This column originally appeared in Bloomberg BusinessWeek
China's retail sales growth slowed to 13.8 percent in May, down from the 16 percent to 18 percent annual growth analysts have grown accustomed to. Many analysts are panicking, saying the data indicate the end of the Chinese consumption story.
These fears are overblown. Consumer spending is still recording strong growth in many sectors. In May, BMW's sales in China grew 31.5 percent, while Audi's grew 44.2 percent year over year. Chinese box office receipts, which often don't get included in retail sales figures, will grow 35 percent this year, to more than $4 billion, according to an estimate by my firm, China Market Research Group.
Still, there's no question the Chinese economy is feeling the impact of the European debt crisis and America's sluggish recovery. As China's rate of growth slows and companies face more competition, brand managers need to rid themselves of common myths about Chinese consumption.
Myth No. 1: Chinese Consumers Do Not Spend on Their Homes
Tom Doctoroff, chief executive officer of J. Walter Thompson Shanghai, argues that Chinese consumers are not willing to spend more than the minimum on items inside their homes. Concerned with the projection of outward status, Doctoroff believes Chinese won't spring for foreign appliance brands if they can't show them off to others and will instead opt for cheaper, good-enough domestic brands such as Haier or Gree.
Doctoroff's conclusions, however, don't match the results of 500 interviews China Market Research Group conducted with people whose net worths are over $500,000. We found that 90 percent of well-off respondents preferred big-ticket item household appliances from foreign brands such as Samsung (OTC:SSNLF) and Siemens (SI). In fact, most of them bought only foreign-brand appliances, explaining they felt the non-Chinese names had better functions and underlying technology.
What's more, as we broke down home spending room by room, one of the key areas female consumers focused on-and where spending was growing fastest-was the bedroom. They particularly were interested in high-quality sheets and mattresses. These are items that have nothing to do with showing off to friends, most of whom would likely never see the inside of their bedrooms. These purchases are all about consumers pampering themselves. One 28-year-old Shanghai woman told me why she spends so much on linens: "I work hard and want to feel like a princess at home."
While it is true that "showing you've arrived" is often an important driver in spending patterns, companies should not be so fixated on this concept that they ignore an important shift that is going on: Consumers are increasingly willing to spend extra to indulge themselves.
Myth No. 2: Chinese Consumers Are Obsessed With Bling
Of course, Chinese consumers often do want to project status. The ultrarich, however, are getting more subtle and less flashy at the upper end of the consumption scale. In interviews with three dozen ultrawealthy Chinese worth more than $10 million, the majority said they no longer want Louis Vuitton items because they are "too common" and "too flashy." Truly wealthy Chinese are tired of logo-filled "bling" and are veering toward less immediately identifiable brands, such as Bottega Veneta, whose subtle design cues (woven leather, not checkered logos) send signals not to the whole wide world but to a smaller, select group of people who are in the know.
Myth No. 3: Chinese Consumers Do Not Value Experiences
Many marketers claim that the Chinese prefer accumulating possessions to having special experiences. This situation is changing fast. Wealthy Chinese are hungry for new things to do and are seeking out lifestyles built around those experiences. As one multimillionaire told us: "After a certain point people run out of things to do-you can only do so many banquets, golf outings, and shopping trips to Europe before you want something more."
For many this includes adventure-flying your own plane, fly-fishing in remote corners of the world, deluxe safaris. The outdoors is a big focus of activities, as evidenced by the popularity of such brands as North Face, Columbia, and Jeep. Clubs that revolve around certain activities are taking off. The Harley-Davidson Bikers Club, otherwise known as H.O.G. (Harley Owners Group), currently has six chapters across China. As H.O.G.'s website very rightly states, "Harley-Davidson sells a lifestyle instead of motorcycles." Here again, the point is not quite about flaunting status but about the beauty of the ride and the feeling of freedom it offers. And with large-engine motorcycles banned within most city limits in China, most Harley owners don't ever really get to show off their chopper to people around town. What they do get to do is ride free in the country and enjoy the camaraderie of other owners. The Chinese have also learned to embrace vacations abroad and become connoisseurs of the"lifestyle experience," whether this is in fine wine or hard-core motorcycle trips. Retail sales may be below the high levels of recent years, but spending is still going strong.