By  on February 19, 2008

In the quest for China's retail dollars, the "only-child" generation has emerged as the one to watch — and woo.

Wen Ya is an adorable 23-year-old, petite and bubbly, with pink-framed glasses and a cropped bob haircut. Her nails were painted glossy black with sparkly silver tips — a sleekly modified French manicure — and she beamed broadly as she rattled off the foreign celebrities she idolizes, such as Victoria Beckham and Avril Lavigne.

Her eyes also lit up at the mention of Louis Vuitton. "Oh, I just love LV," she gushed. "Everyone does."

For now, it's only longing: Though she's made a few exploratory visits to the brand's Beijing flagship, her $250 to $400 monthly budget for fashion items — earned from her job in the operations department of a European car company — has prevented her from becoming a customer. "It's such a lovely store," she said, somewhat wistfully. "I hope I'll be able to afford to shop somewhere that nice very soon."

And so, presumably, does Louis Vuitton — not to mention a lot of other brands who are vying for a slice of Wen's salary. She's typical of what is quickly becoming China's key consumer demographic — urban, educated, ages 16 to 30, whose rising levels of disposable income and readiness to embrace fashion trends have moved them to the forefront of China's growing retail market.

"This is the generation that is really spending the bulk of the money in China," observed Allison Luong, managing director of market research consulting firm Pearl Research, which conducted a study on this demographic that was released last fall. "It's the first generation that has disposable income, that has grown up in booming economic times, and that are open to spending money on themselves. It's really the first true consumer class in China."

For most brands, connecting with this group is an important long-term proposition: In less than 10 years, when China is projected to grow to the world's largest retail economy, this generation will have risen to hold the majority of the salaries — and the spending power.

"As the years go by, this group is only going to be accumulating more wealth," Luong noted. "If companies really want to grow with this consumer generation, they've got to begin learning about them now."To start understanding China's youth consumers, it's important to recognize who they're not: their parents. Older Chinese who grew up in the Fifties and Sixties were firsthand witnesses to Mao Zedong's strict communist initiatives, when economic hardship and little outside influence were the norm.

In comparison, those born since the late Seventies have only known China's increasing economic growth and probably have only hazy memories of controversial political events such as 1989's Tiananmen Square. Instead, their worlds have revolved around Japanese fashion magazines, Korean pop music, Hollywood films and TV shows and an influx of foreign brands like Louis Vuitton, which was among the first luxury labels in China when it opened its first Mainland store in 1992.

This group also is the product of China's famous one-child policy, introduced in 1979: As only children, they've been showered with attention, educational opportunities and lavish gifts by parents and grandparents. It's created an increasingly competitive society — where there's plenty of pressure to do well and look good — as well as a propensity for self-indulgent spending, which has left these only children with the nickname of "little emperors and empresses" and, more recently, the "Me Generation."

"The spending power of this group is just huge," confirmed retail consultant Nicole Chen. "They aren't worried about saving money. They spend what they earn — and then some, because they'll get more money from their parents."

Chen has witnessed the consumption patterns firsthand as a partner in the innovative Shanghai streetwear store The Source, a 10,000-square-foot concept store where mainstream brands like Nike and Adidas mix with edgy boutique brands such as Volcom. One of the store's bestsellers is Ksubi jeans, which cost about $350 to $400 a pair and "just fly off the shelves," Chen reported. "These shoppers have no problem spending that kind of money if it's something they really want."

But it's important to note that, while spending patterns are strong, income levels still don't nearly rival those of their Western counterparts. The starting salary for a typical Chinese university graduate generally begins at $250 a month ($3,000 a year), while someone closer to age 30 might make about $700 a month ($8,400 annually). In the Pearl Research study, the most affluent respondents — those with master's degrees who worked for major multinational firms — earned about $1,300 a month, or $15,600 a year."It's important for companies to understand that incomes [of Chinese youth] are relatively low compared to those in the West," Luong said. "But there's a big 'but' to this statement, and that is many Chinese live at home until they get married and don't have to worry about things like rent. So even though their incomes are low, their expenditures are relatively low, as well."

Still, limited budgets mean Chinese consumers tend to be much more finicky about their purchases. "In the U.S., oftentimes someone will buy five or 10 items a month and it doesn't make a huge dent in income," Luong said. "But because Chinese incomes are lower, when they do spend their money, they're very particular about the labels that they buy."

Shoppers are much more likely to pay significantly more for items that contribute to "external appearance" than those for "internal consumption" at home, she noted.

Brands that have already managed to connect with this consumer group seem to be reaping the benefits. Pearl Research compiled a "hot list" of respondents' self-named favorite labels, which includes fashion and beauty brands such as Nike. The company has reported more than 50 percent annual growth in China and expects to have $1 billion in sales this year, along with Louis Vuitton, Adidas, Gucci, Hugo Boss, Chanel, Ralph Lauren and Shiseido. Though many customers are still aspiring to these brands, they covet them so much that they'll often save for months to make one purchase.

William Wang, a 21-year-old university business student in Beijing, is a prime example. While he said he normally spends less than $130 monthly on fashion purchases, he recently splurged on a $550 Salvatore Ferragamo messenger bag.

"I wanted to buy a nice bag, so I went around to all the stores, like Louis Vuitton and Zegna," said Wang, whose parents helped fund the purchase. "I thought the Ferragamo one suited me the best. It might not be as well-known a brand, but that's OK. In a way, it makes it more special."

Because taxes on imported luxury goods remain prohibitively high in China, most Chinese youth are savvy enough to skip Mainland retailers and instead buy items abroad or online, where prices are significantly cheaper."Shopping online is a great place for bargains," confirmed 27-year-old, Beijing-based fashion editor Fiona Zhang, showing off a pair of $20 pants she bought online at and had paired that day with a $270 3.1 Phillip Lim sweater, a $70 Zara cardigan and $130 boots from U.K. retailer House of Fraser. "Web shopping is incredibly popular, especially for getting brands you can't buy in China or that cost so much more here than abroad." (For more on Internet shopping, see sidebar, "The Taobao Phenomenon.")

Many young shoppers were quick to stress that, no matter where they're buying, they're not buying fakes. Despite the prevalence of counterfeits in China, highly visible fake goods are being eschewed by a small but growing contingent of youth consumers. "China has a reputation for being a haven for counterfeit goods, and that's still generally true — many of these youth purchase counterfeit items because they can't afford the real ones," Luong said. "But there's also a number of who say, 'We don't buy fake [fashion items], because everyone would know and that defeats the purpose of it.' One respondent [in our survey] told us, 'It's better to buy a real one, even if that means I have to eat in cheap restaurants for a month.'"

Bai Yunwen, a 26-year-old outreach campaigner for Greenpeace, agreed: "No one wants to be caught carrying a fake. It's just too embarrassing."

That said, most shoppers make a clear distinction between truly counterfeit items — a huge taboo — and the acceptable "made for export" items that were manufactured by foreign brands in China and often become available in local neighborhood shops at a fraction of the cost of a name-brand store.

Tang Yun, 29, an advertising sales manager for a magazine, believes her Miss Sixty black puffy jacket — purchased for $65 at a small store in the city of Chengdu — to be absolutely authentic, even though it's not from a licensed Miss Sixty retailer. (When she actually spends in a legitimate luxury store, it's mainly limited to a few special items, like her new pair of Prada sunglasses, which cost $550.)

"I don't like to buy fakes because I'm worried someone will know and that looks bad," Tang said.Never? "Well, I did just buy a high-quality fake Celine bag," she admitted. "I loved it so much, I couldn't resist. I can't afford the real version, but I'm pretty sure no one will be able to tell the difference."

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