Every month, Matthieu David-Experton (E10), founder of Daxue Consulting, gives us an update on the China market. Today, he explains why Chinese millennials pay for quality, not necessity, despite a slowing economy.
Chinese millennials have emerged as a key consumer group in the world’s second-largest economy, albeit one newly encumbered by the woes of globalism. With the status of the Chinese economic dream still unclear, low unemployment and rising salaries at home counter shakiness to an extent.China’s economic and geopolitical jockeying as functions of a cooling economy at home, a depreciating Yuan, and trade policy shake-ups contrast starkly with an emboldened millennial population’s economic optimism and widening share of the national economy. Indeed, young Chinese consumers have demonstrated themselves to be confident, discerning spenders; frugal and yet less price sensitive, particularly with regard to luxury and high-quality goods.Millennials are willing to spend top-dollar for entertaining, personalized retail experiences both online and at brick-and-mortar venues, as Chinese increasingly view retailtainment as a desirable social activity. 2017’s Chinese millennials spend more on luxury items, go out more often than their peers abroad, and spend mealtime at home less and less. Chinese millennials look for high subjective value and spend big when they find it.
Millennials go out to eat; buy the best they can afford
In 2017, Chinese millennials are likely to develop savvier spending habits, while not compromising on image or quality. As fewer young Chinese urbanites prepare their own meals at home – research conducted by Xinhua News Agency reported that 44% of Chinese consumers eat at home fewer than three days per week – more are expected to divert their hard-earned dollars toward goods and services that satiate their specific consumer demands, often paying a premium in the process. In 2015, 48% of Chinese consumers agreed with the statement “Within a range of prices I can afford, I always pay for the most expensive and best product,” an increase of 20% since 2011. This incentivizes local brands, especially in sectors such as consumer electronics, for which 49% of consumers agreed with the statement, to increase their market share by improving quality at a higher price point to score on both fronts.
Work, meeting spaces could follow Airbnb model
For the urban millennial cohort, time constraints pose a serious problem, particularly with regard to meetings, work, and other commitments and a social lifestyle built around today’s yuppie consumer culture. The issue poses a tremendous opportunity for IT entrepreneurs. Chinese work and meeting space booking startup Remi intends to apply Airbnb’s model of creating personal space at the push of a button, particularly in cities, to address issues that stem from millennial working habits. As millennials spend less and less time at home, and social and work-related activities center on outside spaces, it is likely that more services will appear to streamline the digital native’s time-constrained, hectic daily schedule.
Big cars selling with Chinese millennials; young Americans opt for smaller SUVs
Last year, 23.3% of all Chinese car owners were millennials aged 25-29, who accounted for the highest percentage of any age group. This points to millennials’ increasing primacy in the Chinese auto market. According to a 2016 survey from BITAUTO (易车), the leading website on the Chinese automotive industry, millennial shoppers signed off on eye-catching cars they believed would project wealth. Big, luxurious cars were generally the most sought-after. American millennials, many of whom experienced the fallout from 2008’s recession firsthand, were more conservative in their choice of cars, picking smaller, practical SUVs over more ostentatious options. However, American millennials listed sophistication, stylishness, and innovation as qualities of the ideal car in a survey, suggesting that millennials’ finances and spending habits may not mirror their inner ambitions.
Chinese generation Z's view on buying a car in 2016: the most popular choice is buying ‘a car which can make me seem successful’ (TGI: 188). Made by Daxue Consulting. Data from: BITAUTO (易车)
Millennials spend less on food, more on retailtainment
As more than half of Chinese millennials live with their parents amidst skyrocketing property prices, and as retailtainment grows in popularity, the young consumers now devote 14% of their income to non-food spending, according to a survey conducted by CBRE. In addition to luxury items like diamonds – millennials now account for 68% of diamond jewelry sales in China, according to De Beers SA – leisure has become a key component of the millennial consumer profile. The CBRE survey also indicates that, whereas North American millennials go out an average of 7.4 days each month, their Chinese peers do so almost ten days per month. And, on average, young Chinese spend four days a month visiting shopping centers and other brick-and-mortar retail venues. Millennials spend a significantly bigger portion of their discretionary income on retailtainment than older, more frugal consumers, who set much of their budget aside for food.
Gold jewelry enjoys strong support from Chinese millennials
According to Gomez Gold (国美黄金), a Chinese gold merchant, purchases made by millennials born after the 1980s and 90s accounted for 66.13% of all gold sales in the Chinese market last year. American millennials tend to gravitate toward diamond jewelry, 41% of whose sales came from millennial wallets in 2015.
The age distribution of Chinese gold consumers in 2016 Q1-Q2: millennials born after the 1980s and 90s accounted for 66.13%. Reproduced by Daxue Consulting from Gomez Gold (国美黄金)
Tourism, lifestyle industries draw big bucks
Declining price sensitivity amongst millennials and increasing disposable incomes nationwide have stoked millennials’ discretionary spending, especially in mHealth, lifestyle and travel; according to a survey commissioned by the Singapore Tourism Board, Chinese millennials spend more on travel than their Asian counterparts, and often spend over $14,000 during trips to international destinations, such as Japan and France, favored by affluent millennials for high-end shopping.A report by Goldman Sachs predicts that in the next decade, millennials will comprise the majority of Chinese tourists.
Tailored experiences take precedent
It seems experiential consumption is now a hallmark of millennial behavior in China.The 33% of shoppers who interact with products in brick-and-mortar stores before making a purchase online will lead the charge towards a market built around experience. Experiential consumption reflects millennials’ expectation that retailers will provide the same tailored experience and resources as online applications and outlets, which are highly customizable and personalized. Retail, meanwhile, will continue to boom while retailtainment grows in popularity. Increasingly, shopping is a pastime for Chinese consumers, the perfect nexus of consumption and socializing: 66% of Chinese consumers prefer to spend time with family by shopping. Leading the trend are the millennials, who have integrated the retail experience into their lifestyles and value systems.
Case Study: Dunkin Donuts in China
Dunkin Donuts, after two unsuccessful attempts to enter the Chinese market, shifted its approach for its second reentry in 2016. Realizing that the Dunkin Donuts brand lacked upscale cachet to Chinese consumers, and reconciling with the coffee-and-donuts giant’s blue collar New England appeal in the United States, Dunkin Donuts rebranded, debuting new stores that emphasize Boston roots, including Cape Cod style awnings and country music, among other unmistakably American features. The aim was to address the chain’s earlier failure to recognize Chinese consumers’ expectations. According to Benjamin Cavender, principal at China Market Research Group, “Chinese weren’t looking for a no-frills donut chain. They wanted sophistication.” Dunkin Brands Group’s international vice president, George McAllan conveyed Dunkin’s new angle, one that mirrors younger consumers’ desire to spend on a product and its auxiliary service: in this case, coffee and a donut, and the subjective experience derived from the store’s decor and fare. McAllan said: “We want to encourage people to sit and visit.” Dunkin Donuts’ case resembles that of western restaurants in major Chinese cities, who, despite having originally catered to a primarily expatriate clientele, serve an increasing number of locals year over year, a trend related to the rise of chihuo吃货, or foodie, culture, amongst Chinese millennials.
Millennials’ preference for superior UX linked to online platforms
Perhaps the most illuminating explanation for millennials’ growing preference for gratifying “lifestyle” consumer experiences lies in their familiarity with online apps and services, which are designed to provide a superior user experience and, as is the case for Weibo and WeChat among others, a uniquely personal platform for reflecting one’s social identity. Chinese mobile users increasingly drive consumer trends; for example, in 2015, 70% of the post-90s shopped on their cellphones and other mobile devices than on a computer, and in 2016 only 28% of young American consumers preferred to shop on their mobile. Local entrepreneurs have not been averse to the mobile drive; according to Tencent’s 2016 Internet Entrepreneurship and Innovation White Paper, 59% of new startups belong to the IT and social media sectors.
Native Mobile Shoppers
Moreover, according to a 2016 report on millennial internet usage published by the Centre for Network Film & Television of CYLC and CYIP, with data provided by the China Internet Network Information Center (CNNIC), whereas just 6% of Chinese elementary school students reported online shopping experience, a full quarter of high school students said they had shopped online. The report also reveals that the vast majority (79% of middle-schoolers and a whopping 80% of high-schoolers) access the internet mainly through their personal cellphones; not only is mobile shopping already an ingrained consumer choice in young millennials, its popularity suggests that more and more millennial consumers will expect their real-world shopping experiences to mirror mobile platforms in convenience and ease, trendiness and personalization. For these reasons, it is fair to say that in 2017, the Chinese millennial is poised to steer the market in the direction of consumer experience, enhancing competition among firms along the lines of quality and shoring up brand loyalty in the process.
Mobile transactions surge
In 2016, the volume of Chinese mobile shopping transactions exceeded that of the United States by a factor of four; Chinese mobile users spent an estimated $505 billion on goods purchased via mobile devices, compared to their American counterparts, who spent $123 billion, according to eMarketer. Other data shows that Chinese millennials number more than 400 million, which is five times the U.S. millennial population. A report from iResearch mentioned that Chinese millennials spent an estimated $5.5 trillion through third party mobile payment platforms, versus Americans’ $112 million.
Alipay, Tenpay, WeChat dominate mobile payment
According to iResearch, Chinese’ shoppers favorite mobile payment software were Alipay (market share: 51.8%); Tenpay (38.3%), including WeChat Payment (微信支付) and Mobile phone QQ Wallet (手机QQ钱包); others accounted for a combined market share of 9.9%. Mobile payments accounted for 92% of all paying channels for Chinese consumers born after the 1990s. American consumers – 32% of whom use a mobile wallet – preferred PayPal (16%), apps by retailers and restaurants (10%), and digital currency transactions (10%).While the United States mobile payment market is expected to increase by 2.6, in China, the market could grow to 7.4 times its current size.
Chinese mobile shoppers spend on food, clothes, household products, and cellphones
Consumers born after 1995 mostly buy food, clothes, and cellphones via mobile devices; food, clothes, and household products are the main expenses for Chinese born between 1981 and 1995. According to Jim Cramer, Uber, cellphones and makeup comprise the majority of American millennials’ mobile purchases.
The frequency of Chinese millennials’ leisure consuming behaviors in 2016: eating out about 5.9 days a month. Made by Daxue Consulting. Data from CBRE
Chinese millennials saved at a higher rate, but U.S. millennials saved more
Despite young Chinese consumers’ clear preference for luxury goods, premium shopping experiences and high volume of mobile transactions, in 2016, on average, the Chinese millennial saved 22% of her income, compared to young Americans, who saved only 8.2%. And as is shown in a survey conducted by Fudan University(复旦大学), a top university in China, Chinese born after the 1980s earned an income of $8755 in 2016, while American millennials made $50 000.Thus, Chinese millennials saved $1 926 and Americans saved $4 100 averagely in 2016. Chinese born after the 1990s saved at the same rate as their older millennial peers but saved less cash due to the two groups’ difference in income.
The average savings and income of Chinese and American millennials in 2016: Chinese saved 22% of the income and American saved 7.5%. Made by Daxue Consulting. Data from CBRE and Fudan University (复旦大学)
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