Retail

The decision by Beijing to end the decades-old One Child Policy means that from 2016, approximately 90 million couples will be allowed to have a second child. The implications of this change in policy are huge for the broader economy and for retailing specifically. There will, undoubtedly, be a surge in consumption of products and services for babies, young children and their parents.

Credit Suisse estimates there will be 1.2 million babies in total, born in China in 2016 alone. Given that the annual cost of raising an infant is 40,000 yuan, this will result in a 4.8 billion yuan boost to the economy. Parents are likely to reduce the amount of money they save in order to buy the things that their new arrivals need, and the market for baby formula milk is expected to grow by 6% in 2016.

We have already seen new brands of formula enter the market as a result; there is little consumer confidence in local infant formula, and the demand for international brands in this category is intense. The longer-term effects of the shift in policy will be seen in the amount of food each household consumes, the need for bigger housing, additional spending on clothing, medical care, higher utility bills and possibly even bigger cars.

All of this additional spend will give a welcome boost to China’s GDP, as well as helping address the need for a growing number of young people to help care for the country’s ageing population.

Shopper marketing has been an area that brands and, often, retailers in China have battled to understand. We believe that the Year of the Monkey will be the year that the value of the shopper – as a way to grow both brand preference and market share – comes into focus. Brands have traditionally sought to win over Chinese consumers using price as the main attraction. Online and offline, retailers and brands have for too long taken the easy option and pulled the price lever to boost sales.

The problem has been that, as a result, loyalty has been hard to achieve, and this lack of loyalty is becoming evident now, with slowing growth making it difficult for brands and retailers to keep cutting prices. We see forward-thinking brands now starting to focus on the shopper, and seeking out ways to win at the all-important point of purchase. A tremendous amount of decision-making happens in the so-called last mile, and the brands that understand shopper behavior stand to strengthen their position.

In a slowing marketplace, the brands that rely on price in order to win may succeed in the short term but will ultimately lose. This is the year in which those that have invested in brand equity will be in a stronger position. Brands and stores that understand the factors – beyond price – that trigger a sale at the point of purchase can now stand out, and that can mean the difference between life and death. Investment in improving the execution of cross-platform campaigns in the retail space will increase, as will spending on improving the presence of brands on the shelf. The bar for quality in shopper marketing will be raised this year, and those that execute poorly will lose crucial sales.

With the continued rebalancing of the Chinese economy, 2016 could be characterised as another year of change for China. The Year of the Monkey, 2016, is also set to be another year of Chinese transformation, as China continues down the path of becoming more of a consumption rather than a manufacturing economy. The Chinese retail sector is at the intersection of much of this transformation and, with the rapid growth of e-commerce, Chinese retail is changing and adapting fast.

To help you focus on what is important, I have synthesized the multitude of change into 8 key retail trends in China for the Year of the Monkey that I  think you  should be thinking about and creating strategies to address.

So each day for thew next 8 I will be featuring another retail trend.

Here goes with Trend 1

Foreign Flavors – Trend 1

There has been an influx of international products and brands into China in the past year, and this will continue in the Year of the Monkey. Tmall Global, the international division of the huge eCommerce platform Taobao Tmall, has been instrumental in fuelling growth in sales of foreign brands, linking sellers with a ready market of Chinese consumers whose appetite for international goods is strong. Tmall Global’s promise – “100% foreign original authentic, 100% foreign merchants, 100% domestic return” – speaks directly to consumer sensitivity around food and product safety and the demand for reassurance on authenticity, as well as a desire for international fashion and the latest consumer durables.

Thanks to digital platforms and fairly straightforward customs regulations, many more international brands are finding the time is now right to dip a toe in the lucrative Chinese market. Cross-border sales – some official, some not – have long been a way for Chinese consumers to experience new brands, and we see digital sales platforms growing in appeal for international brands taking the plunge in this market. Electronics and apparel have for some time been strong cross-border sellers online in China, and we now see growing sales of international brands in FMCG products, particularly those relating to baby care, health and nutrition, given ongoing domestic concern about safety in these categories.

Those consumers who have had the means to travel internationally to buy foreign brands will continue to do so, but, by providing these goods through trusted online channels, brands have an opportunity to connect with many millions more people.

If you missed my In Retail Conversation With…live web session all about Singles Day or 11: 11 the world’s biggest single day for retail sales, you can catch it here on the live recording. Many thanks to Doreen Wang, my guest on the show and the production team, Tuhin and Alex.

https://youtu.be/JoGBRvnPwgU