Retail in China: What Slowdown?

It might seem paradoxical that, while China’s slowing economy makes headlines, many of our international clients selling to China continue to experience and project double-digit growth. But several trends support and help explain their optimism:

RISING CONSUMPTION: With consumption accounting for 3/4 of GDP growth in 2018, China is leaving behind government investment and exports as its main growth engines, and is on track to becoming a consumption-led economy. A closer look at consumer goods sales in China also shows that the much-discussed woes of the automotive sector don’t reflect the general trend: growth in other categories has actually sped up.

Growth in Chinese Retail Sales (% change over previous year)

Source: National Bureau of Statistics (NBS)

PREMIUMISATION: A growing middle-class is driving premiumisation, which favours foreign brands who sell higher-end goods. Average FMCG prices, for instance, are rising faster than inflation, as steeper price tags become a selling point rather than a turn-off.

GENERATIONAL CHANGE: With a savings rate of 46%, compared to the USA’s 18%, China is known for its thrift. But generational change is shaking things up. China’s Generation Z, born after 1998 into an already prosperous country, are keen spenders. They already account for 15% of all household spending, versus just 4% in the US.

ONLINE RETAIL: China’s e-commerce market is another cause for optimism: it continues to be the world’s fastest-growing, offering new and lower-risk avenues for foreign companies to reach consumers.

Growth in Online Retail Sales (% change over previous year)

Sources: NBS, US Census Bureau, BEVH

China’s Digital Landscape

Rather than its slowing economy, what concerns most foreign companies is China’s dizzying digital landscape. To stay ahead, being familiar with WeChat, Tmall, and JD is no longer enough. Below, we describe six digital platforms worth looking into for sales and/or marketing purposes.

Six Must-Know Chinese E-commerce and Social Media Platforms

Douyin (TikTok)

• A social network for sharing short videos
• First Chinese app to go global (1b+ downloads worldwide)
• 500m monthly active users (MAU), 80% of whom are <29 years old
• Brands using it: Adidas, Airbnb, Audi

Kaola

• One of China’s top 3 cross-border e-commerce platforms*
• Opened two physical stores in 2018, 15 planned for 2019
• 5m MAU, mostly white-collar consumers aged 20-40
• Brands using it: Evian, Hape toys, Orangegarten (by Migros)

Meituan-Dianping

• China’s #1 e-commerce company for services* (group includes food delivery app Meituan and restaurant reviews/reservations app Dianping)
• Named “world’s most innovative company 2019” by Fast Company
• 290m MAU in 2,800 cities; mass market focus
• Brands using it: KFC, McDonald’s, Pizza Hut

Pinduoduo

• China’s #3 e-commerce site*, specialising in group discounts
• Average order value: USD 6 (vs. USD 60 on JD and USD 30 on Taobao/Tmall)
• 230m MAU, of whom 65% live in third tier cities or smaller
• Brands using it: Few foreign brands due to low-end focus

Vipshop

• China’s #4 e-commerce app*, specialising in flash sales model
• Tencent and JD invested USD 863m in 2017
• 130m MAU, of which 70% are female
• Brands using it: Calvin Klein, Fendi, Marc Jacobs

Xiaohongshu (“Little Red Book”, a.k.a. RED)

• Social network and e-commerce platform, featuring user-generated content (e.g. product tutorials and reviews)
• Started out as a platform to share overseas shopping experiences and tips
• 30m MAU, mostly from the “post-90s generation”
• Brands using it: Braun, MAC Cosmetics, Philips

* Ranked by sales value

For all its promising signals, China’s maturing consumer market also holds new challenges for foreign companies, including a complex digital ecosystem and highly demanding consumers. In this China Focus, we share a positive outlook for China as a growth market, but we also point out the pains and pitfalls market entrants are likely to face on their path to success. We hope to have the chance to help you get there.

>> Download full publication: “Selling to Chinese Consumers”