Rapid Growth Of Still-Nascent Middle Class Signals Opportunity For Investors And Family Offices In China
Many investors are banking on the prospects for Chinese middle class consumption
We’ve kept a close eye on China’s burgeoning middle class, which — despite its recent appearance on the world stage — already numbers in the hundreds of millions, presenting a vast and unique potential consumer base for companies selling everything from cars to jewelry, household goods to fashion. While the Chinese middle class is expected by many to play a major role in the global economic recovery, their buying (and saving) habits, investment strategies, and long-term financial goals by and large remain poorly understood. Today, the Wall Street Journal looks into emerging market investors who eschew the popular financial planning target customer — the wealthy or ultra-rich — to serve the Chinese middle class, and investors in the West who are banking on the continued growth of this consumer class.
In coming years, it seems inevitable that the increased consumption of China’s hundreds of millions of middle class investors will affect, in some way, investors and money managers in other countries. If that is indeed the case, it pays to read up on this subject now, when the market is just starting to be defined and more fully understood:
Encouraged by the steps the Chinese government has taken to boost consumption, some equity-fund managers are putting money into sectors related to domestic demand, such as retail, automobiles and financials.
Chinese industrialization in recent years has lifted the average income of millions, propelling them into the ranks of a swelling middle class some say could grow to be the largest in the world.
Posted in Business, China, Economics, Economy, Investment, Luxury
Tagged China, consumption, Economy, family office, finance, financial, financial trends, Investment, middle class, trend, wall street journal
Growing Demand In China’s Interior, Other Asian Countries Should Counterbalance Tepid Consumption Elsewhere
Although Chinese consumers have shown a taste for foreign luxury brands, domestic labels will present stiff competition in coming years
As a result of the fast-paced development of China’s eastern coastline and special administrative regions, only recently have major luxury brands made it to the country’s vast interior region, where a number of second- and third-tier cities remain relative blank slates. Since so many companies are only reaching these areas now, the spread of luxury brands in China has become a regular news story. This has only intensified over the last year, as formerly free-spending Japanese and American customers have thought twice about luxury goods while emerging customers in places like the BRIC countries and relatively fast-growing economies like Vietnam become more regular (and brand-loyal) buyers. Nonetheless, the luxury sector is still experiencing only modest growth one year on from the onset of the global economic slowdown despite their best efforts at wooing new customers.
If many recent articles are correct, though, what we’ve seen over the last year — severe as it has been — should only prove to be a blip in the grand scheme of luxury revenues. From Financier Worldwide:
Sales of designer shoes, handbags, and beauty products have weathered the financial storm particularly well. At the end of August, French cosmetics company L’Oréal reported higher than expected profits of €1.37bn for H1 2009. In June, Hermès revealed it was farming crocodiles in Australia to feed demand for its coveted £4000 Birkin bag. Around the same time, Mulberry announced that its handbag sales had recovered, climbing 21 percent in the first 10 weeks of the new financial year. Shoe supplier Kurt Geiger, which operates in upmarket department stores across the UK, also reported double-digit growth in profits for the first five months of the year.
Bain & Company predicts that trading in the developed markets will remain tough for the rest of the year, with growth of around 1 percent in 2010 before a slow recovery. However, despite the recession slowing the pace of development in emerging markets, Bain believes that, as a consequence of increasing personal wealth, growth in global GDP, and rising tourism in Russia, China, India and Brazil, spending will surge between 20 percent and 35 percent over the next five years. This is expected to aid the recovery of the luxury goods sector.
Posted in Business, China, Economy, Fashion, Luxury
Tagged asia, asian, brands, brazil, China, chinese, consumer, customer, economic growth, Economics, Fashion, global economic crisis, india, Luxury, luxury goods, middle class, russia, spending, wealth
Growing Interest In “Pú Tao Jiǔ” Among Urban Chinese Spurring Wineries To Intensify Their China Expansion Strategies
By next year, wine imports to China are projected to reach 250,000 tons
China’s growing middle class has emerged over the last 20 years to be one of the world’s most closely-watched demographics, with marketers in virtually every industry keeping a keen eye on every purchasing trend they make. In more recent years, one of the industries that has benefitted the most from this sizeable group’s interest in all things foreign has been wine. Although the vast majority of Chinese are either unfamiliar with foreign wine or simply do not drink it very often (if at all), many vintners see great potential in the market, as target customers in more remote urban areas remain underserved by existing bars, liquor stores or supermarkets, and returnees who’ve traveled, worked or studied abroad often come back to China wine aficionados with a taste for wine.
Although per capita wine consumption in China remains miniscule by comparison, in China’s major cities it is becoming a more popular beverage, particularly in business or family settings, and in recent auctions of fine wine mainland Chinese buyers have increased exponentially, gaining notoriety among seasoned wine investors as intense bidders (and avid drinkers). Trying to maximize their appeal in China while reaching new markets, wineries outside China are working overtime to get their products to the mainland market while promoting wine drinking in China and building sustained brand equity.
As most of these vintners remain completely unknown within China regardless of their size overseas, the Chinese market represents a blank slate of sorts, allowing them to brand themselves at will without the stigmas that may exist in other markets. A good example of this is American wineries, who are often shunned for their European counterparts among American wine aficionados. As the China wine trade has opened up in the last 10 or so years, vintners from California and Washington state in particular have worked to get their bottles in the hands of the emerging Chinese wine drinker, to mixed success. California’s Lodi News-Sentinel, interviewing Van Ruiten Wineries’ Kevin Sherwood, today illustrates some of the opportunities the Chinese market presents for American and other foreign wine producers:
Around 2006 [Sherwood] developed a desire to market to China. It was around the time of the Beijing Olympics that Sherwood started to sense an opportunity. “It’s just as easy to sell to China as it is to go and sell to the restaurants in San Francisco and Walnut Creek,” he said.
Posted in Business, China, Culture, Investment
Tagged america, california, China, chinese, consumer, consumption, kevin sherwood, middle class, Sino-US, trade, van ruiten, van ruiten wineries, vineyard, vintner, washington, wine, wine consumption, winery
Middle Class Estimated At Upwards of 150 Million And Growing; Consumers Hungry For Entry-Level Luxury Products That Offer Status As Well As Quality
Spending by China's middle class is expected to grow exponentially in the next 20 years. Graphic © Foreign Policy magazine
It has become a well-established fact that companies of all stripes are looking at the Chinese market as a source of sustainable revenue over the long term, as the country’s growing middle class increasingly becomes a consumer class on par with many more established markets. However, as many brand marketers — particularly from western countries — have found, reaching the Chinese consumer can be a complicated task, as the Chinese market differs greatly from other developing and developed markets…another well-established fact.
Today, Investopedia examines two strategies that have been adopted by western brands like Luxottica and Coach in their quest for market share in China’s huge, competitive entry-level luxury market. While it will be incredibly difficult for ambitious brands to unseat luxury powerhouses like Gucci, Louis Vuitton and Porsche in China, as this article notes, brands that adopt a specifically China-centric strategy when dealing with the middle class may create a strong foundation for future growth:
Posted in Business, China, Culture, Economy, Luxury
Tagged asia, China, coach, Economics, Economy, emerging, gucci, louis vuitton, Luxury, middle class, porsche, spending