China’s Gen Zers to sway marketing, retail trends as they drive consumption

Posted by Admin May 19, 2024 Bussiness

That perspective reflects how Xu and her fellow Gen Zers – those born between 1997 and 2012, according to think tank Pew Research Centre – are expected to sway how goods are marketed in China, as they soon become a major force driving consumption in the world’s second-largest economy.

Shanghai’s Nanjing Road shopping district on May 1, 2024. Photo: Bloomberg

Gen Zers already represent the fastest-growing population group in the Asia-Pacific, and are projected to account for 21 per cent of the mainland’s total population by 2025, according to a report by KPMG China.

But while their influence and spending potential makes them a major target group for many brands, Gen Zers can also be a hard market to figure out.

“Gen Zers are different,” said Sophie Coulon, co-founder of Shanghai-based digital agency VO2 Asia Pacific, whose clients include several major international brands.

“They’ve been raised in a different environment, meaning they didn’t experience all the hardships of their parents and grandparents. They are digital natives, so they expect things [to be done] super quickly,” Coulon said. “But at the same time, they face some pressure from society. They want to be able to express themselves, so buying clothes is a way to show [their] identity. It’s not just ‘because you own a bag, you are someone’.”

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Still, the spending power of Gen Zers make them irresistible to many brands. In 2023, consumers aged 15 to 24 generated 93 billion yuan (US$12.9 billion), or 22.1 per cent, of China’s 424-billion-yuan beauty market, according to data compiled by consumer research firm Kantar Worldpanel.

The firm found that individuals in this group spent 44 per cent more on beauty products than older counterparts up to age 64.

China’s Gen Zers, especially those from the country’s first-tier cities, have a great influence in shaping consumption by driving trends on social media and across the internet, said Yang Jianwen, a researcher at the Shanghai Academy of Social Sciences.

Among China’s high-net-worth population, Gen Zers will also be the beneficiaries of a massive US$3 trillion in intergenerational wealth transfer in the coming decade, making them a key group for luxury brands to focus on, according to a recent report by PwC.

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Growing up when China’s one-child policy was still enforced, Gen Zers received the utmost care and support from their family, with access to greater disposable income that made them more willing to spend, according to Yang of the Shanghai Academy of Social Sciences.

International brands have taken note, and are consolidating their strategies to win the hearts and minds of these young Chinese consumers.

“As we closed 2023, we actually had up to 60 per cent of our sales coming from millennials and Gen Zers in China, which is really an important proxy for us to assess whether our brand is poised for solid growth in the long term in the country,” said Swarovski chief executive Alexis Nasard in an interview last month with the South China Morning Post.

China makes up about 15 per cent of the Austrian crystal maker’s business, which contributed to the firm’s global retail sales of €1.8 billion (US$1.9 billion) last year. That was up 4 per cent from a year earlier and “well above overall growth” in a challenging market rocked by volatilities, Swarovski said in a statement.

China’s Gen Zers, especially those from the country’s first-tier cities, have a great influence in shaping consumption by driving trends on social media. Photo: Shutterstock

The issue for brands, however, is that Gen Zers’ taste can be fickle or hard to pin down.

Shanghai-based marketing professional Nicole Xu – no relation to Judy Xu from the same city – said she did not personally identify with the “quiet luxury” trend, which is currently all the rage on social media, “because I think it looks boring”.

So Xu, 24, splurged on a Chanel bag with her first pay cheque, saying she was willing to spend “a lot of money for the design and social identity that the brand represents”. She also pointed out that her daily wardrobe contains pieces from mass-market brands like H&M and Zara, which “will [only] stay in my closet for one or two seasons”.

While this population group tend to be less status-conscious and more pragmatic than older consumers, “brands have to have their own irreplaceable differences, as we found Gen Zers are more into brands with lifestyle heritage that offer emotional value, design and product experiences”, said Jason Yu, Kantar’s managing director for Greater China, adding that Gen Z consumers tend to be less status-conscious and more pragmatic than older peers.

People walk pass a Swarovski store at a commercial district in Beijing. Photo: EPA-EFE

“Foreign brands are facing increased pressure of being replaced by the rise of domestic brands with high quality and price ratio in China,” Yu said. As such, brands like Swarovski that have no direct domestic competitor with equivalent offerings maintain a certain dividend in the market, he added.

Nagard, Swarovski’s chief executive, said he found Gen Zers’ tastes to be more nuanced. “Western luxury brands have a cache that is interesting and that is unique, but they are increasingly open to local alternatives, if the local alternatives can give them the value that they expect from the brand or the product,” he said.

Based on the company’s observation, Gen Z consumers are more willing to experiment with bolder pieces than their slightly older millennial counterparts, he added.

Pedestrians walk past a Ralph Lauren store in Hong Kong’s Central district. Photo: Bloomberg

For American fashion brand Ralph Lauren, the company chose to open its first Ralph Coffee store in Beijing’s Sanlitun mall because it “attracts a lot of young, trendy consumers”, said Chua Shin Hwee, regional chief executive for Greater China and Southeast Asia. She indicated that Ralph Lauren often tailors its stores to the demographics of different cities.

“We’re about optimism. We’re about freedom. We’re about entrepreneurialism. We’re about family,” Ralph Lauren president and chief executive Patrice Louvet told the Post last month, adding that he believed those values resonated with young consumers.

China now accounts for 7 per cent of Ralph Lauren’s global business, according to a Reuters report. The overall revenue for Ralph Lauren in Asia grew 16 per cent between the second and third quarters of its current financial year, according to the firm’s earnings call in February.

Ralph Lauren’s strong performance in China could be attributed to the brand’s younger designs and the buzz it was generating on social media, especially on lifestyle platforms like Xiaohongshu, according to Sheila Zheng, senior manager for sustainability strategy and transformation at PwC China.

Zheng, however, cautioned luxury brands from primarily focusing on young mainland consumers. “They are more vulnerable to economic fluctuation,” she said. “When the economy is not very good, their consumption power is lower. As such, she added that luxury brands ought to focus on ultra-wealthy consumers as their core customer group.