Patriotic Consumers Are Changing the Chinese Market. Here’s How.
A decades-long globalisation boom has now come under threat even as the world fights an enemy that respects no national borders, with international travel slowing to a trickle and trade facing unprecedented challenges.
“This whole situation is putting up so many barriers, much to the detriment of the global world we have all been living in. There is an increase in nationalism everywhere,” said Chloé Reuter, founding partner at Shanghai-based Reuter Communications. “All of these barriers will really change the world.”
In China – as in many other markets around the world — a turn inwards creates shifts in consumer behaviour that spell opportunities for some players and complications for others. How can global brands navigate a new era that is unfolding fast, one where consumers are more inclined to buy “China-first” and even more sensitive to perceived affronts to their national pride?
National Pride Peaks
Chinese national pride has been noticeably high in the month since President Xi Jinping visited Wuhan, the epicentre of the country’s coronavirus outbreak, on March 10: a move widely seen as a “Mission Accomplished”-style flourish, a declaration of domestic victory against the virus.
“China seems to have quite successfully contained the coronavirus outbreak here, which is quite extraordinary for such a large country,” explained Jason Yu, managing director Greater China at Kantar Worldpanel.
According to Yu, if the rest of the world fails to contain Covid-19 as successfully as China, this will further boost the collective sense of national pride, particularly among younger consumers, shaping China’s consumer market in subtle but important ways.
In China, a turn inwards creates shifts in consumer behaviour that spell opportunities for some players.
“It will make them [prouder] of their choices, [prouder] of Chinese brands,” Yu added.
It would be unfair to suggest that there isn’t widespread and sincere empathy from China to the rest of the world as ongoing battles with Covid-19 rage elsewhere, but many here feel that, regardless of missteps at the beginning of the outbreak, China’s homegrown systems — be it healthcare or politics — can be judged favourably against those abroad.
The impact of this mood can be seen across different business sectors in recent weeks. For example, the case of China’s homegrown coffee giant, Luckin Coffee, has shown how post-pandemic Chinese consumers are prepared to rally around their own.
In early April, it came to light that the chain — which in January overtook Starbucks as the largest coffee chain in China, with 4,500 outlets nation-wide — uncovered, by way of an internal investigation, a $300 million inflation of sales data by its former chief executive. Luckin’s stock price plummeted more than 80 percent, plunging its market cap valuation from $4 billion to a little over $1 billion.
But Chinese consumers seemed to respond with strong support despite the scandal. A week after the news went public, mobile intelligence service Apptopia noted a huge bump in downloads of Luckin’s app. On April 3, Beijing News reported the app’s servers received at least three times their normal level of traffic.
Online, the illegality was largely ignored by netizens, with a more common refrain centring on a “save Luckin” theme.
“What Luckin has been doing is basically exploiting the flaws of American capitalism to build Chinese communism. It also created hundreds of thousands of jobs. It will be missed if gone,” one Weibo user wrote.
Pride and Prejudice
Hand-in-hand with this pride is a level of defensiveness that has become more pronounced in China since the outbreak and can be tied with attempts — by the likes of President Trump — to blame the country for the pandemic.
A rising tide of anti-Chinese and anti-Asian sentiment internationally has been documented in various online data analyses this year, but this defensive posture has existed for a while, with Xi Jinping’s positioning of the trade war as an attempt by the US to thwart China’s ascendance being one pre-pandemic example.
While China’s fashion and luxury consumers have become vital for international brands, the perception that the rest of the world wants to keep China down has simultaneously gained prominence. This has created tensions that famously spilled over into the fashion market last year.
Things came to a head when Chinese consumers exercised their power over the bottom lines of many fashion and luxury companies by speaking out voraciously against incidents they perceived to be disrespectful. Numerous controversies saw brands from Coach to Versace and Givenchy widely criticised for products that violated the “One China” policy or were deemed otherwise offensive and several Chinese celebrity ambassadors cut ties with brands as a way of protecting themselves from the blowback.
Foreign fashion brands will always be at a disadvantage when it comes to tapping into one part of the consumer psyche: patriotism.
In a post-coronavirus world, market experts believe that these sensitivities are only going to be heightened further, requiring international brands to be more careful than ever.
In a recent report from Reuter Intelligence, rising Chinese national pride was identified as a key trend that international businesses must come to grips with. The report suggests international firms continually conduct group-wide, “China-friendly audits” to ensure they aren’t inadvertently putting themselves at risk of offending their largest customer base, as well as top-down training to each employee on the frontline of brand experience.
“Top positions [could be] occupied by leading Chinese businesspeople and entrepreneurs, more China-based innovation centres and HQs, and permanent socio-cultural ties would firm belief that [a brand’s] love [for China] is real,” it read in part.
But however loyal their Chinese consumers may continue to be and however well they navigate growing sensitivities, foreign fashion brands will always be at a disadvantage when it comes to tapping into one part of the consumer psyche: patriotism.
“Chinese consumer goods are expanding faster than their foreign competitors, and for sure the rise in pro-China sentiment has given them a boost,” said Derek Deng, partner in Shanghai at Bain & Company. “More importantly, Chinese brands are no longer perceived by shoppers as inferior in quality or design. They are on par with fashionable foreign brands.”
Broadly-speaking, Chinese homegrown brands have been chalking up gains in recent years. Since 2016, brands across 26 categories of consumer goods have grown their collective sales by 15 percent, outpacing foreign brands’ 9 percent figure, according to Bain & Company.
The rise or turnaround of major mass market fashion brands in China, such as sportswear leader, Li Ning, and down jacket giant, Bosideng, has provided a playbook for Chinese fashion brands looking to capitalise on the changing values of consumers at home.
Annie Hou, managing partner at brand consulting firm, Harrison & Sudacom, says that domestic brands are doing a better job of reaching young Chinese consumers in smaller cities, all the way down to the country’s fifth-tier.
“Availability also creates awareness,” said Hou. “If you are there you can be seen in their daily life and it makes you more relevant to them.”
Those best placed to compete will be international brands that are willing to embrace hyper-localisation strategies.
This idea of personal relevance is more important than ever. “I think they are proud to be Chinese… they grew up as China was rising in global prominence and [think] Chinese brands are as good as foreign brands in some categories, but not in everything,” Hou added.
The rise of domestic brands in China is not a universal trend across segments and price points, with mass market and prestige the sweet spots for fashion brands, and beauty increasingly dominated by strong local players.
According to Tmall, C-Beauty unicorn Perfect Diary, which recently saw its valuation top $2 billion after its latest cash injection earlier this month, was the overall top selling brand in the colour cosmetics category in 2019. Previously, Tmall’s top selling beauty brand lists were dominated by international names such as L’Oréal, Estée Lauder and Maybelline.
Those best placed to compete in this environment will be international brands that can prove themselves equally as agile, flexible and willing to embrace hyper-localisation strategies to meet Chinese consumers on their own terms.
Luxury Spending Reshored
The luxury segment remains a stronghold for foreign players – particularly the heritage players who continue to dominate the market – and will be the last to be squeezed by local competitors. However, Yu, Reuter and Hou all predict a future in which homegrown luxury brands can one day compete with international rivals.
“If you are talking about the very luxury end of the market, I think it will take Chinese brands a few more years to build a brand name that is the equal [of international luxury brands],” Yu says.
Even if serious local competition is even further in the future than that timeline suggests, implications remain. International luxury players must quickly pivot to a new reality: one in which Chinese consumers are not only more ‘China-first’ emotionally, but physically as well for the foreseeable future.
Luxury brands have become accustomed to meeting a large percentage of Chinese consumers overseas. According to Bain, 73 percent of China’s luxury spending took place outside mainland China in 2018. Since Chinese consumers already account for more than a third of luxury good sales worldwide and are predicted to make up 46 percent by 2025, there is a lot at stake.
With travel virtually at a standstill and increased concerns about anti-China sentiment likely to cause hesitation in Chinese consumers re-embracing the idea of travelling abroad, international brands need to rethink their approach to reach Chinese shoppers within China.
Moreover, as the mainland’s economic growth is likely to contract for the first time in the post-Mao era, Chinese consumers are looking tighten their belts. Data from China Luxury Advisors suggests 86 percent of high net worth individuals surveyed plan to rein in spending to some degree in 2020.
This means a smaller total consumption pool to be shared among luxury players. Those who have deep ties in the mainland market (and good retail locations combined with innovative Chinese digital operations) are likely to emerge even stronger when the crisis abates, those who do not will suffer the most.