As the effects of Covid-19 continue to ripple across the globe, China – one of the first countries to emerge from the pandemic – offers a glimpse into fundamental changes and new trends in consumer behavior. Daniel Zipser, senior partner and head of McKinsey & Company’s consumer and retail practice in Greater China, spoke with us recently, sharing his insights about post-pandemic consumers.
How is China’s consumption recovery?
We have seen a strong return in spending, particularly in May. This is being driven by consumers’ growing confidence about their future prospects. At the same time, we have seen increased promotional activities by companies generating demand for their products since stores have reopened. Digital ecosystem players have also stepped up their promotions.
Overall, the Chinese consumer has become even more important to international companies as a source of global growth.
How has Covid-19 changed consumer behavior in China? Do you see digital acceleration in any unexpected areas?
China has been at the forefront of digital innovation. Consumers are digitally savvy and eager to explore new types of digital engagement and new ways to purchase goods, and we’ve seen a substantial acceleration of this over the last few months.
During Covid-19, Chinese consumers were quick to embrace digital habits, such as livestreaming, and increased the integration of social media with commerce. Most notably, we have also seen an increase of digital collaboration tools at the workplace, with an explosion in the use of video conferencing.
Which consumer segments are driving consumption in China now? Have these changed since the pandemic?
China’s rising middle-class and continued urbanization have been driving consumption growth. The number of middle-class households has grown by more than 10 times over the last decade to reach over 180 million households last year. Chinese shoppers have become even more confident in 2019 and 2020, and growth in their consumption is what keeps the economy humming.
We’re also seeing some consumer segments becoming more digitally savvy, including older consumers who are shopping online for the first time.
Prior to the crisis, the segment of young digital natives – or “Young Free Spenders” – was surging ahead. They make up 60% of total spending growth, even though they constitute only 25% of the population. They are confident about their futures and have little hesitation about spending money, whether on a new tech device or premium skincare.
What are Chinese consumers spending on now and what are their top considerations when it comes to shopping post-Covid?
Many pre-Covid trends have been accelerated over the past few months. We see consumers seeking higher-quality products and more-premium brands. In fact, we were surprised to see “premiumization” continue during the crisis, with premium brands gaining share. Chinese consumers initially reacted to the pandemic by holding back on spending, leading to lower revenues for brands. But as people start to spend again, they are putting their money into premium brands that are perceived to be of higher quality or which provide health benefits since consumers are also being increasingly health- and safety-conscious, with their interest in health extending beyond food and into other product categories.
Chinese consumers are also continuing to look for unique experiences. As such, it’s now more important than ever for brands to break down the silos between offline and online, and engage consumers in an omnichannel experience.
How has Covid-19 changed the way luxury brands engage with Chinese consumers?
Luxury spenders are bouncing back quickly. This has important implications for the global luxury industry, as 50% of global growth has been driven by Chinese consumers in recent years.
Young luxury consumers, in particular, are driving the recovery of the sector. Stores that are doing well are the ones that are leveraging social commerce for brand discovery as well as sales. Covid-19 has accelerated the digitization of luxury, and luxury brands in China have quickly learned how to engage with consumers online. It’s now considered a necessity for brands to go online.
The other big trend we’re seeing is a shift toward domestic consumption, since outbound travel remains heavily restricted for Chinese consumers. This has posed a real challenge to luxury brands that have traditionally leveraged their flagship stores in global fashion capitals to communicate their brand experience and drive sales. Luxury brands need to shift their focus toward creating these brand experiences in their flagship stores in China. In fact, Shanghai was the number-one travel destination during this year’s extended Labor Day holiday, and many domestic tourists included shopping during their travels.
Has Covid-19 changed Chinese consumers for good? What changes are here to stay?
I don’t see a fundamentally different Chinese consumer today. Instead, existing trends are accelerating and amplifying in importance, whether it be what consumers expect from brands or how they research and purchase products.
The Chinese consumer will continue to be an engine of global growth. The next China is still China.
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