What Will the New Normal Be in a Post-Zero Covid China? Five Trends that Will Shape China Retail in 2023
As a firm with several hundred of employees on the ground across multiple cities and provinces in China, WPIC has its fingers on the pulse of what’s going on in the market.
Not only do we run e-commerce stores, advertising programs, and logistics operations for hundreds of brands in China, but our data science team is constantly monitoring signals across search, social, and purchasing behavior to help organizations understand what’s going on in the market and how best to react and invest, accordingly.
As we close out 2022, our teams have come together (as they do each year) to identify the emerging trends that we expect to define the China retail and consumer landscape in 2023.
1. Consumption Increases as China Abandons Covid Zero
Consumption in China has been resilient during the pandemic—as an example, the Singles’ Day shopping festival in 2022, which took place amid lockdowns in several major cities, posted an impressive 13.7% year-on-year growth rate.
International brands have continued to thrive. Take Lululemon, for example, whose revenue grew 30% year-on-year in 2022, and 70% across the past three years.
That resilience has been seen despite China not extending direct financial support to individuals or businesses affected by Covid restrictions, which happened in other markets like the United States and Canada.
This demonstrates the strong fundamentals of China’s consumption market. According to the National Bureau of Statistics, China’s disposable income per capita rose by 5.3% in the first three quarters of 2022, while urban unemployment and inflation remained steadily low.
Nevertheless, it is true that millions of people employed in the hospitality and service sectors have lost income due to limits on domestic travel, quarantine requirements, and business-closure orders. The uncertainty associated with persistent lockdowns also created business disruptions and dampened investment.
As we kick off 2023, China has dismantled its Covid restrictions, which significantly improves China’s economic outlook for the year.
But even as restrictions evaporate in 2023, e-commerce will continue to grow, because permanent new, more customer-friendly shopping habits and sales tactics have been developed. That bodes well for consumer brands engaged in the market.
In addition, our analysts also think it’s possible that the government will take additional steps to stimulate economic activity even further in the next few months, which would boost consumption beyond the organic growth that will be seen due to lockdowns lifting.
For firms who have been hesitant about investing in China due to the persistence of Covid restrictions, now is the time to move. As the economy picks up steam, expect ad prices to increase—now is the time to make a splash, capitalizing on favorable customer acquisition costs and the pending surge in demand.
2. More and More Spending Happens on Social Commerce
Last year, when we penned a similar article projecting trends in 2022, we predicted that social commerce platforms like Douyin, Kuaishou, and Xiaohongshu would see significant growth.
While that proved accurate, even we couldn’t have predicted the meteoric growth that some of those platforms have seen this past year.
In short, the numbers are astonishing.
Take Douyin, for example. Between January and June of 2022, Douyin’s gross merchandise value (GMV) in the health and wellness sector was up 457% year-on-year. Athleisure, fashion, and beauty were each up 191%, 160%, and 137%, respectively. On the entire platform, sales volume was up 150%, the number of livestreams were up 198%, and the number of stores were up 114%.
Furthermore, during this year’s 11/11 Singles’ Day festival, GMV on Tmall, JD, and Pinduoduo grew by only 2.9%—but sales on Douyin and Kuaishou grew by 146.1% YoY, which caused total GMV for the event (across all platforms) to hit RMB 1.1 trillion ($157.1 billion USD). This represented the first time that Singles’ Day GMV topped RMB 1 trillion.
The data shows that consumers and brands have been flocking to social commerce and interest-based commerce platforms. That’s a trend that will continue into 2023, so we predict that Douyin and the other social commerce platforms will take up a much larger share of overall e-commerce GMV in 2023.
Chinese consumers have started to embrace new ways of shopping that favour browsing and interaction over targeted product searches. Douyin, Kuaishou, and Xiaohongshu are fundamentally social platforms that attract users for reasons other than to shop. Users are drawn to the apps for entertainment, socializing, and knowledge acquisition.
The commerce functionality built into the platforms in 2021 now allows users to make spontaneous and seamless purchases within the apps. That allows brands to go from capturing existing demand on platforms to generating new demand. That represents a major shift in customer acquisition tactics in the market—a trend we expect to see exported to the rest of the world in the coming years.
The second reason is that these apps have industry-leading interest-recognition algorithms—these apps capture users’ attention because they are constantly displaying content that each user finds interesting.
Douyin, for example, has over 700 million daily active users, on average spending roughly two hours on the app per day. These interest-recognition algorithms make the apps attractive marketing and sales channels for brands because they can efficiently reach target audiences—better than any other app in the market.
In 2023, expect these social commerce platforms to continue their rapid growth in the world of commerce and a major threat to traditional online marketplaces.
3. Healthy Lifestyle Products and Self-Expression Dominate in 2023
China’s individualistic young consumers are increasingly focused on paying for things that enhance their lifestyles: that help them acquire new skills, access new experiences, and become healthier.
Discretionary consumption is less about enhancing their status in the eyes of their friends, and more about living a more fulfilling life.
Any category related to self-expression, health and wellness, and leisure will see huge growth in 2023.
What are those categories?
Start with health and wellness. The pandemic has fueled people’s understanding of how to live healthy. Products that promote healthy living, from exercise equipment to nutraceutical supplements, are seeing major growth.
Another area to watch is sports, fitness, and outdoor, which saw huge GMV growth on the 2022 11/11 Singles’ Day. According to Alibaba, Tmall GMV of surfskate products increased more than 30-fold year-on-year, golf equipment increased more than 11-fold, and cycling gear grew over 450% year-on-year. Additionally, winter sports, niche sports (like frisbee), and camping are booming in popularity in China, as people embrace the outdoors and choose to spend their leisure time being active.
Meanwhile, the pet care sector is growing 20% year-on-year. It is becoming a lifestyle trend for young Chinese people to own dogs and cats—and to splurge on them. That will only continue into 2023.
Finally, we expect to see major revenge spending in the beauty and apparel sectors as the easing of Covid restrictions facilitates more socializing and domestic travel.
One of the buzzwords in Chinese retail in 2022 was “guochao”, translated roughly as “national trend”, which refers to the use of Chinese aesthetics and cultural elements in product design and branding.
Many Chinese brands, such as makeup brand Perfect Diary, have successfully incorporated guochao into their branding—and that’s led some commentators to conflate guochao with nationalism, suggesting Chinese consumers are buying Chinese brands out of patriotism.
That couldn’t be farther from the truth—and expect more international brands to embrace guochao in 2023.
As we’ve argued elsewhere, the guochao trend is primarily about product design and branding aesthetics. It’s not about Chinese consumers nationalistic—or “buying local” out of national pride. In fact, almost none of the homegrown brand success stories even market themselves as Chinese brands. If this trend was really about nationalism, we’d expect more marketing managers to lean into nationalist messaging, since many of these brands have no overseas revenue exposure where that messaging might backfire.
The reality is that even as Chinese consumers increasingly embrace local aesthetics, foreign brands still enjoy a reputational advantage in sectors where prestige or product quality is a top consideration. That means there is space for foreign brands to tap into guochao.
Savvy foreign brands are already incorporating guochao as they develop China-specific SKUs. Take Canada Goose, for example, which has worked with Chinese designers on developing coats for the Chinese market.
In addition, as WPIC CEO Jacob Cooke has previously stated—the brands who see the most success in China are the ones who leverage data from the market, and then input that data back into their global production cycles to ensure their product mix is resonating even more with consumers in the market.
To that end, expect more foreign brands to leverage guochao in 2023.
5. E-Commerce Becomes an Even More Dominant Mode of Consumption
For the first time ever, anywhere in the world, one country saw online purchases and digital commerce exceed offline, traditional retail – that was China last year.
In 2022, online channels accounted for 51% of all sales in China, with Alibaba’s platforms alone facilitating nearly 20% of all consumption in the country. This represents the first time globally that any country ever saw total online commerce GMV exceed that of brick-and-mortar retail.
Throughout the pandemic, e-commerce has vastly outpaced broader brick-and-mortar consumption. People and brands who hadn’t yet embraced the benefits of digital commerce were forced online; platforms and logistics companies were forced to build out infrastructure to facilitate greater e-commerce penetration.
But even as restrictions ease in 2023, e-commerce will continue to grow, because permanent new, more customer-friendly shopping habits and sales tactics have been developed.
There’s a sense of optimism in China as the government lifts Covid restrictions. That should cause consumption to surge across 2023, benefiting the brands engaged in the market.
And as we’ve outlined, expect an increasing amount of that consumption to take place online via the country’s leading marketplaces and platforms.
Whether your brand chooses to launch via traditional digital commerce channels like Tmall and JD, or chooses to embrace new social commerce platforms like Douyin and Kuaishou, 2023 represents the opportune time for foreign brands to jump into the world’s largest e-commerce market, to realize their ambitions for international growth.
With China’s restrictions on international travel also ending, our China-based staff is looking forward to welcoming our outside colleagues, brand partners, and prospective clients on visits to the market.
If the Chinese market is on your organization’s roadmap, we invite you to get in touch with our team. Visit www.wpic.co or email firstname.lastname@example.org to learn more.
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