10 March 2016 Consumer Demand and Retail in …s... · PwC 10 March 2016 Online retailing: Asian markets, especially China, are driving growth in e-commerce globally Consumer Demand

www.pwc.com 10 March 2016

Consumer Demand and Retail in China

10 March 2016

Increased Urbanisation

anti-corruption campaign

New two-child policy

Medium-high Economic

Growth 6.5%

Boosting domestic

consumption

Intervene less in price

formation

Increase investment in innovation and entrepreneurship

The Chinese economy has entered a stage of adjustment

Consumer Demand and Retail in China • Perspectives for Italian Companies

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China 13.5 plan: 2016-2020

https://www.youtube.com/watch?v=LhLrHCKMqyM

PwC

10 March 2016

35%

40%

61%

Western China

Central China

Eastern China

Urbanization Rate by Region, 2015

China’s urbanization is expected to reach ~ 60% by 2020


3

Source: National Bureau of Statistica, PwC Analysis

35 39 43 47 51 55

82

65 61 57 53 49 45

18

1999 2002 2005 2008 2011 2014 2020

China's urban population

Rural

Urban

1,258 1,285 1,308 1,328 1,347 1,413 1,3687

%

PwC

10 March 2016

Revitalization of North East

Region

Changjiang Mid-Stream

City Economic Belt

South-West Region

Development

Pearl River Della Economic Integration

Changjiang River Delta Economic

Integration

Beijing – Tianjin – Hebei collaborative

Development

Central and Eastern China will grow faster with closer economic integration and infrastructure build – out among the regional clusters

Consumer Demand and Retail in China • Perspectives for Italian Companies 4

China railway covers > 120,000 km with high speed rall accounting for > 19,000 km by end of 2015.

Metro lines > 3000 km with the world’s #1 & #2 longest lines in Beijing and Shanghai.

There are > 200 commercial airports in China. Beijing, Shanghai and Guangzhou are among the world’s top 20 busiest airports.

In 2015, China has 78 (62%) of the world’s 125 tallest buildings (>300m) and > 800 skyscrapers (>152 ) (vs. US 533).

By 2022, China will have 1318 skyscrapers, or one new skyscraper being completed every week.

Fujian-Taiwan Economic

integration via Fujian FTZ

PwC

10 March 2016

China has over 600m+ mobile internet users and 73% of all internet users describe it as their primary source for accessing the web

Consumer Demand and Retail in China • Perspectives for Italian Companies 5

… and Digital – especially social – has a bigger impact on Chinese consumers than any other nation in the world Alibaba’s purchase of a US$586 million stake in Sina Weibo, a Chinese Twitter-like service, has highlighted the value that social media could hold for online retailers.

of Chinese consumers trust brands who have a microblog

of Chinese social media users have friended or followed brands

of Chinese consumers write reviews about the product they buy online

Chinese consumers are highly engaged via mobile and digital media, presenting new opportunities • E – Commerce • Imports of foreign brands • Strong brand loyalty • Near time “ voice of the

customer ” • Social listening as a tool to

innovate

95%

68%

87%

PwC

10 March 2016

Online retailing: Asian markets, especially China, are driving growth in e-commerce globally


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• The E-commerce Market and E-commerce sales % of total retail sales in 2015 in China already outweighed the levels in US and Europe and is targeted to reach $1T by 2020.

• E-commerce sales represent 12% of

total retail sales in China (14% in UK and only 7% in US), but are growing at a tremendous pace (only1.5% in 2011).

• In 2015 Alibaba sales on the Singles' Day totalled USD 14.3bn, more than Black Friday and Cyber Monday aggregate sales in the US

$672

China

$349

US

$185

EU

Source: Emarketer

E-commerce Market size in 2015, in Billion

Source: Center for retail research, Emarketer

7.1%

7.1%

8.4%

9.3%

9.8%

10.4%

10.7%

12.0%

14.4%

US

Western Europe average

Germany

Denmark

South Korea

Finland

Norway

China

UK

Retail E-commerce sales as a % of total retail sales in 2015

PwC

10 March 2016

Change in consumer habits will lead to the growth of retail market in clothing, foot ware, leisure segments


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Source: Economist Intelligence Unit

50,918 58,054

64,368 71,248

79,542 88,218

96,981 105,828

2011 2012 2013 2014 2015 2016 2017 2018

Clothing market demand in China

(nominal US$ Million)

• Chinese consumers expenditure on food and beverages is estimated to reach $1.73trn in 2018 (vs 1.05 in 2013), with a decline from 30.7% to 28.5% of total expenditure, balanced by an increase trend in leisure, education, clothing and HC.

• The Clothing market is expected to grow tremendously from $80Bil in 2015 to $105Bil in 2018 (10% CAGR).

• Fast fashion houses are expanding aggressively across China with average expenditure on clothing set to rise by almost 10% per year

+10% CAGR in 2015-18

PwC

10 March 2016

Growing No. of middle class in China will bring solid growth for the potential customers of affordable luxury


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Source: Economist Intelligence Unit

1,951 2,764

3,655 4,694

6,047

7,715

9,555

11,609

2011 2012 2013 2014 2015 2016 2017 2018

Number of household's ('000s) earning over US$50,000 in China

• Chinese customers show an insatiable appetite for quick and trendy brands and fast fashion retailers are trying to "ride the wave" positioning between mid-market and low-end affordable luxury.

• Luxury brands need to work on online channel, improving store experience and quality of service, target female customers (now representing 50% of total luxury customers)

• The number of household's earnings over $50k in China is expected to double from 6000 in 2015 to over 11,000 in 2018.

+24% CAGR in 2015-18

PwC

10 March 2016

Chinese companies and consumers are going global, whilst the market is turning to 2 tier/3 tier cities


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• According to World Luxury Association (WLA). Chinese rank #1 for overseas luxury goods and services and 3 in overall consumption.

#1

29%

88 cities

82M

• Chinese luxury purchases exceed 29% of the global luxury markets in 2014

• In China there are more than 88 cities with the population over 5 million

• By 2020, the urban population in China is expected to be 82 million

PwC

10 March 2016

Top Cities in Great China


10

Shanghai

Beijing

HongKong

PwC

10 March 2016

Chinese Cities of Opportunites are not limited to BJ, SH and HK


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Shenzhen

Guangzhou

Nanjing Wuhan

Hangzhou

Chengdu

Xi’an Tianjin

Xiamen

Qingdao

Dalian

Shenyang

Chongqing

Fuzhou

Zhengzhou

Urumqi Changchun Harbin

Nanning

Lanzhou

CityPopulation

(in million)

Shenzhen 11

Guangzhou 13

Chengdu 14

Tianjin 15

Chongqing 30

Harbin 11

PwC

10 March 2016

Chinese Cities of Opportunity 2015


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CityPopulation

(in million)Score

Transportation

and urban planning

Culture

and lifestyle

Economic

clout

Ease of doing

businessCost

Shenzhen 11 417 81 51 112 141 32

Guangzhou 13 395 83 55 100 124 33

Nanjing 8 388 80 46 76 102 84

Wuhan 10 388 80 46 89 103 70

Hangzhou 6 348 61 44 82 122 39

Chengdu 14 327 69 26 75 103 54

Xi'an 8 370 84 45 76 102 63

Tianjin 15 346 61 14 90 117 64

Xiamen 4 315 70 45 46 109 45

Qingdao 9 337 52 43 46 117 79

Dalian 7 347 76 45 71 89 66

Shenyang 8 350 92 43 59 69 87

Chongqing 30 284 58 20 50 81 75

Fuzhou 7 280 48 44 36 88 64

Zhengzhou 9 302 47 44 40 104 67

Urumqi 3 323 66 34 58 79 86

Changchun 7 289 49 48 49 62 81

Harbin 11 268 36 55 48 65 64

Nanning 7 253 46 46 28 69 64

Lanzhou 4 280 57 52 46 68 57

Source: Chinese cities of opportunity 2015, PwC, CDRF

PwC

10 March 2016 Consumer Demand and Retail in China • Perspectives for Italian Companies

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To adapt to the“ new normal” era in China, MNCs are actively engaging in multiple strategic options

Focusing on Efficiency and Productivity Improvement

Transforming Business and Value Chain Collaborating with Chinese Partners

Expanding into New Lower Tier Markets

With top tier markets in slower growth, MNCs are actively expanding into the mid-market and new geographic markets in China with higher growth upsides and to tap lower cost land and labor, though they need to re - think their go - to market approach

Get real efficiency and productivity out of China operations, rethink footprint, lean out operations, develop truly local supply base, etc.

While China is still an important market in its own right, it is no longer the lowest cost producer in many areas. So some MNCs are restructuring their value chain and supply chain footprint regionally/globally to re-gain their competitiveness

As Chinese companies have built up their capabilities and gained access to more local resources, some MNCs are collaborating more with Chinese partners to close their own capability and resource gaps. In particular, 60% CEOs surveyed by PwC in 2015 are considering JV and partnership

PwC

10 March 2016 Consumer Demand and Retail in China • Perspectives for Italian Companies

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… and Chinese companies are also adapting to changes due to the “ new normal”

Focusing on Efficiency and Productivity Improvement

New Capabilities to Compete in China Accessing Regional and Global Markets

Collaborations with MNCs

Get real efficiency and productivity out of their operations, rethink footprint, transform supply chain, upgrade management systems and capabilities, ect.

Chinese players need to rethink their traditional basis for competing in light of rising costs, changing customer needs and market changes, entailing the need to develop new sets of capabilities, be it innovation, brand, e-channel, or others

Given over – capacity in most sectors and encouraged and supported by national strategies to go global, leading local Chinese players are actively investing overseas to expand market access and gain new global capabilities by M&A or JV

Opportunities to collaborate with MNCs, e.g., jointly pursue “good enough” opportunities in 2° tier markets both in China and globally

Documents

10 March 2016 Consumer Demand and Retail in …s... · PwC 10 March 2016 Online retailing: Asian markets, especially China, are driving growth in e-commerce globally Consumer Demand