This week in the news, retail in China remains resilient, brick-and-mortar retailers are embracing O2O integration, the rising middle-class is changing China’s retail market, Wuhan’s first duty-free store is a hit, and Hong Kong could lose its status as a luxury shopping destination to South Korea.
In the third quarter of last year, China’s gross domestic product grew at a slower rate than it has in five years, and the country will now probably fall short of its annual growth target of 7.5 percent. However, slowing investment, rather than slowing consumption, has accounted for much of the decline. The luxury sector, however, is more problematic, as brands struggle to establish and maintain loyalty from China’s consumer base. Three years ago, the “power” luxury brands outperformed expectations with some of them experiencing 100 percent year-over-year growth. Now, consumers are seeking out more unique products. Although the average Chinese consumer has more spending power than ever before, offering luxury products at affordable prices is becoming a central trend as well.
With Chinese e-commerce projected to account for up to 50 percent of global retail within ten years, brick-and-mortar retailers in China are looking to omni-channel retailing (O2O or online to offline integration) to attract new customers. Consumers now want integration across a variety of channels so that they can buy products more conveniently and learn more about the brands they are buying. The most common O2O strategies involve launching mobile apps with location-based marketing capabilities, offering in-store mobile payment options, using QR codes, creating shared customer databases and luxury programs, implementing the ability to order online and pickup in-store, integrating inventory and logistics systems with e-commerce, and unifying online and offline pricing.
For the past two decades, the average consumer income in China has been increasing by 14 percent every year. By 2020, half of the country’s population will have attained middle-class status, and by 2022, 320 million people will be earning more than US$20,000 annually. Rising incomes are encouraging them to spend more on themselves, and affordable luxury brands, including Michael Kors, Tory Burch, and Coach are experiencing growth, as are mid-market brands such as H&M, Gap, and Forever 21. These consumers are now being drawn to the lifestyle appeal of shopping centers, which offer attractions and entertainment on top of retail. Consumers now prefer going to a destination for a day rather than a department store-anchored mall.
Wuhan, the most populous city in Central China, now has its own duty-free shop, and if the swarming crowds are any indication, it has been a wild success. Opened on December 25th, The East Lake Comprehensive Bonded Zone offers over 6,000 imported products, including wine, maternal and infant supplies, fresh foodstuffs, and luxury items from 33 countries and regions. Shoppers looking for deals over the New Year holiday packed into the 3,850 square-meter shopping area. Despite the large product offerings, ECNS noted a banner saying “cosmetics are out of stock.” This should come as no surprise, as China’s beauty industry, especially the facial cosmetics category, is booming.
South Korea has seen more Chinese shoppers than ever, but it could come at a cost to Hong Kong. During the first half 2014, high-end retail purchases in Hong Kong of items like jewelry and watches plummeted by nearly 40 percent, and usually favored items such as phones and electronics were down 10 to 20 percent. Though the number of tourists visiting Hong Kong rose 12.1 per cent to 49.87 million from January through October 2014, of which mainland Chinese accounted for more than 77 percent, average per capita spending was down to just US$260. Chinese spending is set to hit $29 billion in South Korea by 2020, and along with an infatuation for Korean pop culture, many Chinese, especially those in northern cities, may realize that Korea is a better shopping alternative.
image source: Elizabeth Phung flickr