Mark Bowling, Chief Strategy Officer, PHD China
While perhaps not the new religion in China, consumerism is certainly gaining many millions of devoted followers with plenty of disposable income to spend. And coupled with a lack of payment friction, the sky’s the limit for businesses prepared to think big.
Brands the world over are striving for a state of retail nirvana. Some call it omnichannel, others ‘new retail’ or even ‘boundaryless retail’. One thing is clear, however – China is closer to this nirvana than any other market. And the reasons why are very hard to imitate.
A key difference is, of course, the size of the market, which, coupled with a rapid rate of adoption, creates a scale that’s hard to fathom. In 2018, Alibaba’s Singles Day festival generated $30bn of sales in just one day.
According to Alibaba, years of supercharged growth in the Chinese economy has created a new middle class with demands for premium goods and services. Data from McKinsey & Co shows that by 2020, more than three-quarters of China’s urban consumers will earn ¥60,000 to ¥229,000 ($9,000 to $34,000) a year. That translates into nearly 400 million people who are considered middle class by the consultancy’s metrics.
As many Chinese millennials live with their parents, there is also a lot of disposable income.
PHD China’s chief strategy officer Mark Bowling says this level of disposable income, while mainly true of first-tier city types, is a huge draw for brands.
“Disposable income is a huge percentage of take-home payment. As an estimate, in 1983 the average household saw about 97% of its income spent on basics and necessities (rent, utilities, food, clothing, etc). Now it’s something like 13%. It’s phenomenally different for the 30-year-old working city adults. That’s not to say people are rich – GDP per capita is so much lower than in other countries – but the ability to spend means everyone eats out all the time.”
This fluidity in spending is also matched with a frictionless payment infrastructure, with China light years ahead in mobile payments through WeChat’s mobile wallet in particular. Bowling jokes he has to remind himself to bring his wallet when he travels outside China.
The lack of payment friction is a key factor in China extending its omnichannel lead. With easy payment solutions in everyone’s pockets, offline experiences can be reimagined. Starbuck’s Roastery store in Shanghai is entirely based on a system of ordering and seamlessly picking up, using technology to remove customer stress. The net result is that experience design takes over, with special stations provided for alcohol, tea, AR experiences and more.
The equality of convenience between online and offline is key to this trend, says PHD’s Bowling. “I can order something on my phone and it can be delivered to my house in 45 minutes for $1. That’s convenient. So what is convenience for a physical location? The only thing, really, is location. Is it near me or near where I’m going to be?
“So the Hemas and the JD.com pop-up shops can only be as successful as the neighbourhood they’re in, or as great as the desire of the population to use them.”
This feature was authored by Charlotte McEleny and first appeared in the February issue of The Drum which focuses on the opportunities and challenges to be found in China.
