One of the biggest causes for change in China’s retail environment is the emergence of a new consumer class, the Chinese version of the baby boomer. Chinese born after 1978 have very different shopping and spending patterns than their parents and grandparents, who felt the effects of the Cultural Revolution first hand. In contrast, the baby boomers have grown up in a period of economic prosperity that has caused them to be much more optimistic about their futures and this impacts the way in which they shop.
This younger demographic is much more brand savvy and active in researching products than older generations. Internet discussions on blog and BBS forums on portals like Sohue (NASDAQ:SOHU) and Sina (NASDAQ:SINA) plays a large part in their brand awareness and their ability to discuss products. Indeed, Chinese youth are the most prolific internet users in the world averaging 17.9 hours a week surfing the web. There are approximately 162 million internet users in China with growth rates at approximately 20% a year.
Chinese youth spend far more time on the internet than their counterparts in other countries and much of this time is spent on internet bulletin boards and blogs discussing products, brands, marketing, and what they want out of the shopping experience.
Now that Chinese consumers are more aware of brands like Tiffany’s (NYSE:TIF) or Coach (NYSE:COH) and are more consumer oriented, they are becoming increasingly picky in terms of what they want out of services and shopping environments.
Retail services in China have traditionally been somewhat limited during the State-Run era. Consumers going out to shop for products are accustomed to dealing with poorly trained sales people with little knowledge of the products that they sell and little interest in helping their customers.
However, as Chinese consumers’ incomes increase and they travel to Hong Kong and shopping centers farther abroad in Milan or London, they are demanding a level of service that is comparable to what they can find in other countries.
The last 10 years have been hugely important in terms of developing a consumer class with both the money and desire to buy a broad range of products from beauty products from Estee Lauder (NYSE:EL) and Revlon (NYSE:REV) to high end mobile phones from Motorola (MOT) and Nokia (NYSE:NOK). Now, when Chinese consumers enter a retail environment they also want to interact with staff who can discuss their products intelligently.
We have found that Chinese consumers want to deal with sales people who can talk about various brands and their strengths and weaknesses rather than sales people who are touting a specific brand because they receive commissions on sales of that brand. Best Buy (NYSE:BBY) has been a leader at training good salespeople, according to interviews and surveys we conducted at Best Buy’s flagship store in Shanghai.
Consumers always want to be able to touch products and compare different brands directly rather than being limited to looking at products from behind a counter. The stores that have benefited the most are foreign retailers like Carrefour that have come in and localized based on Chinese needs and preferences, but also adopted a higher level of basic service than what can be found in typical big box retail stores like in Hua Lian.
In addition to demanding better service offerings, Chinese consumers are also calling for shopping environments that better suit their shopping needs. When asked what they preferred in a shopping environment consumers repeatedly made several key points:
First, consumers want adequate space to shop in. One of the reasons that consumers give Carrefour high marks compared to other retailers like Wal-Mart (NYSE:WMT) is that it has comparatively wide aisles and is laid out so that products from Cadbury (NYSE:CSG) to Johnson and Johnson (NYSE:JNJ) are reachable and easily comparable. Many consumers have spent years dealing with cramped aisles and products stacked on top of each other so that they are hard to reach so they appreciate the extra space. Second, consumers want to shop in a comfortable environment. They specifically mention wanting to shop in a space that is well lit and which has music. Third, Carrefour has done well because it has done a good job of mixing both Chinese and ‘western’ elements into its store layout. By combining clearly organized shopping sections, wide aisles, clear lighting, music, but also including a Chinese market style produce, fish, and meat area, Carrefour has provided a shopping environment tailored to its customers needs.
As Chinese consumers mature the retail environment is going to have to continue to change to suit their needs. In China this increasingly means providing consumers with a high level of service that allows them to learn more about the products that they are interested in while offering them a comfortable shopping environment and a large selection of products and brands that they are interested in.
CMR analysts Ben Cavender, Natalie Zhu, Anna Li, and Meredith Sun contributed to this report.