Chinese middle class embraces technology as the "perfect storm" for online retail in China approaches, reports Mintel

Jul 13, 2012, 10:20 ET from Mintel

CHICAGO, July 13, 2012 /PRNewswire/ -- While the Eastern promise presented by Chinese consumers has become universally acknowledged in recent years, out of the increase of power and prosperity in China, a new middle class sector has emerged, creating with it even more opportunities for those brands prepared to tap into their changing tastes and preferences. Indeed, new research from Mintel into the emerging middle class in China reveals that booming interest in technology is set to create an online retail boom. With 97% of Chinese middle class consumers now owning a smartphone, 96% a computer, over 50% having more than one credit card and just 5% of the group not intending to purchase any luxury goods in the coming year, the 'perfect storm' for manufacturers is brewing.


China's emergent middle class is gadget and technology crazy and can afford to be. Today, 96% of those defined as middle class own a computer and 90% own a digital or video camera. Desktop computers (88%), HD TV (83%) and DVD players (70%) make up the remaining top five gadgets owned. While the lowest ownership levels rated were for 3D TV (around one in four (26%) Chinese middle class consumers own one) a noteworthy 0% of those surveyed claimed to not own any of the gadgets listed. However, the big revolution in China is smartphones with 97% adoption amongst the middle classes.

Paul French, chief China market strategist at Mintel, said:

"The boom in technology is revolutionizing the retail market, with the sudden growth in e-commerce powered largely by middle class urban spending as they are people with the access, the smartphones and devices, the credit cards to facilitate payments and the disposable income. Today, the opportunities lie not only in physical retail outlets across China, but also in that Chinese consumers have the power to access them on-the-go via e-commerce.  Spreading retail markets outside of tier one cities represent huge opportunities nationally and for brands that are targeting the middle class, China is becoming a national market. Our research suggests brands are right to expand, as there should be Chinese consumers available to buy from them."

China's electronic appliances market—both brown and white goods—has also boomed in recent years. The number of Chinese middle class buying appliances in the last three months indicates why. Some 39% have bought brown goods* while 42% have purchased white goods**.  The middle class desire to own gadgets is also shown in the response that over half (53%) of the middle class are planning to buy some form of brown goods in the next three months, while 43% plan to buy a white good over the same three month period. 

One major barrier that the industry has faced in the past has been low credit card ownership. And while in the past credit was a hurdle for retailers to overcome to encourage spending, now, according to Mintel's research, 43% of Chinese middle class consumers have one card and 52% more than one. But while the Chinese middle class is spending on property, cars, consumer items and on holidays, it is also still saving. Indeed, Mintel's research reveals that 77% of those defined as middle class have added to their savings over the past three months, and 50% plan to do so in the next three months with just 7% claiming to do neither. 

"In the past the e-commerce sector was faced with two major hurdles, trust that the goods were genuine and not fakes and low credit card ownership.   Today the middle classes have the credit cards to facilitate the payment and more confidence that the goods are not fake.  In the early days of this sector, the selling of fakes and pirated luxury branded goods online was a major scandal that restricted e-commerce and deterred potential customers. Major online e-tailers have begun working with brands to eradicate fakes from their platforms," Paul French continues.

Chinese middle class travel boom for Australasia

The research also reveals that just 5% of the Chinese middle class are not intending to buy any luxury item in the next year.  The importance of luxury goods is highlighted by the segments the Chinese middle classes intend to invest in over the coming year.  A massive 67% intend to invest in luxury clothes, 60% in clothes and footwear, 58% in jewelry and watches and 45% on electronics. A further 28% state that they intend to purchase luxury furniture and home appliances, a fifth (21%) into cars and motorcycles and 14% to purchase luxury branded pens. And the appeal for overseas items is clear as just 6% say they haven't purchased any luxury items while travelling outside of China, highlighting the cache for brands in international markets. 

"The Chinese consumer's global spending power has become the stuff of new legend. Chinese traveling overseas to spend and 'arbitrage' purchases, particularly on items that attract high taxes at home such as luxury goods has become a new theme of global retail and consumption," adds Paul French.

And it is Australasia that has the most appeal for Chinese middle class tourists. Forty percent of consumers have taken a holiday in the region last year with 35% having traveled to Australia and 19% to New Zealand. Europe follows, with 37% of consumers holidaying there last year. France tops the list with a quarter (25%) of this group choosing France as their destination of choice, while the UK is a close second at 22%. Meanwhile, a third (32%) of this group traveled to North America.

"The Chinese middle class is a relatively new phenomenon having only really begun to seriously emerge since the late 1990s. This middle class has been a result of a growing white-collar employment market, continued urbanization, a decade of annual wage rises, the opening up of a private property market and a sustained period of overall economic growth for China.  It is this urban, educated, white-collar middle class that has been the main driver of the expansion of China's booming domestic retail consumption market in the last five years. The success of a wide range of brands from luxury to mid-market are largely due to the growth and spending tastes of the middle class," Paul French concludes.

In 2012, middle income (those consumers who are urban, invariably white collar workers and have a household income of between approximately US$9,000-US$30,000) households constituted fully 14% of total urban households in China, or approximately 30 million households or approximately 100 million people.

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*Brown goods include televisions, PCs and game consoles.

**White goods include washing machines, fridges.