumption of processed, packaged foods is contributing to the plumping-up of China’s future mega-consumers.
Extreme study regimes and extra-curricular lessons, topped off by a regular fix of computer gaming is contributing to increased myopia – yet all is not lost. Nine out of ten elementary students have access to a basketball court at their school to provide a breather from book work and devices. Similarly, two-thirds of middle schools have a football pitch.
At the other end of the lifecycle, China’s plus-60s are battling technical barriers, the price of gadgets and internet access, and poor eyesight, missing out on the globally-pioneering digital conveniences that make life a lot easier in China. Less than a quarter of China’s 249 million seniors are online. By comparison, 73% of pensioners in the US are internet users.
The digital divide between China’s quantum physics-literate youth and its “digital refugee” seniors represent the gaping disparities between generations in China; how far the country has come, and where it is heading. Reading the unique challenges and drivers each age group faces also presents plenty of opportunities for brands who develop products and services that cater for them, and tell stories that connect with them.
One new industry that taps into parents’ desire to give their children the best chance they can at life are DNA checks. A simple saliva swab that miraculously tells you the future academic, sporting and creative strengths of your precious child so you focus on supporting those is expected to grow 40-fold between 2018 and 2022. As bioethicist and health policy expert Timothy Caulfield states, there’s “no way a DNA test will tell you anything that’s meaningful about complex traits.” Nevertheless, it is characteristically tapping into a perceived need that Chinese parents believe and are willing to pay a lot for.
Beyond the obvious products, such as tapping into obesity and myopia support, devices for elderly, or basketball paraphernalia, a new opportunity surfaces every day in China. Many of the opportunities are likely to be relevant for your products, services and brand. China Skinny can assist in tapping into those hidden gems. Go to Page 2 to see this week’s China news and highlights.
The first ten months of 2019 showed Chinese consumer spending is still chugging along, with retail growing at a healthy 8.1% (9% if you don’t include cars). This was further reinforced by last week’s Singles’ Day which saw purchases grow by 27% from last year’s festival.
One of the factors driving this consumption growth is just how easy and [arguably] enjoyable it has become to buy things in China. There’s an enormous and entertaining ecommerce ecosystem selling you virtually everything you could possibly imagine, complete with cheap, fast delivery. This has kept traditional bricks & mortar retailers on their toes, forcing them to innovate with interactive experiences; again with cheap, fast delivery for the vast majority who don’t drive to the store. Mobile payments, now adopted by 81.4% of smartphone users (versus 27.5% in the US) make it easier still, and for the 100 million who have already signed up for facial payments, paying is simpler than scratching your chin.
Yet behind this experience and easy payment options, is good old fashioned consumer credit, fuelling much of the spending in China. Between 2011 and 2018 short term consumer loans increased 648% from ¥1.36 trillion to ¥8.81 trillion.
Perhaps even more staggering than the growth, is just how easy it is to obtain this credit. The most popular form of credit – accounting for around two-thirds of lending – are instalment/revolving credit services such as Alibaba’s Huabei. Getting money from Huabei is seamlessly integrated into the Alipay mobile payment app, making it hopelessly endearing and simple for China’s consumers bitten with the consumption bug. By early 2019, Huabei had loaned more than ¥1 trillion ($142.7 billion) in less than four years since launching. It was estimated that at least half of the $38.4 billion of things sold on Alibaba’s platforms for Singles’ Day were bought with Huabei credit. Borrowers pay an annualised rate of up to 16%, depending on their credit profiles.
Most Chinese consumers borrow from multiple sources, with around 30% taking out short-term loans to repay other debts according to a survey by financial lending platform Rong360. Beyond instalment credit services like Huabei, credit cards are doing their bit to keep consumers spending. Singles’ Day transactions just on China Merchants Bank credit cards topped ¥27.2 billion ($3.9 billion) and ICBC hit ¥20 billion ($2.85 billion). By June this year, there were 711 million active credit cards in China – 25 million more than the start of the year. The average consumer spending of Chinese credit-card holders aged between 21 and 30 in 2016 was around $8,820, 39% higher than their average credit line of $6,360.
Overall, around half of consumers who took out consumer loans were born after 1990, with 85% of applications overall from those less than 40 years old. This is fuelling everything from luxury purchases, to health and fitness, to travel: one-third of overseas travellers who booked on Ctrip were born after 1990, and they are spent more on a single trip than those born in the 1980s. Almost a quarter of car buyers in China are under 30, and that figure is expected to rise to roughly 60% by 2025.
In short, the long-held reputation of Chinese consumers being big savers, applies much less to younger generations. Fortunately for those younger folk, most of their more prudent parents and grandparents only have one child to deal with, when they come pleading with cap in hand. Go to Page 2 to see this week’s China news and highlights.
Another Singles’ Day and another dizzying array of records: Almost $70 billion worth of goods sold just on China’s top two platforms including $38.4 billion on Alibaba and $29.2 billion over the 11-day sale on JD.com. It was a 27% rise across the board from 2018. On Alibaba alone, 299 brands surpassed ¥100 million ($14.3 million) in GMV. One million new products were launched and over 50% of Tmall merchants engaged in livestreaming. Delivery companies hired an extra 400,000 workers to handle the 2.8 billion packages expected to be delivered this week – two packages for every person in China!
Studying the behaviour of the 500 million shoppers on Alibaba platforms during the festival (100 million more than last year), delivered some interesting findings. According to research conducted when emotions were still raw from the NBA incident, 78% of Chinese consumers claimed they’d avoid buying US products on Singles’ Day. Like so many insights and data in China, this looks to have been a little far-fetched. On 11.11, the US was the second-most popular origin for imported goods after Japan and, of the 15 brands whose sales blew past ¥1 billion ($143 million), more than half were American: Apple, Bose, Estée Lauder, Gap, Levi’s, Nike, The North Face and Under Armour.
The cheerful results for American brands comes off the back of more positive news for another country currently in the ‘dog box’. Last week, coinciding with the plethora of announcements at the China International Import Expo (CIIE) in Shanghai, Canada’s four-month ban of beef and pork exports to China was lifted. Although the Huawei arrest issues persist, the decision reflects the impact that the African Swine Flu is having on China’s favourite source of protein. By last month, the number of live pigs in China had fallen 41.1% year-on-year and pork prices surged 101.3%, including a 20.1% rise just in the last month.
Much like Canadian beef and pork, the outlook for imported food and beverage looks strong overall. Food safety continues to be the top societal concern amongst consumers in China. Food is just one area that continues to show promise for foreign brands based on Singles’ Day and last week’s CIIE. At the expo, global health care giants such as AstraZeneca, Boston Scientific, Eli Lilly and Thermo Fisher Scientific made it no secret that they are increasing their focus on China to capitalise on its soaring health needs.
All in all, Chinese consumers’ enthusiasm to spend continues, providing plenty of reasons to invest in China. Yet not everyone is feeling happy with their lot. 49.6% of Chinese residents feel either “satisfied” or “very satisfied” with their overall quality of life, 5% less than in 2017. For China’s younger demographics, top concerns are education, employment, housing, healthcare and entrepreneurship.
The good, bad and ugly are obviously all important for brands seeking to understand, connect with and inspire Chinese consumers. Talk to China Skinny about how we can delve much deeper to provide you with that objective view.
In other news, China Skinny is looking to hire another intelligent and curious native English speaker to join our star-studded team as a marketing executive/manager. The role is based in Shanghai. If you are interested, or know someone who may be, please click/tap here for more information. Go to Page 2 to see this week’s China news and highlights.
On those long, lonely evenings, what could be better than snuggling up to your smartphone and streaming video content? Out with friends at a hip restaurant – no better place to watch another set of streams. Waiting for the elevator or even in traffic on your electric bike, it would be a missed opportunity if you weren’t watching more on your screen.
Short videos and livestreams have ballooned over the past couple of years in China. No other online activity has grown as fast or takes up more of users’ time in China. 648 million Chinese watched short videos last year – 78.2% of the online population. Users spent a total of nearly 600 million hours per day watching them on mobile in April 2019. The top-rated platform Douyin saw an average of 72 minutes for each of its 320 million daily users. This has created ecommerce KOLs overnight, such as the student who sold ¥1.5 million ($213K) worth of an anti-acne product within 24 hours screening a short video of PowerPoint slides praising its benefits.
The other digital mega-trend that is sweeping Chinese screens is livestream ecommerce. Livestreaming hit China with a vengeance in 2016, died down a little, evolved with some wacky iterations such as the real-time quiz fad, then came back bigger than ever last year, and has continued to soar since. In 2018, Taobao alone sold over $15 billion worth of goods through its 4,000 livestream hosts, up over 400% from a year earlier.
Top livestreamer’s annual sales now surpass that of large brands on ecommerce. In the last month, livestreamer Viya sold ¥353 million ($49.7 million) of goods in a single day, and Jiaqi Li sold ¥100 million ($14.2 million) of products sold within 6 minutes, with as many as 31 million concurrent users watching his five-hour livestream as he encouraged shoppers with his famous catchphrase “OMG! All ladies, buy it, buy it, buy it!” A little over a week later, Beijing urged livestream platforms to tighten content controls following his ‘mindless endorsements’ without trialling products or fact-checking claims.
Although short videos and livestreaming are very relevant for brands targeting younger Chinese consumers, they have really come into their own with this Monday’s 11th 11.11 (Singles’ Day) Festival. Arguably the most noticeable difference with this year’s shopping festival is the use of influencers on Douyin and livestreaming to stand out from the other 200,000 brands hoping to sell their wares.
Alibaba is using hashtag promotions on Douyin luring customers to buy more goods with coupons of up to ¥100 ($14). Similarly, Alibaba is hosting over 2,000 key opinion leaders on its platforms via livestreaming, allowing brands to showcase products and boost engagement with consumers. Alibaba has a lot riding on the streaming videos – and Taylor Swift – as it hopes to stave off online festival fatigue and show that Singles’ Day growth is defying China’s slowdown, in its first Singles’ Day without the big personality of Jack Ma at the helm.
Even after the buzz of Singles’ Day falls away for another year, brands who aren’t already, should be looking to short video and livestreaming as powerful channels to both sell products and build their brand awareness and trial. Whilst ROI can be tight, if skilfully executed, they can be used to convert curious audiences into loyal customers and advocates. Talk to China Skinny about how best to do that. If you’re participating in 11.11, all the best on Monday! Go to Page 2 to see this week’s China news and highlights.
The ongoing Trade War, HK protests, NBA, Huawei and other geopolitical issues continue to accelerate the rise of nationalism in China and, as a result, growing consumer preference for domestic brands. We only need to look at Tmall as an indicator, where three-quarters of brands have incorporated the phrase “Made in China” on their product pages – up from less than half in 2017.
Yet, like much media about China, ‘fears of mass boycotts‘ of US and other foreign brands are fiercely overstated. Whilst many commentators cite the fall of Apple in China as a pin up example of nationalist-consumption, the reality is much more multi-faceted. For a start, Apple phones have become quite common in China, meaning its long-held appeal as a status symbol no longer resides. Budding status-seeking Chinese are much less likely to blindly buy the most expensive product on the shelf or screen, instead becoming more focused on value – the new status in China comes from being ‘in-the-know’. For many Chinese, Apple’s features are no longer considered innovative, often behind or inferior to local brands such as Huawei, and don’t justify their premium price. This has seen Apple’s market share in China halve over the past four years.
Apple’s sinking share is in contrast to the fortunes of many other foreign brands in China. Chinese consumers still appear to embrace good quality and thoughtfully-marketed western products. Several US and European luxury brands, including giants Kering, Louis Vuitton, Hermès and others have reported strong growth for their goods in China. Although there are a few local luxury brands rising in China, the majority still value foreign brands for their craftsmanship, design and heritage.
At the other end of the affordability-spectrum, fast food remains dominated by American (but quite localised) brands KFC, McDonalds and Burger King, who only entered the market in 2005, but had opened over 1,000 restaurant in China by 2018. Although domestic brands are growing fast, the three US brands remain the most popular in the category which grew 9.4% in the first half of this year.
Even more interesting is the NBA, which has been villainised by many Chinese nationalists. Nevertheless, 25 million Chinese were simultaneously glued to their devices for Tencent’s stream of the Los Angeles Lakers opening match against the Clippers, despite the full force of state media urging consumers to boycott.
While university campuses in China ban cuddling, dying hair and access to dorms during the day, young Chinese are unlikely to blindly consider everything better in China. Foreign brands that have localised their strategies such as brand purpose, and remember that origin – whether domestic or foreign – continues to be just one piece of the puzzle for brands, can still be well-placed to win in China. There remains plenty of other moving parts needed to create strategies that will win the hearts of Chinese consumers – something China Skinny would love to chat to you about.
On the subject of building the optimal strategy for China, our British readers looking to learn from the best practice case studies about how to win in China should sign up to join China Skinny’s Andrew Atkinson sharing his nuggets of wisdom. The interactive and insightful event is on 25 November in London in association with CBBC. More info here. Go to Page 2 to see this week’s China news and highlights.
For decades, bedrooms and playrooms across the western hemisphere have been filled with Star Wars duvets, figurines, themed lego and other paraphernalia. Dress-up parties spanning all occasions have been embraced by people wearing Darth Vader and storm trooper masks, and more than 500,000 people have officially identified their religion as Jedi Knights. Since the first movie in 1977, the Star Wars franchise has amassed an estimated $65 billion in sales – more than any other media franchise that isn’t a cartoon.
Yet the galaxy far, far away seems even further in China. Despite attempts to lure Chinese fans using live orchestra concerts, themed runs and selfie opportunities with storm troopers on the Great Wall, Star Wars has failed to captivate Chinese audiences in the way it has elsewhere. Ronnie Den, who starred in Rogue One: A Star Wars Story believes the franchise hasn’t made money in China because Chinese haven’t grown up with Star Wars and don’t understand its unique rules and quirks.
Disney is hoping to change that. The company is adopting a less-common approach to build grass-roots enthusiasm for the franchise. Through its partnership with Tencent’s China Literature, it will make 40 “Star Wars” novels available in Chinese for the first time on the digital reading platform, at no cost for a week.
In the fast-paced, instant-gratification, short video-obsessed world of modern China, a lot of people still read books. China boasts a mouth-watering 454 million readers of online literature, with 217 million monthly active users and nearly 8 million authors on China Literature’s various platforms.
As part of the initiative, Disney has commissioned popular Internet novelist His Majesty the King to write a new “authentic Star Wars story with Chinese characteristics.” We will be watching with interest: the new edition promises to “bring in Chinese elements and unique Chinese storytelling methods.” Given the underlying theme of Star Wars is a rebel alliance battling the empire, localising for China could be interesting. Will the bad guys’ lightsabers still be red? Censors are likely to be paying closer attention than ever given the sensitivities around the Hong Kong protests, particularly when protestors are hanging banners and referencing a catch phrase from the similarly-themed movie The Hunger Games.
If any foreign company can make Darth Vader masks the go-to costume for Halloween in China, it is Disney. Between its Marvel, Pixar and other movie franchises, resort, merchandise and other assets, the company has a strong infrastructure and experience in market to help push the cause. We applaud them for trying the old-fashioned but less-traditional approach of books to grow Star Wars fans.
In other news, China Skinny is honoured to again be working with Austcham Shanghai to deliver the third Westpac Australian Business Sentiment Survey. The 2017 and 2018 survey gave rich insights and trends into the health, opportunities and challenges in the Australia-China economic relationship, provided a valuable benchmarking tool for all organisations working with China and strengthened the Chamber’s advocacy efforts to advance Australia-China business relations. If you’re an Australian or working for an Australian business who engages with China, we’re hoping you can share your Yoda-wisdom and generously spend around 15 minutes to do the online survey – we’ll all be better for it! Take the survey here.
We hope you enjoy this week’s Skinny. May the Force be with you. Go to Page 2 to see this week’s China news and highlights.
With the curtain already up for this year’s Singles’ Day (the first without Jack Ma), expect to hear more about Alibaba over the next month. Done well, the Singles’ Day/Double-11 extravaganza can be a powerful event to raise awareness and trial of your hero products, and shift some large volumes.
Alibaba as a whole can be a great ally to your China aspirations. Tmall and Taobao don’t just account for a majority of ecommerce sales in China but they are also an important touchpoint in the customer journey for researching products and brands. Then there’s Alipay, Weibo, Youku, Kaola, Little Red Book, Fliggy, AliHealth, Focus Media, SenseTime facial recognition and many others which can assist with your China marketing and sales. There are also the all-important brick & mortar stores: RT-Mart, Auchan, Suning, Carrefour, InTime and Hema of course, all which Alibaba owns a stake in. Then add the more than a million independent mom-and-pop stores that Alibaba reaches and influences through its LST system. The list goes on…
Whilst China’s retail market remains highly fragmented, Alibaba is doing a remarkable job consolidating many of China’s largest and smallest retailers online and offline, while slowly integrating its technologies into them.
The allure of Alibaba’s retail footprint, and cute pussy-cat and hippo logos may feel like El Dorado for many, yet brands would be wise not to just blindly drink the Alibaba Kool-Aid. Even some of the most famous brands that Alibaba has ‘built’ are moving focus away from Alibaba due to lower margins, increasing customer acquisition costs and limited scope for product diversification.
Brands with all of their eggs in the Alibaba basket also face a lesser-known risk: competition from Alibaba itself. In 2017, Alibaba launched its own label retail site Taobao Xinxuan. Although it didn’t make much of an impact, it hints that Alibaba is motivated to slowly creep more of its private label brands onto its platforms and retail stores. One example is the fresh milk category, where Alibaba’s own dairy brand TheLand has grown its market share and now accounts for almost half of the value of all fresh milk sold on Tmall.
Alibaba is increasingly edging into new product development – encouraged by Beijing – using its data with its “New Manufacturing” tools. The most recent example is the fashion industry, where Alibaba is providing trends to fashion brands, and creating new materials based on their data. Although Alibaba usually does this in partnership with brands, it is likely to only be a matter of time before they play a larger part in creating brands and products on their own. They have the data insights, customer relationship, and are learning the approaches to manufacturing through its partners. Most important of all, Alibaba have the sales channels – much like the way supermarkets provide optimal placements for their private label brands, but on steroids.
Diversifying customer touch points beyond the Alibaba ecosystem can decrease a brand’s exposure should they be pushed down the Ali rankings. Fortunately, China’s digital channels are diversifying. While share of screen time spent on Alibaba’s platforms stayed at around 10% in the 12 months ending June 2019, the share of ‘other’ apps – those not owned by Alibaba, Tencent, ByteDance and Baidu – increased from 26.3% to 29.7%. This signals the increasing ‘niche’ apps that provide more targeted platforms to reach specific demographics and interest groups, often with a much better ROI. China Skinny can assist you to ensure you have a holistic marketing and sales strategy for China, while reducing your exposure.
On a related note, China Skinny’s Mark Tanner will be joining a quorum of China experts at the TEC Community in partnership with Asia Turnaround & Transformation Association next Tuesday morning, 22 October in Shanghai. He will share how brands can succeed in China with an in-depth cultural and structural branding strategy. For more information, click/tap here. Go to Page 2 to see this week’s China news and highlights.
This week, as Hong Kong’s protests enter their 18th week, the NBA was the most recent organisation to give a “grovelling apology” following a more intentional Hong Kong-related incident – Friday’s tweet from Houston Rockets General Manager Daryl Morey: “Fight for Freedom. Stand with Hong Kong.” Initially the NBA and the Rockets was quick to distance itself from Morey; there was even talk of firing him, although this was refuted by NBA Commissioner Adam Silver who supported his ability to exercise freedom of expression.
Whilst sport is said to transcend politics, politics touches everything in China, and China is very, very important to the league. 500 million Chinese watched at least one NBA game last season, and an estimated 300 million play basketball in the country. In July, Tencent and the NBA announced a five-year extension of their partnership through the 2024-25 season for a reported $1.5 billion, contributing to the NBA’s estimated $4 billion business in China.
Before Friday, the Houston Rockets were second-most popular NBA team in China, largely due to China’s 8-time NBA All-Star starter Yao Ming who played for the Rockets between 2002 and 2011. Since the tweet, Yao Ming, now president of the Chinese Basketball Association, suspended its relationship with his old team. Chinese brands SPD bank and Li Ning have pulled their sponsorship from the Rockets and Alibaba and JD have removed all Rockets merchandise from their platforms. CCTV and Tencent have now both said they will “immediately suspend” plans to broadcast a pair of NBA pre-season exhibition games being staged in China. Luckin Coffee, Vivo smartphones and sportswear brand Anta have also pulled sponsorship with the NBA as a whole.
Of course, there has been the inevitable berating of the Rockets on Chinese social media. Interestingly though, online discussions on Western platforms have seen much more unfavourable posts about China than usual. Many have mocked brands who “sell out to Chinese values and support a totalitarian government in the name of money and the endless quest for growth.” NBA fans suggested filling stadiums wearing t-shirts in support of HK, ‘Free HK’ chants and bringing signs to games, much like the French football fans in Lyon who formed a massive Tibetan flag in protest of the game being rescheduled early so it could be broadcast live in China. It appears that NBA has listened to its home country fans, releasing a new statement that the NBA is not bowing to China, instead reinforcing that “values of equality, respect and freedom of expression have long defined the NBA – and will continue to do so.”
Expect to see more of this. Just as we see Chinese consumers pushing back on brands that are insensitive or ignorant about Chinese culture, we may see more of this type of kickback from consumers against brands whose behaviour in China doesn’t align with their value sets. With consumers in most Western countries holding increasingly unfavourable views of China, consumers in the west are likely to scrutinise more over behaviour in China.
Brands who make geopolitical gaffes will increasingly have to wrestle with cultural sensitivities in China while ensuring consumers in their home markets don’t see them as sell-outs. We’ve seen parallels of this with cosmetics brands in 2017 when Nars joined brands such as Jurlique, L’Occitane, Yves Rocher and Caudalie who were slammed by consumers in their home markets for renouncing their stance on no animal testing to sell in China’s bricks & mortar stores. NBA is in an enviable position that they are greatest basketball league globally, by a long way. Unlike cosmetics, fashion, food, hotels and airlines, there are no real substitutes for basketball-obsessed Chinese fans. It will be interesting to see how this pans out.
As sentiment towards China becomes more polarised in many countries, organisations don’t need to just factor Chinese cultural sensitivities into their branding, but increasingly the multi-dimensional considerations of other markets too. There never is a dull day in the land of branding. Go to Page 2 to see this week’s China news and highlights.
Last Thursday, China’s State Council Information Office (SCIO) published a white paper: Equality, Development and Sharing: Progress of Women’s Cause in 70 Years Since New China’s Founding. “The founding of the PRC in 1949 ushered in a new era for women in China, changing their social status from an oppressed and enslaved group in the past thousands of years to masters of their own fate…” the paper began.
The report praised female workers’ participation in China. Its female labour force now numbers 340 million – twice as many as when China opened up in 1979, counting a much larger share working in the industry and service sectors. Participation in education was also celebrated, with females making up 52.5% of Chinese in higher education. Similarly, a women’s average life expectancy – standing at 79.4 years in 2015 – has grown 10.1 years since 1981 and a whopping 42.7 years since 1949.
Nevertheless, not everyone is applauding China’s progress for gender equality. A similar report released by the World Economic Forum (WEF) noted China’s Global Gender Gap rank fell sharply from 63rd out of 115 countries in 2006, to 103rd out of 149 countries based on 2018 data. One of the contributors was China’s female-to-male ratio of 87:100 at birth, ranking China last out of 149 countries surveyed.
Contradictory to the SCIO’s study, the WEF noted female participation in the labour force had dropped from around 80% in the 1980s, to 68.6% last year. Although this was slightly higher than the US and similar to Japan, it was contrary to other major ‘developing’ countries such as Brazil and South Africa. 19% of China’s national civic service jobs posted in 2018 included requirements such as “men only,” “men preferred,” or “suitable for men.”
The income gap between urban male and female workers increased from 15% in 1990 to 25% in 2000. This disparity has persisted over the last two decades. A 2018 poll reported that Chinese women on average earn 22% less than their male co-workers, ranking China 74th globally in wage equality. Women account for just 17% of senior managers, officials, and legislators – although Japan is even worse at 13%.
The WEF report did highlight some areas that China deserves due praise. Much like the SCIO noted, since 2008, women have been more likely than men to continue onto higher education, ranking it number 1 in gender balance for tertiary education. Unfortunately the top universities are still skewed towards males. In 2018, the share of female students at top-ranking Tsinghua was 34% and third-ranked Zhejiang was 21%, with Fudan being the only university in the top-6 with more females (51:49).
Entrepreneurship stands as one area where Chinese women take a leading role. A 2017 WEF study found that women set up 55% of new internet companies in China, and women accounted for more than a quarter of all entrepreneurs overall. The 2018 Mastercard Index of Women Entrepreneurs also ranked China 29th out of more than 60 countries surveyed, just behind countries like Germany (23rd) and France (24th).
Whilst much the data isn’t great, beyond the reports, China’s educated, entrepreneurial and adventurous female consumers are very much a force to be reckoned with. In most cases, they are more open to international lifestyles and products than their male peers.
Females accounted for two-thirds of cross border commerce spending, and those who drink beer consume a proportionately higher amount of foreign brands than their male counterparts. Whereas men buy virtually all of the expensive sports cars in most markets, Chinese women purchase almost half of exotic luxury cars such as Maserati and Porsches. They account for the majority of Chinese athletes performing on a global level, even in traditionally-male sports such as football, rugby and the UFC. In 2018, 58% of females travelled independently – 16% more than their male counterparts. They also spent 14% more than males while travelling. Chinese female students are also more likely to study abroad than their male peers. In 2014, women accounted for 51% of Chinese students studying in the US and 63% of those in the UK.
In short, Chinese females are a very important customer for most foreign brands and worth understanding and connecting with. We noted last week about how well Nike connects with confident and assertive Chinese females. Another well-cited example is SK-II’s Leftover Women campaign which resonated with the valuable demographic, and had a halo effect with others too. We could go on… but the moral of the story is understanding Chinese females beyond the headline numbers of white papers is imperative to connecting with them and winning their favour. China Skinny can help you do just that.
China Skinny’s office will be closed next week for the Golden Week holiday, but we’ll be back in the second week of October. For our Shanghai-based readers in town after the holiday, China Skinny’s Mark Tanner is sharing insights about engaging consumers at the maXcomm Shanghai 2019 on Thursday 17 October, organised by the German Chamber – we hope to see you there. More info here. Go to Page 2 to see this week’s China news and highlights.