The Changing Consumer

China’s Surprising Shoppers
PriceWaterhouseCoppers, July 2014
The overlapping of China’s “growth revolution,” the Internet revolution and the rapid rise in China’s mobile network have combined to create a perfect storm of able and active Chinese shoppers.

…when it comes to online shopping, Chinese consumers’ enthusiasm seems to have no bounds. In 2012 Chinese online shopping transactions totaled 1.3 trillion RMB ($190 billion)2 compared to the US at $225 billion, but the US lead won’t last long, as Chinese e-commerce is on track to surpass, with forecasts of $541 billion by 2015.

The Rise of China’s New Consumer Class
Goldman Sachs, September 2015
Today’s China consumer market is dominated by a relatively narrow middle class, so what the world has seen so far is only a preview of the opportunities to come. As the market grows, there will be huge opportunities for the entertainment, food service, technology and other industries.

In particular, the investment banking group notes that as China’s consumers broaden their spending beyond consumer staples, they will be looking to their futures: health and wellness and their families’ education. These concerns are especially important for a country with an aging population.

This last point is underscored by an article in the Australian Financial Review (October 2, 2015) that notes that notes that an estimated 440 million Chinese will be over 60 years of age by 2050.  It reports that the aged-care industry is …

…being seen as one of the biggest opportunities for foreign companies in China since the construction boom ended nearly three years ago…. Such is the optimism for the sector, [Australian] business leaders now talk about China’s health and aged care market the way they once did about iron ore and urbanization.

China’s Changing Tastes Offer Upside for Coffee
Wall Street Journal, September 16, 2015
Even though China’s slowing economic growth has been flooding the news, China’s consumers are adopting surprising consumer trends that are starting to mirror that of the Western middle class.  Expanding middle-class consumers are increasing their demand for small luxuries like imported fresh fruit, wine, and chocolate.

Coffee illustrates this shift best since, according to one analyst, it “represents the Western lifestyle that is attractive to all those upper- and middle-class urban consumers.”  Wine and chocolate are among other aspirational goods that appeal to China’s increasingly urbanized population even as the economy slows.  Demand is also burgeoning for other small luxuries like imported fresh fruit, driven by changing tastes and an expanding middle class, analysts said.

 

Not Everyone is Worried about the Economic Slowdown

H&M Bets Big on China
Wall Street Journal, September 24, 2015
H&M has found a niche for itself in the Chinese market as one of the first stores geared toward “fast fashion” – the fast-rolling cycle of design to production to retail with inexpensive but new looks. As Chinese consumers’ tastes shift to be more Western and household disposable income increases, fast fashion is definitely an industry to observe.

Despite the slowing growth in China’s economy, the apparel industry remains a bright spot. Industrywide, clothing sales are expected to reach nearly $80 billion in China this year, up 12 percent from last year, according to PricewaterhouseCoopers’ consulting division.

H&M—the world’s second- biggest clothing retailer after Zara parent Inditex—is also pitching its growth strategy toward China’s growing upper-middle class, opening more shops for its premium brand Cos to cater to this demographic.

Why Apple and Nike can Buck China Slowdown
Wall Street Journal, October 1, 2015
“In China today, there are two economies. One is sinking, while the other, if not flourishing like before, is still afloat. This helps explain why companies like Apple can still thrive in the Middle Kingdom.

China’s heavy-manufacturing, resource-extraction and construction industries are in recession. But other sectors, including services like travel, dining and e-commerce, are still growing at respectable rates.

The divide is also geographical. China has a new emerging rust belt in the frigid northeast, the heart of the old, state-owned industrial complex. But the major cities of Beijing, Shanghai and Shenzhen, where white-collar workers congregate, and some provinces in the wealthier southeast, are still growing at nominal rates exceeding 7.5 percent, according to at research firm GaveKal.

This explains why some U.S. companies, like construction equipment-maker Caterpillar, are reporting terrible China sales, while others, like Nike, Apple and Starbucks, still see rapid growth. Steelworkers and coal miners may be suffering, but urban professionals are still splurging on sneakers and premium smartphones.

Doughty but not Superhuman
The Economist, September 26, 2015
The consumer boom is real …

“Amid the extreme pessimism about China’s economy in recent months, it is tempting to conclude that rebalancing has failed. Just look at the car market, usually a good shorthand for the health of consumer demand. Automobile sales fell by 3.4 percent in August compared with a year ago, the third monthly decline in a row. Yet other forms of consumption are accelerating. A property recovery has stoked demand for furniture, home electronics and renovation materials, with sales rising an average of 17 percent in August from a year earlier. From jewelry to traditional Chinese medicine, buying has picked up in recent months.”

“Overall, China’s retail sales have increased by 10.5 percent in real terms this year, well ahead of economic growth (officially 7 percent but closer to 6 percent according to many analysts). There are, as ever, doubts about the reliability of China’s data, though in this case it may be that the retail figures are too low. Nicholas Lardy, an expert on Chinese statistics at the Peterson Institute for International Economics, a think-tank, notes that retail numbers do not include services, a glaring omission since surveys show that services account for as much as two-fifths of China’s consumer spending.”

“All this suggests that consumption is picking up at least some of the slack from the industrial downturn. The main reason for the resilience of the Chinese shopper is steady income growth.”

China consumer sentiment rises to highest since May 2014
CNBC, September 29, 2015
“Consumer sentiment in China improved in September to its highest level in over a year, a gauge showed Wednesday, as households shrugged off the gyrations in the country’s stock market.”

But the situation bears watching

China Consumers Tighten Belts, a Red Flag for the Global Economy
Reuters, September 23, 2015
“Domestic consumption contributed 60 percent of China’s economic growth in the first half of 2015, up from 51.2 percent in the whole of 2014, suggesting Beijing’s desired rebalancing is on track. But forward looking indicators and companies’ experiences in China are more worrying….

…Car sales in China could drop this year for the first time in two decades, while smartphone sales recorded their first fall in China during the second quarter, consumer research firm Gartner said.

If that translates into a slowdown in overall consumer spending, the impact will be felt beyond China.”

 

Curated by Victoria Hsieh, Geoskope Junior Associate for China

 

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