During a business trip to Shanghai last week, I was able to connect with several top China-consumer focused professionals to exchange perspectives on China’s retail landscape and consumer market. Here are a few key points from these conversations that I will discuss further in future postings.
“Consumer Behavior Ambassadors”: There seem to be two types of migrant workers in China. The first type work in a city or province far from home and returns to see their family once per year during the Chinese New Year holiday. The second type work in a nearby urban center and spend their weekdays at the work site and return home on the weekends. This second type act as “Consumer Behavior Ambassadors” because they take on the consumer preferences and purchase goods in the major urban center, and bring both physical products and ideas about consumption to their lower-tier home city. The result of the word-of-mouth marketing that occurs as these migrant workers travel back and forth is you have groups of cities that share similar consumer preferences, but are not necessarily at equivalent city tier level rankings. This phenomenon therefore accords well with the market cluster approach to dividing up China.
“Retailers as Real Estate Investors”: I spoke with one long-term Asia retail insider who equated retailing in China with real estate management. His rationale can be summarized as follows. In many cases, retailers in China merely provide a storefront and brand. They do not own the inventory and all of the workers are from the supplier side. As a result, one of the biggest risks they face is associated with where they invest in the property rather than with their product inventory or staffing issues.
“Luxury Consumers”: China is currently the world’s second largest luxury consumer market, and it is expected to overtake Japan by 2015. Interestingly, nearly 75% of China’s luxury consumers live in parts of China outside of Tier-1 cities. I spoke with a former colleague who recently finished a project with Coach. A senior Coach executive said that according to industry forecasts, 2010 will be the first year that ultra-rich luxury consumers from mainland China will outnumber those from Hong Kong.
“More Educated Consumers”: Point of sale marketing has traditionally been an extremely effective means of convincing shoppers to buy products in China. However, consumers with internet access are increasingly turning to websites and message boards to do background research before making purchases. If they do not buy the product online on a site like Taobao, then this type of consumer will go to a store knowing exactly what they wish to buy, without being as heavily influenced by in-store salespeople.
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