China’s Retail Revolution

Written By Daniel Allen on April 16, 2007 at 5:25 am | In uncategorized

A variety of socio-economic factors empower Chinese consumers and brands

Trend Description

Taxi-hopping between Beijing’s plethora of shiny new shopping centres in pursuit of foreign brand designerwear, it’s easy to forget that the Chinese capital hasn’t always been so kind to the consumer. In the thirty years before economic reform began in the late seventies, China was a virtual retail desert, the shopping experience limited to the distribution of basic necessities like food and fuel. Now however, driven by confidence in a booming economy, ever-growing levels of disposable income and Western-influenced psycho-social development, Chinese consumers are enthu- siastically engaged in a retail frenzy that shows no sign of abating.

Since 1978 the retail sector in China has undergone radical change. Store ownership has diversified considerably, increasing numbers of foreign retailers have been allowed to enter the country, and the majority of retail formats developed in Western economies have been introduced. Every weekend Beijingers now flock to multi-tiered edifices of glass, marble and concrete spanned by countless escalators, enthralled by the bewildering number of brands, products and services on offer. According to World Bank estimates, China will have the world’s largest economy by 2021, fueling demand for prestige and luxury goods among Chinese.

Cases

Fashion, Beauty and Chinese Women

 

On February 13th in New York, The China Institute sponsored “When Jeans Meet Qipao: Evolving Attitudes Toward Fashion and Beauty in China”, where speakers Paul Leinberger, senior consultant to Elle magazine and vice president of Luth Research; Paul Lam, founder of Forever Young Medical Spa, and Alexandra Clarke, US retail director of Shanghai Tang, shared insights on the booming Chinese market.

Elle magazine commissioned Leinberger to study Chinese women’s overall attitudes toward luxury and prestige markets, and found that 71 percent of Chinese women are now willing to pay more for a specific brand, as opposed to 59 percent in the US. The report also found that 54 percent of Chinese women like to buy only luxury and prestige brands when it comes to purchasing beauty and fashion items. Chinese women are currently most aware of beauty brands Lancôme, Chanel and Christian Dior, with 89 percent of those surveyed saying they wanted Lancôme products, but only 45 percent ever having purchased them. – 85 percent of Chinese women are aware of Chanel, but only 28 percent have purchased the company’s products.

 

Rise of the Chinese Brand

 

American firms have outsourced so much of their production to Chinese manufacturing companies that they have actually groomed their future competitors. For example: Lenovo was first established in 1984 to sell computer parts manufactured under the IBM label. By 1990, Lenovo was selling PCs under its own brand name. In May 2005, Lenovo purchased IBM’s computer division for US$1.7 billion, and now the company holds more than 25% of the Chinese personal computer market (four times the market share held by Dell).

Some other major Chinese market movers include:

? Nice, a consumer product and detergent maker.
? Changhong Electric, a supplier of TVs to retailer Wal-Mart under the name Apex Digital.
? Xi’an Aircraft Company, a Boeing subcontractor.
? Haier, which recently released its P7 “fashion phone” in the US.
? Huawei Technologies and UTStarcom in telecommunications.

 

To Get Rich is Glorious

 

More than 300,000 Chinese have a net worth over US$1 million, excluding property, and mainland millionaires control an estimated US$530 billion in assets. Many people might not appreciate China’s rising fortune, but luxury retailers are seeing the impact. Just five years ago, mainland buyers accounted for 1% of the global sales of luxury handbags, shoes, jewelry and perfume. Today, the Chinese are the third-biggest high-end buyers on earth, with more than 12% of world sales. Within a decade, China will likely leapfrog Japan and the U.S. to become the top luxury market, predicts Goldman Sachs analyst, Jacques-Franck Dossin.Driving China’s retail boom, and inextricably linked to China’s rising GDP, standard of living and consumer brand-savviness, has been the increasing number of Chinese with personal goals of self-satisfaction and self-expression – these are now a primary motivator in cities like Beijing, Guangzhou and Shanghai.

Trend Impact
Today, more and more Chinese are visiting Western-style retail spaces to buy Western brand name products that are actually manufactured in their own country. With the exception of super-luxury brands whose identity is intrinsically linked to European manufacturing, China has been a major beneficiary of (as well as a reason for) the decline of retail manufacturing outside Asia.

As disposable incomes continue to rise, the popularity of luxury brands will continue to increase in China, especially within the fashion and beauty sector. To take advantage, American and European brands will have to adjust the way they market and advertise their labels. Alexandra Clarke, US retail director of Shanghai Tang, comments, “While in the West, brands use sex appeal in their marketing and advertising campaigns, this is not effective with Chinese. Ad campaigns that work best in China use terms like ‘purity,’ ‘innocence,’ ‘femininity’ and ‘softness.’