Mark Tanner
Mark Tanner
26 August 2015 0 Comments

2014 was the first year in decades that China’s luxury sales declined – a gloomy -1%.  It was in stark contrast to the 12% growth in retail spending overall.

The shift from luxury purchases can be partially blamed on the Government’s crackdown on gifting, but it also represents altering shopping preferences. Over the past few years, Chinese consumers have increasingly scrutinised over value when researching products and services, rather than assuming something is better because it is more expensive.  A similar transition has happened in markets like the U.S. – it just took decades, unlike the few years it took in China.  In many categories, Chinese consumers’ sophistication has become similar to Western markets, even surpassing them in areas such as mobile commerce and O2O.

Preferences for smartphones are a lucid representation of the change in spending habits: Between April and June the number of smartphones sold declined 10% year on year, however the value of phones sold actually increased 17%, with the number sales of high-end phones increasing 49%.  Consumers are buying better quality phones and replacing them less frequently.  

Experiences and health are two segments Chinese are placing a lot of value on.  Experiences can come from using a beautifully smooth and functional smartphone to support countless aspects of their lives, or a holiday away from the tour groups with authentic experiences – a trend that has been recognised by companies like AirBnB who are hiring a CEO locally in China.  Health spans beyond pharmaceuticals and medical devices and includes things such as safe, healthy food and beverages.  This has seen brands like Korea’s Genesis BBQ chain localise in China by cooking in premium olive oil, with sales increasing 300% last year.

Luxury brands exploring other growth areas are investing in a fusion of experience and health, with new restaurants like Gucci’s 1921 restaurant and Louis Vuitton’s foray into the food business.

In short, Chinese consumers are still prepared to pay a high price for goods and services, if they are getting more value than lower cost alternatives – particularly if is healthier or will give a better, more authentic experience.  

For our Shanghai-based readers, China Skinny’s Mark Tanner will be presenting with the Nordic business councils next Wednesday 2 September at 11:30am, discussing tailoring products, services and marketing to Chinese consumers while retaining your country’s point of difference.  More information here.  We hope you enjoy this week’s Skinny.

Consumers,  Chinese Consumers

Five Insights on Marketing to China’s MillennialsUnlike older generations, China’s 135 million post-90s consumers are focused on the now, instead of building for the future.

¥796 Million Retrieved For Disgruntled Consumers In ChinaChinese authorities retrieved around ¥796 million ($130.07 million) in the first half of 2015, not far off the ¥920.02 million awarded for the full 2014. 290,000 individual consumer complaints were made, with household items and electrical appliances, clothing and shoes, communications equipment, home decor and food safety among the most common subjects of complaints about goods.

With New Shanghai Restaurant, Gucci Serves Up Taste Of Tuscany To Grow SalesFirst it cut prices by up to half in China. Now Italian luxury fashion label Gucci is trying to sell the dream of the “old country” by launching the 1921Gucci restaurant in Shanghai’s iAPM mall, named after the year the brand was founded. The initiative was led by the change in consumer behaviour, from the pursuit of brands, to the product itself, and now to lifestyle.

Online: Internet, Social Media, Mobiles & Ecommerce

China’s Smartphone Sales Slide 10% Year-On-Year (but not for the reason you think)Even as China becomes increasingly mobile, smartphone sales dropped to 88.7 million units in Q2 from 98.6 million units a year ago, however the value of sales rose 17% to $26.8 billion. Demand for high-end phones – those costing $500 or more – increased 49%, accounting for 17% of the market, versus 10% last year.

China’s Wanda, Baidu and Tencent Launch Ffan E-Commerce SiteFFan, the billion dollar ecommerce venture between Wanda, Tencent and Baidu launched earlier this month with the goal of encouraging online to offline, click and collect type offerings, tying in with Wanda’s physical malls, department stores and cinemas. Although the launch was limited, Wanda is aiming for 100 million loyalty scheme members by the end of the year.

Alibaba vs. Executives Weigh InWhile Alibaba’s Tmall controls 59% of China’s B2C ecommerce marketplace, JingDong still accounted for a respectable 23% in Q1 this year and is growing faster. Views from Alibaba Executive Vice Chairman Joseph Tsai and JD Mall Chief Executive Haoyu Shen about the challenges the companies face and what’s at stake [subscription required].

Weibo Hits 212M Monthly Active Users, Most Now On MobileWeibo’s active monthly users have hit 212 million – 36% up from a year ago, with 85% on mobile. 93 million users are active daily, 34% more than in 2014.

Premium Food & Beverage

87% Of Consumers Globally Think Non-GMO Food is Healthier71% of Chinese consumers are concerned about GMO food according to Health Focus International – one of the highest rates in the world.

American Farmers Have To Stop Juicing Their Pigs To Meet China’s Food Safety StandardsAmerica’s National Pork Board is quietly encouraging farmers to stop using Ractopamine due to the importance of exports to the Chinese market – one of 200 countries where it is banned. The drug changes animals’ metabolism so that they develop more muscle instead of fat.

A Parable Of Oreos And OvensOreo has seen its market share drop from 9% to 6% since 2012 as Chinese get more aware about health. Although the ‘Oreo Thin’ sales are looking good, cookies are increasingly facing competition from home bakers, who can create snacks without preservatives and additives. Sales of benchtop ovens have reportedly more than quadrupled since 2008 in China.

Localization Strategy of Genesis BBQ in ChinaKorean BBQ chain Genesis has localised in China by offering premium cafes that use healthy ingredients such as 100% Extra Virgin Olive Oil. They have also improved the menu and concept to accommodate family dining and implemented extensive Weibo and WeChat marketing. Sales in the chain grew 300% last year.

35% Of The World’s Seafood Supply Consumed In China Every Year: China is expected to consume 50% of the world’s seafood by 2019.  Let’s hope not too much of it is like the gelatin shrimp reported in Shanghai.

Overseas Chinese Tourists

Airbnb’s Clever Strategy In China May Outshine Uber’sAirBnB has started its search for a CEO for the Far East, as it focuses on outbound travel from China.  The focus on Chinese travelling abroad means that it is likely to have an easier road than Uber in the market.

Buzzwords: China’s Tourism TrendsWith China’s tourism market booming, here are a few mainstream and niche categories growing quickly.

Video and Entertainment

The “YouTube Of China” Is Acting More And More Like YouTubeYouku Tudou is following Youtube, Alibaba and Tencent’s foray into content production, pledging ¥10 billon ($1.6 billion) towards producing “professional-generated content,” – high-quality videos made by semi-pros. China’s online video industry generated almost $4 billion in revenue last year, although Youku Tudou spent $80 million in licensing fees just in Q1 this year.

Clothes and Fashion

New Wave Of NYC Fashion Designers Launch On TaobaoOver the past week Alibaba worked with five recent design graduates from New York’s Fashion Institute of Technology and another 100 up and coming designers to display their fashion on a virtual Taobao catwalk. To provide extra support, a Taobao partner factory in China produced larger quantities of designers’ outfits that drew sufficient orders during the Aug. 20-23 presale period.

That’s the Skinny for the week! See previous newsletter here. Contact China Skinny for marketing, research and digital advice and implementation.