October saw China’s Consumer Price Index move down slightly for the second month in a row. That implies less pressure on inflation, which should keep consumers spending. Note that the economic slowdown in China comes from the manufacturing sector, not the 50%+ of the economy that’s driven by consumers. When you look at the Index’s range over the last 13-months, it has remained rather steady and when the high month and low month are removed, the graph is essentially flat. Source: Trading Economics; National Bureau of Statistics China
Chinese Consumers: Still Spending In Spite of the Downturn
Bain & Company’s annual report on the trillion dollar luxury market shows the Chinese are still out front with their spending, but they have adjusted to changing economic conditions. The weak euro and yen in combination with China’s crackdown on conspicuous consumption has sent these high-end consumers abroad to both Europe and Japan instead of to Hong Kong and Macau as in the past. Eighty percent of Chinese luxury shopping is now done away from home where, for example, European tax-free purchases by Chinese are up 64%. Source: Bain & Co.
China Unicom Loses More Ground
The story of October continues to be the decline of China Unicom. While the overall number of 3G/4G subscribers grew by another 17 million in October, China Unicom lost net subscribers again, making it the 9th straight month of losses. Since February they have lost almost 12 million subscribers while China Mobile gained over 17 million and China Telecom gained more than 8 million.
The majority of monthly smartphone gains continue to come from feature phone conversions. Sources: China Mobile, China Unicom and China Telecom
China’s Thirty-Somethings Positive About Economy
In a McKinsey & Co. survey of 1,200 Chinese consumers across nine cities it was clear that people in their 30’s where optimistic about the future. On a 1 to 10 scale, 6.8 where positive. This reinforces other data which appears to separate the overall economic slowdown – caused by a decline in the manufacturing sector – from the consumer population and, particularly, the urban-living, thirty-somethings, 71% percent of whom expect their incomes to climb this year and 84% expect to spend more.
Many of those consumers will do their spending online. Eighty-four percent of the survey’s respondents said they would be spending more online within the next six months with price, range of choice and convenience sighted as the reasons.
McKinsey partner Alan Lau commented, “Chinese consumers will continue to spend but only smartly. They will spend more on entertainment, leisure, dining out and travel, but scale back on luxury goods and durable like appliances, consumer electronics and cars.” Source: McKinsey and Company
After relatively weak earnings for the first half of 2015, Alibaba recently annunced strong third quarter growth – sales grew 32% to $3.5 billion. (We reported it on October 29th)
Now we have words from the quarterly call that add perspective from Alibaba’s leadership:
Joe Tsai, executive vice chairman of Alibaba said, “When you look at the Chinese consumer, they’re very liquid. They have lots of cash deposits in their account. A temporary setback in the macro economy is not going to affect their consumption pattern in a findamental way.”
Mr. Tsai expanded on the thought by noting that China’s consumption rate is lower than more developed economies, which suggests consumption will organically increase as a percentage of the overall economy.
Daniel Zhang, Alibaba’s new CEO added, “Today if you look at the landscape in China, online shopping only accounts for 10% of the total retail in China. So, I would say that is a huge potential, and if we look at peoples geographic spread, half of our population in the low-tier cities and the rural areas, that’s why we initiate our rural program.” Source: New York Times
Apple and Nike: The Contra-Indicators
Most indicators say that growth in the Chinese economy has slowed. Not Apple and Nike. For Apple sales nearly doubled to $12.5 billion in the third quarter in Greater China (including Hong Kong and Taiwan). Sales there accounted for 25% of the company’s worldwide gross.
Then there is Nike with its 30% growth in the three month period ending in August.
Reasoning behind Apple’s growth goes something like this: China’s middle class continues to grow as does the belief that smartphones are essential. In addition, Apple has little competition for the high-end of the phone market. As for Nike, they are selling lots of sneakers so consumers can keep up with their friends with iPhones. Source: Reuters
A 360-Degree View of Luxury Marketing in China
Though the world’s luxury purchases went up 4% to 5% in 2014, in China they went down 1%. That was before the slowdown. According to Javier Calvar, COO of Albatross Global Solutions, the explanation is that many wealthy Chinese are travelling more and buying their luxury goods outside of China. The reason is price, selection and the level of service one gets in Western stores as compared to Chinese stores.
The marketing challenge is to build brand presence and familiarity in China to drive sales whether in or out of country.
A brand has to communicate its story through every possible medium – from local bricks and mortar ambiance to PR and advertising and a social media presence. Mobile is also key because people are out and about and are sitting less in front of the TV or computer screen. A vast majority of consumers follow brands online and they want to be contacted by brands after they purchase. They want a relationship.
Calvar says, “Luxury brands need to think multichannel, omnichannel—they need to think of all the touch points.” Source: eMarketer
China: Simultaneously Looking In While Looking Out
McCann Worldgroup’s global intelligence unit has produced a new study called, “The Truth About Global Brands.” A great dichotomy is revealed as we breakout the insights about Chinese consumers. Examples: Vast majorities both feel pride in their local culture and yet, are eager to take their place in global culture. They have a positive feeling for global brands, but expect them to respect local culture. It is pattern that can be instructive for those us trying to market to Chinese consumers. A brand that projects integrity and operates with respect for the Chinese culture is more likely to prosper.
Interestingly, the McCann study also said that the generation gap between Chinese millennials and those 55 and older is greater than anywhere else in the world. This has significance for the future of global commerce. Source: Marketing Interactive
Trends Do Not Move in a Straight Line
September’s Index saw a modest rebound from the prior month, which may mean that things are stabilizing…or not. One month’s number does not make a trend. Year-over-year, the Index is only down 1.5 index points. Not drastic.
This Index reflects a broad view of China’s economy as gathered from the following sources: Hang Seng China Mainland circulation index, investment in newly started projects, ratio of industrial production, real estate development leading index, money supply M2, national debt interest rate spread, consumer expectations index, logistics Index. Source: Trading Economics; National Bureau of Statistics of China
Foreign App Preferences in China
There are some differences in application preferences between Chinese iOs and Android users of foreign apps. Games, shopping, radio and travel are clear favorites of iOS users. The shopping preference is consistent with other data we have reported in the past. More purchases are made and more money is spent by iOS users than by Android users.
Notably, Android users have stronger preferences for video, photography and education – all pursuits of a younger, less affluent demographic. The anomaly is that more Android users are interested in finance given that they are presumed to be from a lower earning pool. Source: China Internet Watch