SHANGHAI — In a new book out today, China Market Research Group managing director Shaun Rein hails a new era of innovation and individualism in the world’s most populous country.
This story first appeared in the October 20, 2014 issue of WWD. Subscribe Today.
In “The End of Copycat China,” a follow-up to his 2012 book “The End of Cheap China,” Rein presents numerous case studies of Chinese consumers, entrepreneurs and high-net-worth individuals from all walks of life to illustrate the maturation of the marketplace and the changing motivations that are driving consumption in China today.
“There’s been a major shift in the ways middle-class consumers in China have been spending in the past two years,” Rein said, explaining that foreign brands are often dealing with outmoded ideas regarding their Chinese customers — a problem particularly apparent in the luxury sector.
He points out that, three or four years ago, the bulk of buyers in China seeking out major luxury brands, such as Louis Vuitton and Gucci, were actually middle-class consumers making $1,000 to $2,000 a month. They were saving up to get their hands on a prized handbag to show off to their friends.
Rein says those customers have moved on from buying luxury for the sake of it.
“What we started to see two years ago was that middle-class customers in tier-one cities started to change their shopping habits: They shifted away from luxury and bling and started shifting toward lifestyle purchases,” he explained.
Though this shift coincided with President Xi Jinping’s crackdown on graft and conspicuous consumption, Rein believes that other factors, such as China’s worsening environment, were major contributors to the change.
“A lot of it derived from pollution. Consumers in that middle-class realm started telling us, ‘Who cares if we can afford Louis Vuitton if the water and the air is going to poison us?’ ” Rein added.
Big winners of middle-class yuan, including brands such as The North Face and Michael Kors, have fit nicely into the premium midrange pricing that is in the comfort zone of these consumers, who are now apportioning more of their disposable income to international travel and healthy lifestyle options, such as organic food. These brands have also successfully appealed to the newfound desire among consumers for uniqueness.
“Individualism is sort of the hot trend right now. The genesis of the book was not about innovation, originally. It was about how Chinese didn’t want to copycat other Chinese,” Rein explained, adding that CMR Group has observed the same trends from the midrange to the very highest end of the market.
“In 2007 or 2008, when people bought what everyone else had, Zegna’s tag line was ‘Great minds think alike.’ What we’ve found is that consumers were buying what everyone else had because they were afraid of making mistakes. What we’ve found in the past two years is consumers saying, ‘You know what? I’m confident, I’m comfortable with myself, and I want to be different from others.’ ”
As far as innovation is concerned, Rein argues that successful, homegrown tech companies, such as Alibaba and Tencent, have emboldened Chinese venture capitalists to invest in new, cutting-edge businesses, rather than the “clones” of Western companies that were favored in the past.
“The venture capitalists and private equity guys — three, four, five years ago — were going for easy wins. They wanted to back low-hanging fruit: the copycat of Google in Baidu or the copycat of Amazon in Dong Dong. But because of these wins by innovative tech companies especially, the venture capitalists are now more willing to invest in innovation. I think that, more than anything, is creating this change in the country,” Rein said.