The Chinese government is trying to boost consumption as it is estimated that the coronavirus crisis will wipe some $60 billion from the Chinese clothing market (down some 15%*) in 2020. More than 75% of Chinese consumers reduced or postponed purchases on apparel and footwear. The situation is exacerbated as China prepares to impose a new security law on Hong Kong that would drastically limit civil liberties in the territory. Beijing’s decision to legislate for the territory effectively sweeps aside the promises made when the city was handed over to China from British colonial rule in 1997. At the time, Hong Kong was guaranteed 50 years of autonomy, with all civil rights and freedoms preserved for that time. This will have long lasting effects on trade agreements and tariffs for major export markets.
But what can consumer shopping habit changes we expect in the short term? As China and wider Asia Pacific continues in recovery from the coronavirus pandemic, consumers will likely resume their normal levels of spending, but they will be more selective in the way they spend on luxury brands, according to experts. While the majority of lockdown restrictions have been lifted, retail spending has not yet returned to normal in China. Stella Berry, regional business director at Adludio**, explains that we will now see the rise of a type of consumer that always saw luxury brands as aspirational and something they will possess one day, like for a special birthday for example. Post-lockdown, these consumers will probably rush to buy that one piece they have always longed to have. So evidenced already by the sales of the Burberry label in both China and South Korea: the brand reporting queues outside some of its 60 stores in China and sales in both countries up by double-digit percentages compared with the same period last year. The jury is still out on whether such spend can be sustained.
What does emerge that online shopping has also shown incremental increases in China and luxury brands need to address that – most of those present in China have only a few stores in Tier 1 cities: this is a dramatic limitation to reach audiences and building the right online presence will help solve that. Traditionally favouring shopping for apparel and footwear in stores, shoppers from the high-income group have jumped to become the biggest online spenders during the outbreak, carrying out 64% of their spending online. While some growth was seen in the share representing pure online shoppers, dominated by the younger generation.
China: digital technology has enforced a larger place in people’s lives, with live-streaming and e-commerce the new normal.
Simultaneously it already appears that there will be even more polarisation across income brackets. The low-income group tends to buy less and trade down for essentials. More than 70% of the low-income survey*** respondents said they would prefer good value for money, and more than 60 percent said they would purchase essentials only. On the other hand, the respondents from the high-income group said they would trade up and go for both value and quality, with 54% of them saying they would still look to buy products offering higher quality and functionality, and 56% of them saying they also preferred items offering value for money.
The Chinese government is committed to raising consumption and has kicked off measures to boost spending in both the commodity and service sectors. China has also pledged to build up 5G networks and internet connections as a way to encourage both e-commerce and spending on organic agricultural products, according to Ning Jizhe (Vice chairman of China’s National Development and Reform Commission (NDRC).
However challenges remain for China to address the economic fallout from the global pandemic. China watchers say growing anti-China sentiment and other issues may prompt some governments to reduce their economic dependence on Beijing and accelerate their exit from the Chinese market (even more so now with Hong Kong’s position so tenuous). Forecasters say China is likely to face a “W-shaped recovery” with a second downturn and millions of politically volatile job losses later in the year due to weak U.S. and European demand for Chinese exports.
*Source: Oliver Wyman
**Source: The Drum
***RMB25,000 monthly income is classified as high income (Oliver Wyman) approx. £2850
