There was once a time when Chinese consumers would simply buy the biggest and most expensive model to show off their status. How things have changed.
The well-publicised Government’s clampdown on corruption, increasing sophistication and changing tastes are all contributing to less conspicuous purchases. Yet there are a number of other factors also influencing purchase behaviour and marketing decisions.
Changing Government policy has driven pricing and product development strategies across the board, such as cheaper imported skincare products and Porsches with less horsepower. The RMB’s appreciation, coupled with growing international tourism, overseas shopping agents, cross border ecommerce and a lack of trust in locally-stocked items, has also seen many consumers buying products abroad instead of in Chinese shops. This has driven a flurry of price reductions in the Mainland from brands such as Chanel, Prada and most recently Gucci.
Slowing GDP growth is also altering consumer outlooks and spending habits, although consumer confidence is rising fastest among the higher income households who are the most likely to buy imported brands.
Whilst these changes are creating new challenges every month in China, many of those brands who are adapting and innovating are flourishing. We can look no further than Apple, which continues to see booming sales and loyalty in a crowded smartphone market full of countless cheap alternatives. Understated luxury brands such as Ferragamo and Tiffany & Co are reporting strong growth.
Premium travel experiences will continue to rise, reflected in the investments that Fosun is making in the travel industry. And consumers continue to buy more premium food and beverage, noted by JD who just invested $70 million in online fruit seller FruitDay, for whom 80% of sales comprise of imports.
It gets back to understanding China, keeping up with the changes in preferences and policies, and delivering products that best meet those needs. We hope this newsletter helps a little, and even moreso our services. Enjoy this week’s Skinny.
China’s Older Consumers: China’s elderly represent a huge and growing market, but are relatively untapped and often poorly marketed to.
Despite Equity Rally, Confidence Subdued in China: Last month’s Westpac MNI China Consumer Sentiment Indicator showed a 3.1% decline in confidence for lower income households, but a 2.8% increase for higher income households. 7.8% of consumers believe that local shares “were the wisest place to keep their savings.”
These Charts Show Just How Important China is to Apple: Apple users in China expect to upgrade their devices in 18.6 months on average, versus 22.8 months in the U.S. and 29 months in Japan. Almost 30% of Chinese Apple users are loyal – with 43% expecting to spend more on their next smartphone. Apple accounts for almost 60% of China’s premium market, with the recent rise mainly at the expense of Samsung according to UBS.
Buying Chinese Gadgets a Patriotic Move? Domestic Tech Consumers are Divided: 66% of Chinese consumers in their 30s prefer international tech brands as they felt they served as “status symbols.” 59% agreed that buying domestic tech products could support the Chinese economy, however 58% said that buying international brands such as Apple or Samsung wouldn’t really hurt the Chinese economy as so many were made in China according to a CEA survey.
Alibaba to Bolster Next-Day Delivery Services: Alibaba’s logistics affiliate Cainiao hopes to offer next-day deliveries in 50 cities by the end of this year, up from the current 34 cities. Alibaba owns 48% of Cainiao.
China’s JD Leads $70M Investment in Fresh Produce eTailer FruitDay: Ecommerce fruit seller, FruitDay, has completed a $70 million funding round led by JD.com, who will enhance FruitDay’s existing delivery network with their own. 80% of FruitDay’s inventory is imported from countries like the U.S., Australia, New Zealand, Chile, and South Africa. The retailer expects to have 10 million customers by the end of the year, with 80% of orders placed over mobile.
Fried Out: Why Has China Become a Burden For KFC?: Once the pin up kid in China, KFC continues to see falling revenue in the market. The chain isn’t innovating enough to meet changing consumer needs and competition, leading to just one quarter of KFC’s customers thinking that it is unique.
Dog Meat Vendor With 1,000 Frozen Carcasses Dies After Shooting Himself With Poisoned Dart: A Hunan dog meat seller reportedly died after the toxic arrow struck him in the leg during a demonstration on how to handle a deadly crossbow to execute canines. Dogs sell for as little as ¥8 ($1.30) to be used for cooking. An online petition calling on the Chinese government to end the dog meat trade has reached 460,000 signatures.
Investment Firm Fosun Group to Build Empire of Holiday Attractions for Chinese Tourists: China’s largest non-state owned investment conglomerate Fosun is shopping up a storm, investing in tourism and entertainment assets such as Club Med, Thomas Cook, Cirque du Soleil and a slew of domestic developments. The company is “charting a resolute course into the leisure sector,” which will “build a series of top brands to serve the Chinese people.”
L’Oréal to Lure China Shoppers With Price Cuts: L’Oréal will cut prices on most imported cosmetics further than the recent tariff reduction from 5% to 2% on imported skincare products. Estee Lauder is doing the same. Tarriffs on other consumer products such as suits, shoes and diapers are being reduced by more than 50% on average. The moves are hoped to further fuel domestic consumption growth and deter China’s flourishing gray market where agents sell imported goods cheaper than they can be bought domestically.
Why There’s Never an Excuse to Test on Animals: Cosmetic brands such as New Zealand’s Antipodes are staying true to their values by not testing on animals, and are still finding success in China by selling online and shipping direct to consumers. Last year, China loosened its rules by allowing the sale of some locally-produced cosmetics not tested on animals.
Euro Weakness Upsets Luxury Brand Pricing: The falling Euro has seen the average price of luxury goods in Paris 39% lower than in China, compared to 26% last year. Products such as the Louis Vuitton Speedy 30 bag is now 61% more expensive in China.
Gucci’s 50% Price-Cut Triggers Mad Rush in China: Following Chanel and Prada’s lead, Gucci has slashed many of its prices by 50% in China – the biggest discounts it has ever given. Following a five-day VIP pre-sale, the sale reportedly caused a stampede, with consumers even lining up overnight in Chengdu – a rare sight in China.
Wealthy Chinese Head Abroad to Buy Diamonds Without Scrutiny: Tiffany & Co. and De Beers are seeing more Chinese travelling abroad to buy diamonds, away from the watchful eye of the authorities and due to the lower Euro. Even with the Government’s anti graft campaign, men are still expected to give jewellery to their wives and partners. Chinese are the main engine behind global diamond growth, which is expected to increase 8% a year until 2018.
Porsche’s Wealthy Buyers in China Choose Cheaper Models: Porsche’s average Chinese customer is 35 versus 53 in the U.S. Sales have tripled in China since 2010 to become the car maker’s largest market, but buyers are opting for cheaper models. Porsche has adapted by equipping its Macan with a smaller 4-cylinder engine which cuts taxes on the car by 30%. Premium carmakers such as Porsche, BMW, and Audi, have relied on China for about 50% of their global profits. The Cayenne’s base price in China is more than double that of the U.S.