07 Apr 2017
Rising disposable incomes in China have created a new class of consumer who will drive global consumption during the next decade, surpassing spending by traditionally affluent markets such as Europe and North America in some goods and services sectors.
Annual retail sales growth of 10 to 11 per cent is now outpacing the country’s 6.5 to 7 per cent GDP growth rate as more consumers make the transition from low incomes to the middle and emerging middle classes.
E-commerce now accounts for 15 per cent of total private consumption and China has overtaken the United States to become the world’s biggest car market, with year-on-year growth of nearly 10 per cent.
This presents opportunities for global business in goods and services including travel, gaming and clothing and footwear in an economy that is moving away from being purely infrastructure driven, to one that is consumption and services-led.
“Brands and companies will increasingly focus their products and lines to cater to the Chinese consumer,” says Laurent Vasilescu, Macquarie’s senior analyst for footwear, apparel and accessories.
“Brands and quality have become more important to Chinese consumers. Some brands have gone into China and replicated lines they have produced elsewhere, but increasingly they will tailor their products to better suit the Chinese market.”
The growing focus on the tastes and style of Chinese consumers will be key to success for global companies as the country occupies a larger share of total spending in some sectors.
Macquarie research estimates China’s share of the global clothing and footwear market will grow from 18 per cent of total consumption to 24 per cent in the next decade, surpassing Western Europe and North America to occupy the largest share of the market. Mid-tier rather than luxury brands, suitable for middle class consumers, will become increasingly popular.
Much of this growth will be driven by the emerging middle class in the $US20,000-50,000 income bracket, as well as consumers aged 40 to 64.
Macquarie’s research shows consumers aged 40-64 account for 36.5 per cent of global spending on clothing and footwear, triple that of the youth market aged 15-24.
Laurent says this challenges the prevailing view that companies should focus on younger consumers.
It is not just goods that are benefiting from the rise of the Chinese consumer. Service and experience-led sectors such as the travel industry are experiencing rocketing demand. The market value for domestic leisure trips in China is expected to more than quadruple by 2020, while demand for domestic accommodation should double.
While international travel is still in its infancy, the upper middle and middle classes are increasingly looking abroad for new travel experiences and the Chinese market for international travel should double in five years.
Linda Huang, Macquarie's senior consumer analyst, says this trend will grow and companies that can provide high quality hotels and entertainment activities will benefit.
“A rising trend we are seeing with Chinese consumers is consumption upgrading. When they travel, they are not necessarily staying in low tier hotels. They are staying in premium hotels and companies will need to fit into this trend,” she says.
Huang says a focus on quality and premium products can be seen across the board in the Chinese consumption market, whether it is goods or services.
Alongside the demographic shift to the middle classes, she says rising demand for quality will become the defining feature of Chinese consumers in the years ahead.
“Five years ago, everything in China was related to the supply chain. As long as companies had a strong distribution channel, they could make good money from the Chinese consumer,” Huang says.
“But for the next five to 10 years they will need to think about the value chain and push their product towards the premium segment of the market to make a decent profit margin.”
For more information on the report 'Demographic Tectonics - Global Implications for the Apparel and Footwear Industries' contact Macquarie Research.