As 2024 begins, the hit drama "Blossoms" has taken the spotlight, taking the public's memory back 20 years. Over these two decades, China experienced a golden period of economic rise, with industrialization, urbanization, and informatization overlapping, and labor and traffic dividends continuously emerging. We miss the glory of the past, but today we are facing rare difficulties: international conflicts, economic growth peaking, and fierce competition in a saturated market, with a bleak road ahead... The world today is undergoing tremendous changes and transitions. The global economy is reshuffling, the fourth industrial revolution is underway, and human history is at a crossroads. At this time, innovation and high-quality development have become our new propositions. In the next forty years, China's manufacturing must upgrade from basic processing to high-end manufacturing, and the competitive focus shifts from market involution to technological innovation. The only constant is change itself. Since we cannot change the environment, we must keep striving and adapting. Finding opportunities in this changing landscape is a complex systemic issue and a hurdle many Chinese enterprises urgently need to overcome. Just as in another New Year drama "The Goldfinger," facing rapid changes in capital and consumer markets and the journey ahead, we all need a "golden finger" to grasp consumer psychology, gauge shifts in public willingness to spend, and understand which products and services can transcend cycles.
Chinese Consumption: Downgrade or Upgrade? At the end of 2022, Wang Xiaofei and his ex-wife Da S's family matters dominated Weibo hot searches. What attracted attention was not the event itself, but the heated discussion over a Hästens mattress worth 2 million yuan. At that time, with pandemic lockdowns and declining national consumption, ordinary people worried about livelihoods and mortgages, wondering why a mattress should cost half the price of a house. Not just Hästens, but the term "luxury goods" once stung netizens' sensitive nerves. In 2023, the Chinese consumer market presented the most intuitive price war: "9.9 yuan" spread from coffee to milk tea; high-end snack brand Liangpin Shop significantly cut prices; Pinduoduo, focusing on low prices, briefly surpassed Alibaba in market value... By this year's Double 11, all e-commerce platforms emphasized "low prices": Tmall's Double 11 stressed "lowest price on the entire network," Pinduoduo proposed "Every day is 11.11, every day is truly low price," and JD.com made "low price" a goal at the start of the year. Public consumption behavior also confirmed a "low-key recovery": from "special forces-style" tourism at the beginning of the year, to "Zibo barbecue" and "Citywalk" mid-year, to the rational replacement trend at year-end: "It's not that down jackets are unaffordable, but military coats offer better value." Amid tightening wallets, the public has fostered more affordable lifestyles. So one of the most discussed topics in the past two years has been consumption downgrading. But has luxury consumption completely "died"? Not only has it not, it is thriving. Hästens gained ample brand exposure amid controversy, becoming a choice for more celebrities and wealthy individuals. Of course, not just Hästens; luxury consumption has generally shown an upward trend in recent years: high-end shopping centers have risen, luxury goods have maintained double-digit growth; LVMH Group, SKP, Porsche, and various luxury categories have grown rapidly. The China Gems & Jewelry Association Fund's "2023 International Luxury Market Research Report" noted that in the first half of 2023, Richemont's jewelry segment grew 23%, LVMH's fashion and leather goods, jewelry and watch divisions also performed well, with the latter's revenue exceeding 10 billion euros for the first time. According to data from the Federation of the Swiss Watch Industry, exports of high-end watches priced above 3,000 Swiss francs (24,000 yuan) continued to grow from February to August 2023. So, is Chinese consumption downgrading or upgrading? On one hand, with economic downturn, mass consumption momentum is insufficient; ordinary people, under pressure from mortgages, medical costs, and children's education, are reducing entertainment spending. On the other hand, those without life pressures are also lowering income expectations. This contrast is a microcosm of China's consumption trend changes. It also explains why Hästens mattresses, despite price criticism online, see steady sales growth. For some, previously they invested heavily in businesses and high-end consumption. But now, they no longer buy luxury cars, change houses, or invest in new projects; instead, they use their money to please themselves. So consumption downgrading also varies by group. Ordinary people understand it as not spending or entertaining, tightening belts to pay mortgages; for the wealthy, buying a small luxury item is also a form of downgrading. Economic instability has made consumers cautious, but thanks to the asset attributes of high-end jewelry, watches, and leather goods, these luxury items have gained more favor. Bain & Company's recent "2023 Global Luxury Goods Industry Research Report (Autumn Edition)" also predicts that in 2024, mainland Chinese consumers' luxury purchases will grow 10%, significantly ahead of North America's 3%, Japan's 5%, and Europe's 0% growth. In 2023, a manifestation of the polarization in the consumer market: while everyone fought in the 9.9-yuan price war, some high-end brands grew rapidly and accelerated their layout in the Chinese market. Looking ahead to 2030, Bain predicts Chinese consumers will account for 35-40% of the global personal luxury market, while European and American consumers together will account for 40%. If consumption downgrading truly occurs, how do we explain China's luxury market leading global growth?
"Consumption Downgrade" Is the Tip of the Iceberg The "Lipstick Effect" Brings New Vitality Without debating whether consumption downgrading exists, three main factors drive the rise in high-end goods: 1) the "lipstick effect" in the new era; 2) further segmentation of the consumer market; 3) improved public consumption concepts, making consumption more rational. We call this hidden consumption upgrading. Like an iceberg model, the public sees the "consumption downgrade" phenomenon above the surface but ignores the vitality of the high-end goods market below. Consumers' pursuit of a high-quality life may slow down, but it will not stop. The rise in demands for green, environmentally friendly, and natural consumption is an obvious trend change in recent years. The essence of consumption trend changes is a change in public consumption concepts. From this perspective, the essence of consumption upgrading is concept upgrading. This concept upgrade is not reflected in price; for example, for green and healthy products, there are cost-effective options at all price points, as well as high-end top-tier products. How to choose is more about consumer rationality. If we only focus on price levels, we may trigger price wars and ignore essential needs. So discussing consumption upgrading or downgrading alone is not beneficial for understanding consumption trends. We should understand both the cost-effective products above the surface and the high-quality, high-priced products below. This is a process of consumption segmentation. Historically, Germany and Japan experienced similar phenomena during rapid economic development. Take Japan as an example: after 1990, Japan's economic development stagnated, and consumption showed a "two-end growth, middle shrinkage" phenomenon, which is what we now call consumption polarization. Japan's economic problems at that time affected many middle- and low-income earners, but had limited impact on high-end consumers. At that time, luxury brands (such as Hermès, LV, Chanel) saw nearly linear sales growth during the 1990s economic stagnation, without decline. World Bank reports over the decades on Japan's national income levels show that Japan's low-income groups did not experience significant consumption downgrading despite economic stagnation, almost maintaining their original living standards. This is largely due to the Japanese authorities' aggressive interest rate cuts, sustained monetary easing, and welfare investments. On the other hand, it reminds us that even if economic growth falters, both low- and high-income groups may avoid so-called consumption downgrading. Of course, our situation is definitely not the same as Japan's. Data shows that since the "14th Five-Year Plan," Shanghai residents' per capita disposable income has grown at an average annual rate of 5%, significantly outpacing inflation each year—a good example. We want to emphasize that we should not lose confidence in the consumer market just because cheap goods sell well. Consumption trends are diversifying; cost-effective products have opportunities, and high-quality, high-priced products also have opportunities. In the atmosphere of "bargain hunting at 9.9," those high-quality, high-priced products that emphasize green and health actually have greater room for growth. Because current consumers judge brand reputation and consumption value more by product (service) design, functionality, and cost-effectiveness, rather than simply succumbing to trends or vanity. In other words, rather than saying consumers are unwilling to spend more, it's better to say that by 2024, Chinese consumers have become smarter. The hidden consumption upgrading in China's consumer market will lead to more diverse and segmented mass consumption. Changes in consumption concepts are an external manifestation of China's economic development. Historically, Germany and Japan have undergone similar evolutions; it's a process. After decades of market economy baptism, China's consumer market has become more diverse. The implementation of various consumption support policies provides consumers with more channels and guarantees for purchasing high-end goods. For example, the establishment of the "Hainan Free Trade Port" with phased implementation of zero tariffs, low tax rates, and simplified tax systems will allow goods previously only available in certain overseas markets at low or zero tax rates to be available in Hainan, which is expected to become a new luxury consumption center. It is certain that as consumption concepts become more rational, consumers need cost-effective products and also quality products. But in the current consumption involution, merchants are severely caught in price wars, and many consumer goods tracks have low entry barriers and severe homogenization, which actually leaves room for high-quality, high-end products to rise in the future.
New Opportunities in Rational Consumption: The Scarcer, the More Valuable Around increasingly rational consumers, 2024 is a window period for us. China's consumer market will become more diverse and segmented. We know that the core of Chinese-style modernization and high-quality development is creating increments. Of course, increments are divided into two types: "hard increments" such as new energy, new infrastructure, and new intelligent manufacturing, and "soft increments" represented by consumer services. The interaction of the two is the core of China's future economic development. But for a long time, soft increments have been overlooked. While hard increments attract attention, they are extremely difficult. Currently, with China's involution and internal circulation, new consumption as a "soft increment" will become a new lever to traverse economic cycles. It is certain that in the context of tightening belts, cost-effective e-commerce platforms like Pinduoduo, Taote, and SHEIN will become increasingly popular, and China will also give birth to more "Uniqlo" and "Muji" stores. On the other hand, the consumption focus is shifting from goods to services. High-quality life elements such as clothing, food, housing, transportation, education, healthcare, cultural tourism, and health are gradually highlighting huge dividends. Fields like big health, cultural tourism, sports and leisure, beauty economy, and silver economy contain numerous opportunities. In the future, mass products will lean more toward cost-effectiveness, while niche high-end demands will align with the following trends: 1. ESG + health needs; 2. Personal experience pursuits; 3. Spiritual pursuits such as identity and aesthetics. Therefore, consumption segmentation expands the market for more high-quality, high-priced products. This is what we should pay more attention to. The unity of life, living, and business will make consumption more diverse and colorful, creating more value. In this context, what is scarce will become even scarcer. What is scarce? First, green and health. When "survival" is no longer our basic goal, people will pursue "living well." Human ecological resources are limited. As the global ecological environment deteriorates, better sunshine, air, water, and soil resources become scarce. Green buildings, green transportation, green diets... The concept of green consumption to protect the environment and reduce pollution is becoming a trend, quietly penetrating all aspects of daily life. Green and pure natural living environments; green transportation, such as new energy vehicles, green transport, and green tourism; green diets, such as consuming pure natural green foods; green living, such as energy conservation, emission reduction, waste sorting, and "trade-in" programs—these are becoming major consumption trends. Some high-quality daily necessities naturally align with these trends. Many high-end handmade furniture, clothing, bags, and accessories are made from pure natural materials and crafted by hand, bringing them closer to green and original ecology. Due to complex craftsmanship and fine materials, such products have higher costs, but labels like "green," "healthy," and "pure natural" representing future high-quality life make people willing to pay more. For example, Hästens beds use only natural horsehair, and the wooden frames are made from carefully selected sturdy pine from northern Swedish forests, all handcrafted. This material use is not only comfortable and harmless to the body, but the naturally degradable materials also align with environmental trends. Second, satisfying personal experiences. Life is an experience, and the value of experience surpasses many things. Experience is also a scarce resource. Great products are, without exception, "luxury goods": Tesla's first pure electric car sold for $400,000, and Virgin Galactic's space tourism tickets cost $250,000 per person. Luxury goods are the same: a high-end minute repeater watch is priceless, but it represents the pinnacle of human mechanical timekeeping technology. The Hästens mattress we mentioned earlier, as the ceiling of global high-end bedding, also represents a high-dimensional life experience. Behind sky-high consumption is humanity's longing for the future. And helping others complete experiences, people are willing to pay more for it. Maslow's hierarchy of needs mentions that when basic physiological needs are met, people pursue spiritual needs like respect and self-actualization. On one hand, people use consumer goods to reflect "identity" and "face"; on the other hand, societal diversification makes individuals more personalized, forming unique aesthetics. Spiritual pursuits such as identity, aesthetics, culture, and freedom are also scarce resources. For example, on Pinduoduo, a mattress for tens of yuan can meet sleep needs, but for those seeking handcrafted, slow-production, nearly 200-year-old Swedish royal-grade bedding, they need to choose Hästens. Additionally, Hästens is a model of inward luxury. Unlike most luxury goods that label themselves through products and brands to display a certain luxurious image, they prefer to "seek inward," valuing the inner luxury beneath a low-key exterior, and more importantly, pleasing oneself, putting the consumer's own feelings first. So, the mattress we seem to ignore has many intricacies. The spiritual attributes of identity, aesthetics, and culture on products make them scarce, and the scarcer they are, the more popular they become. In the future, scarce things will become even scarcer, and more people will choose to spend on spiritual pursuits like identity, aesthetics, and individuality. This is reasonable and a major trend in future consumption. Business itself is the greatest charity. For products to sell, they must first satisfy consumers' desires. Consumers' purchasing desires are self-generated. Merchants satisfying buyers' needs is providing freedom to consumers, and throughout the process, entrepreneurs' business activities make society freer. So when we produce and sell products, we are not just producing or selling products; we are selling props for customers' lives. Customers use the products they buy to tell themselves a story. Merchants are providers of high-quality lives for users.
Conclusion Uncertain future expectations have intensified the segmentation of China's consumer market. Consumers will need cost-effective products in the future, but even more, they need good products. Behind China's segmented consumption phenomenon are people's different spiritual and value pursuits, but a better, healthier lifestyle is a goal all consumers want to chase. This also serves as a reminder to the business world: China's consumer market needs diversification. Blindly pursuing price wars is a dead end. Only products and services that align with consumption trends and meet diverse market needs can gain a share in the new consumer market.
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