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).
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.
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.
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.