By Aslada Gu, Gusto Collective
Shanghai (May 2024) — This year has seen a number of challenges and opportunities for international brands. While macro-economic efforts show progress in reforming the Chinese economy, many brands continued to grapple with sluggish sales and operational hurdles. However, Chinese consumers demonstrated their adaptability and shifting consumption patterns amidst these new realities.
Progress in China’s Macroeconomic: Recovery and Resurgence
China’s macro-economic efforts resulted in a 5.3% GDP growth in Q1, indicating positive consumer sentiment. Outbound tourism surged, with popular destinations like Thailand, Japan, and South Korea attracting Chinese travelers. Domestic tourism, films, performances, and museum visits also experienced substantial growth, reflecting a renewed interest in cultural experiences.
International Brands facing headwinds
Some international brands, however, are facing strong headwinds in China. Benefit, Isetan, and others closed stores, while Gucci sales in Asia declined. Japanese brand Kose Group closed its Tmall flagship store due to weak demand. Uncertainties and challenges, including rumors of layoffs, added to the overall difficulties faced by international brands.
Strong emergence of Chinese brands and the changing consumer mindset of consumers
Chinese brands gained prominence, capturing a larger market share and increasing competition for international players. This shift in consumer preferences is driven by a growing sense of China pride and a “refined and frugal” mindset. Consumers prioritize value for money and platforms like VIP.com and outlet malls are seeing strong growth.
Moving towards polarized ends – An M-shaped consumption pattern emerges
While some pursued a sense of security and mindful pricing, others focused on upward mobility and long-term value.
Amidst economic uncertainty and concerns about employment, many of the middle-class consumers in China has adopted a frugal mindset. Those with concerns about downward mobility prioritize a sense of security by preserving their lifestyles while also adopting a mindful approach to pricing. They redefine ‘New Luxury,’ preferring cost-effective premium experiences. They actively engage in trendy activities associated with the “middle class”, and join passion groups and communities, finding a sense of belonging. Some choose to return to hometowns for stable employment and reduced living costs.
Those experiencing upward mobility prioritize investments in art, culture, education, and gold. Top spenders are willing to increase luxury expenditures.
So what should brands be thinking about? Here are some of our recommendations:
- Embrace a ‘vuja de’ mindset
Vuja De – the feeling of experiencing something familiar in a completely new and unexpected way.
Rethink your China business with a fresh perspective, renewed curiosity and open mindedness. Reassess your brand, customer, product mix, partnerships and retail channels. Reevaluate the competitive landscape – include more local Chinese brands, and rediscover your position. Explore growth opportunities from new groups of consumers, by creating new consumption scenarios and expanded channels.
- Go ‘all-in’!
Demonstrate an unwavering commitment and be prepared to make an even greater investment. Recognize that today’s Chinese consumers are more mature emotionally and intellectually, even in lower-tier cities. Offer products with original and distinct characteristics – there is a greater chance for success when targeting narrower but more specific market segments. Integrate the current Chinese context and Chinese culture into marketing strategies. Maximize exposure and enhance engagement with the target audience upon identifying effective touchpoints.
- Use technology for innovation at China speed
Forge strategic collaborations with tech-savvy companies in China – paving the path to long-term brand success beyond immediate gains. Strategically utilize new technology to reach the customer by crafting immersive experiences and interactions, enabling the collection of consumer behavioral data. Create highly customized and ultra-personalized experiences, fostering stronger bonds and connections with consumers.
To learn more about today’s China and how luxury brands can find new growth opportunities,
please contact,
Aslada Gu
Director, Product & Innovation
Aslada.gu@thisisgusto.com
