Brands Are Facing A Challenge With High Competition And Costs in China

Most official reports on China’s consumer confidence remain positive and projections for growth remain solid. There is, however, a profound undercurrent of caution and nervousness - especially among white-collar consumers in T1 & T2 cities, where real estate depreciation is most noticeable.

Spending power in China has been strongly linked to these asset prices, and as they trend down, so too will consumer spending. “When the property price was 4.8 million [yuan] previously, I felt relaxed and generous about my children’s future education abroad, spending on various luxury goods and overseas trips. The confidence was based on the properties’ prices and that they would be higher next year,” said Xu, from Guangzhou, who owns three flats in the city (SCMP, Jan 16, 2020).

Consumer Spending Is Slowing

Retail growth in China is a mixed bag at the moment. Top tier cities have slowed spending considerably and are being squeezed on costs. However, lower tier cities are demonstrating far more optimism and are less price sensitive.

Looking past the official government statistics (from NBS), there is considerably more caution and concern among regular consumers in China. Double 11 in 2019 printed new records for overall sales growth but for many brands these sales came as a result of steep discounting.

There is overall, a discernible slowdown in the economy and brands need to pay heed to this in 2020, with strategies to match Brands are meeting this slowdown with a bevy of discounting tactics

A Discounting War Looming?

The consumption slowdown in 2019 has prompted many brands to discount more often and more creatively.

At the same time, there has been a lot of analysis on strategies for discounting. A review of consulting white papers goes to show that a lot of attention is being applied around how to boost sales, while consumers grow increasingly cautious. Brands making these moves by competing hotly on price may do lasting damage to their brand.

Instead of working on how to discount better, many brands should, instead be applying more attention to better branding, better messaging, or by focusing on new market sets.

Strong, Long-Term Retail Market

Despite a slowdown in China and declines in consumer confidence becoming more profound, the shear scale of China’s market will propel it forward. Long term, the market will be a good investment for brands.

China’s total population (1.4 Billion), it’s online population (854 million) and its population of online shoppers (639 million) all support a solid growth story. But if the current slowdown continues, many brands will need to re-calibrate their approach in response to more discerning consumers, who will pick and choose brands more cautiously.