Grip of consumerism to tighten in China

Financial experts in China are fond of quoting what they call the "clothing clash" analogy. Back in the day, when couture meant various shades of grey and blue suits, it was common to turn up in identical clothes. Now, with the market firmly in the grip of fashion, the probability of a "clothing clash" is next to zero. Choice is the consumer's birthright in contemporary China, spawning prospects of sustained growth for the near and five-year future. Indeed, the target set by the government for retails sales is staggering. China is set to release its first domestic trade and logistic plan for the 12th Five-Year Plan (2011-2015) targeting retail sales of 30 trillion yuan (Dh17 trillion) by 2015. Of this, e-commerce is expected to be 12 trillion yuan and online retail sales 2 trillion yuan. At the centre of this great consumption drive is the quintessential Chinese customer, who according to a recent research report by the American Chamber of Commerce in Shanghai, is someone between 21 and 40 years old, living in Tier One or Two cities, earning an income between 10,000 and 50,000 yuan per month. More importantly, this new consumer is Internet-savvy, used to endless choice of goodies and alien to a life of frugality. This group is more likely to spend money on branded items, travel and leisure pursuits. Wallow in luxury Article continues below According to McKinsey's research, China is expected to have more than four million households, with annual income of over 250,000 yuan by 2015. At present households in this bracket account for less than one per cent of urban Chinese families, but this section is growing at 16 per cent every year. The ballooning of this cross-section will ensure the growth of the Chinese luxury sector. Substantial growth will be driven by greater penetration into the lower tier cities where luxury brands networks are just a fraction of existing megacity markets. Provincial towns and cities thus remain under-penetrated, although income levels and supply of high-end department stores and shopping malls are rising. And one of the main beneficiaries of this trend are luxury car dealerships which made the most of the spending power of China's upper middle class last year. Market reports and analysis suggest that the most positive view is invested in the luxury car segment, instead of the passenger vehicle sector. Cars for the "masses" will suffer slightly due to the phasing out of preferential policies and rising fuel costs. The luxury passenger vehicle segment, on the other hand, has an immense untapped potential. It accounted for only six per cent of China's car sales in 2010 compared to 15 to 20 per cent in developed markets. Sustained economic growth and increasing disposable income levels will ensure a good run for companies like Brilliance China, Geely Auto and Zheng Tong, a leading luxury dealership group. Virtual markets The most significant trend impacting consumer behaviour, however, will be information technology, which essentially includes shopping on the internet and mobile phones, as well as gaming and social media. This is now likely to be the most powerful market trend that will influence the widest cross-section of the emerging consumer class. According to AmCham's research report, IT is projected to alter the shopping activities of lower-income groups with less than 10,000 yuan per month. This group will be more demanding and keen on value-for-money deals. In many ways, these consumers represent the high volume, low price differentiation approach that many Chinese companies have embraced to tap the hundreds of millions of new customers at the grassroots. Most local companies have thus implemented online shopping strategies, depending on revenue from technology-enabled transactions. Sub-sectors such as e-commerce, social network and open platforms are attracting enough attention with IPOs in foreign markets and large venture capital investment. Traditional "biggies" such as Tencent and Baidu, with large user bases, will benefit from bigger online ad-spends and continue to see solid revenue growth. Internet users in China number 457 million and will only grow. The party has just started for the Chinese consumer.