Brands must revise strategies to keep up with savvy Chinese customers
Brands must revise their strategy in the mainland to emphasise online shopping and stay in line with fast-changing trends
This year, brands selling into the Chinese market will increasingly be facing a new consumer dynamic. For the past decade, brand success was predicated in large part on the aggressive education of consumers and on presenting them with products that they had previously not had the funds or access to buy. But following a decade of strong retail growth, brands are now waking up to a retail environment in the mainland that still has a tremendous upside, but one that is significantly more challenging than before.
To be successful over the next three to five years, brands must focus more on their unique value proposition and on differentiating their products and retail experience to match the needs of consumers who are increasingly brand savvy, more cautious about their spending growth, and more demanding in their expectations of what they will get for their money.
China’s economy is expected to grow at a rate of close to 7 per cent - while this is nothing to sneeze at, it is still significantly below what it has been over the past 20 years. The end result of this slowdown in growth is that while Chinese consumers are still seeing their economic situations improve, the middle class is becoming less convinced that they will see the rapid wealth growth they have seen in the past and adjusting their buying behaviour accordingly. Rather than buying products purely for status, they are instead looking at value in terms of how easy it is for them to buy and whether or not products are fresh and different.
A successful retail strategy in China this year means having a robust e-commerce presence, and this means having a strong mobile presence. The mainland now has more than 700 million smartphone users, and more so than in any other country, Chinese online shoppers are accessing stores and making purchases via mobile devices. As China has developed and becoming increasingly connected to the internet, the bulk of growth has come via mobile devices. In contrast to the US, where most shoppers born after 1985 first accessed the internet via a desktop or laptop computer, in China the vast majority were first connected by phone, so they are more apt to seek access to websites and stores via mobile devices.
However, making shopping easier is not enough to ensure success. As consumers worry more about whether or not they are getting value for their money, they are turning to brands that are able to offer a wide variety of new products quickly and that are able to keep up with emerging trends. Brands such as Prada and Louis Vuitton that have traditionally been successful in the luxury space are seeing a downward turn in their fortunes, in part due to China’s austerity campaign and corruption crackdown, but that is only part of the problem. A larger issue is that consumers want quicker access to new looks. Brands like Tory Burch and Michael Kors, which are priced below traditional luxury brands, are investing heavily in marketing in the mainland and offer a wider range of products. Luxury brands are forced to respond by widening their product and price ranges to keep consumers from defecting to brands that can offer new, interesting styles at lower prices.
It is interesting to look at how market conditions have changed on the production side, which illustrates how much pressure there is on brands to perform. Clothing manufacturer TAL, which serves some of the largest apparel brands in the market such as Burberry, says there is increasing demand to be on-time with delivery of new lines, and that while in years past a season of clothing might spend up to a year or more being sold via retailers, the rise of fast fashion has greatly increased expectations of suppliers. TAL says they now often see contracts where penalties must be paid if they are even one day late with their orders.
The mainland’s retail space still offers excellent opportunities for brands trying to reach China’s middle class, but in order to be successful in the years to come, brands must have clearly executed online shopping strategies, emphasise individuality and design over pure status products, and ensure that they have the capabilities to get new product lines out quickly. Such changes are needed to meet the demands of a consumer group that is increasingly looking for fast-changing styles and looks to make their own.
