With a turnover in progress of 6% in 2013 and a market estimated at 11.8 billion dollars by end 2016, the Chinese market is fully promising. Next to the 3.1 billion dollars in Europe and 4.4 billion in North America planned for 2016, China is not competing at the same level anymore. For the consulting office PwC, consumption and distribution would even keep climbing in the future.

Sans titre

According to the studies led by the Economist Intelligence Unit published on 03/04/2016, China is leading the growth of the sector by far. Despite the lowest growth rate since 2000, the sales in distribution should be increasing by 10.5% this year, far away from Indi (6%), Malaysia (5.7%), and Indonesia (5.5%).

Rise of the Chinese middle class !

The exponential growth of China should enable him to take the first place of the distribution market in a few thanks to the development of the middle class. The government wants to support this growth and wanted to at least double the GDP and the revenue per inhabitants by 2020. According to PwC, Chinese households from middle and upper classes, with revenues over than 15,000 dollars per year would represent by 2016 41% of the domestic population, against 11% in 2011.

The Chinese government doesn’t want to focus only on primary or secondary cities anymore but also stimulate the development of the third and fourth ranked cities regarding the unexploited potential of those markets.

 

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The Boston Consulting Group was doing the same analysis, estimating that the amount of Chinese upper class would do more than double by 2020; and ensure 75% of the growth from luxury goods in China. According to the consulting group, the well-off Chinese are subject to a high social pressure to assert their status, and desire to be trendy. They develop luxurious taste that is more and more sophisticated in order to difference themselves. The category of products would beneficiate of this explosion are the luxury, clothing, automobile and cosmetic industries.

On the last segment, France was especially present. From 2010, L’Oréal was taking over the 2nd place of the cosmetic market, just behind the American leader Procter & Gamble. Driven by this success, ,the brand doesn’t plan to stop there and in order to satisfy the demand, aims  the opening of a new factory in the continent “every two or three years”. In the meantime, the group has already opened in January its first research center in India, with the stated goal of stimulating the innovation for local consumers and adapts the offer to the Chinese market.

Success China

Explosion of online consumption

Nevertheless the fashion and clothing industry would drive the distribution growth (+5.1% expected in 2016). The Inditex group, which holds 8 different clothing brands (including Zara & Bershka) is clearly taking advantage of this situation: on the 482 shops opened in 2012 for Zara, 121 have been opened in China. The brand has also been launched online in China with an online shopping platform, decided to gain more market shares online.

Asia is supposed to get the upper hand on the online sales (business to consumer – “B2C”) across the world with a part of 41.4%. China would dominate the market with nearly the half of the Asian market: 23.4% in 2016 against 9.9% in 2013. The country has now the most users of internet worldwide: they were 457 million in 2010, so more than the US and Japan combined. As a result, the Chinese are the most regular: 39% of them who are buying online do it several times a week, against 7% in France for instance according to the studies led by PwC.

Tmall-for-iPhone-app

This development can be explained by the high speed internet, the use of smartphone and tablet, but also the improvement of online payment and logistic infrastructures that are putting in relation corporate and consumer.

e-Commerce in China : a smart move ?

The manufacturers have on their side a very different market. Nestlé, who has realized 43% of its turnover in developing countries, has been pushed to rethink its strategy in China: because of the local competition, the company had to shut down three manufactures of ice and step back from the retail in Shanghai to reposition in more lucrative markets.

Beyond the local competition, the actors of the sector have to deal with the inflation and high interest rates that could paradoxically contribute to their development. Indeed, a high inflation with the increase of costs motivates the consumers to look for a good quality price ratio. In this situation, the distributors would gain even more market shares.

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