The truth about Chinese growth
News continues to flood in about how China is experiencing a downturn …markets are down, manufacturing output down, consumption in key areas (luxury, auto) are down …etc.
Despite all of this reporting, global brands know the truth about China growth. The truth is that Chinese consumers – in many key industries – are the biggest contributors to growth globally. The problem is that, increasingly, those sales are not coming from inside China. It’s Chinese traveling abroad who are driving growth.
We recently sat down with a luxury group in China and learned that 50% of global sales are attributable to mainland Chinese buyers. A large percentage of those sales take place in China, but the real growth is being enjoyed by the overseas retailers of the brand. Chinese are skipping past retail in China to buy globally.
For consumers, there are a few factors coming together to support this trend; (1)price disparity (higher prices in China), (2)authenticity and the need to buy the genuine article, and (3)continued growth in outbound travel and tourism. Price of course, is the key factor. For the same goods, prices in cities like Hong Kong, Tokyo, and Singapore can be 30 – 50% cheaper than the prices at retail in China. With those kinds of savings close to home (a couple of hours flight from mainland China), a buyer could make a trip to Hong Kong or Tokyo, buy the product(s), stay at a nice hotel, enjoy a few good meals …and still save money over the China price.
There is a fourth and increasingly important factor affecting the leakage of sales to markets outside of mainland China – that’s the problem with merchandising. There is a pervasive belief that China doesn’t get the full range of products …and that by traveling overseas, there is a better, more unique selection to be found. China’s younger, more savvy buyers want a full selection and want uniquely personal options.
Brand local, sell global
The luxury brands at head office must be generally happy with the situation – they are growing at a global level.
From the China side of things, its a tricky situation. The brand leaders in China are faced with falling domestic sales but burdened with the expectations of global growth. Marketing budgets are being asked to support global growth despite falling sales inside of China.
Under normal conditions, with sales declining locally, marketing budgets would be under pressure. The message from head office would be; “Your sales are falling in China and as a result, we are going to cut your marketing budgets as sales fall. At the same time, sales in Hong Kong and EU are growing, so we are going to reallocate budget to them.” Global brands must avoid this thinking at all costs.
While global brands are benefiting from Chinese nationals consuming overseas, brands must build awareness (in China) before Chinese travellers go abroad. Brands must put their products high on the shortlist of a consumer heading overseas. By the time the traveller reaches their destination, its almost certainly too late to affect “shortlist of brands” in their consideration.
Brands need to start planning marketing at global level for China
It gets worse when people buy products overseas and then come back to China and expect service. The service centres in China are overwhelmed. The net effect of all this is; (1)China sales are down, (2)marketing budgets are under pressure, (3)and the cost centres for service and maintenance are ballooning.
An integrated global approach is necessary. Brands need to de-couple marketing budgets from domestic sales. Brands being built from the growth of China need an approach to marketing which is more like GNP than it is like GDP. They need to closely measure sales to Chinese nationals at a global level and respond with solutions in China and around the world – ideally with global CRM systems.
The outcome of understanding this situation better should result in greater brand efforts in China, better (more China specific service) at a global level. Right now too many brands are spending service money in China and brand/marketing money overseas. They need to reverse their current approach.
Brands need to be built in China knowing that sales could come anywhere in the World.