PwC Study: Face of Retail & Consumer Products Sector in China and HK Rapidly Changing

The face of the retail and consumer products sector is rapidly changing in China and Hong Kong, according to PwC’s "The Disruptive Face of the Retail and Consumer Products Sector in China and Hong Kong" report. Although numerous drivers are shaping the R&C sector, three disruptive factors - slumping economic growth, the rise of millennial shoppers and a growing online ecosystem are particularly significant.

“The cyclical slowdown of the Chinese economy, coupled with a critical structural transition towards greater consumption, is causing consumers to reassess their purchasing habits. Millennials, who compose roughly 30% of China’s population, have emerged as a key force and they shift demand to new products that promote experiences and healthy lifestyles,” says Michael Cheng, PwC Asia Pacific and Hong Kong/China Retail and Consumer Leader. “Finally, online sales are growing and a robust online presence is important as consumers research and interact with brands.”

PwC forecasts a compound annual growth rate of 7.5% in China’s and 2.1% in Hong Kong’s retail and consumer products sector from 2016-2020. China is expected to continue its momentum in 2016, posting roughly 9% growth, gradually decelerating to approximately 7% growth over the rest of the forecast period.

Meanwhile, growth for Hong Kong is forecast to be uneven and volatile. Total retail sales are forecast to contract a further 4.4% in 2016 after a decrease of 3.7% in 2015 Sales are expected to rebound with a smaller decrease of 1.5% in 2017, follow by positive growth of 2% in 2018 and 4.6% in 2019, gradually return to the 2013 peak in 2020 with the sales value of HKD 494 billion.

“China’s R&C sector went through a series of violent ‘thunderstorms’ in 2015, but the skies are clearing,” says Michael Cheng, “Key cyclical and structural factors such as improving economy, focus on personal consumption will lead the rebound. The expanding middle class with increased purchasing power is also supporting the market going forward. Growth is forecast to gradually slow as the domestic economy and sector matures over time.”

“Likewise, Hong Kong’s R&C sector is going through an ‘ice age’ of lower tourist flow and revenue. For the first 4 months of 2016, the value of total retail sales decreased by 11.4%. Despite these developments, the fundamentals of Hong Kong have not changed. Government may undertake policies to further boost tourism and increase airport capacity, as well as more outlets for shopping.” Michael Cheng added.

In PwC’s Global Total Retail Survey 2016, which polled nearly 23,000 online shoppers across 25 territories, including 906 from China, data show Chinese consumers are playing a significant role in the disruptive online ecosystem.  Almost one in five (19.6%) of surveyed Chinese consumers shops online daily. Chinese shoppers have used their mobile/ smartphone to pay for a purchase, increased from 18% in 2014 to 43% in 2015. Chinese online shoppers also value access to special member events (32%) and personalized marketing offers (36%).

“We can expect the world to follow Chinese shopping behaviour,” says the report.

Disruptive face of key retail segments in China and Hong Kong 

1. Luxury: Down now, but coming back soon

2. Clothing and Apparel: Let’s get physical

3. Beauty and personal care: Touching up

4. Consumer appliances: The smart move

Turning disruption into opportunity

The report also discusses how companies in the R&C sector can turn disruption into opportunity:

1.   The rise of coopetition

Coopetition is the collaboration between business competitors to achieve a ‘win-win’ solution. Unique partnerships such as Macy’s with Fung Global Retail on Tmall Global, Suning and Alibaba, to leverage new synergies and win business.

2.   Let’s make a deal: Transformative M&A

Companies are moving up the value chain, entering new markets and acquiring new competitive capabilities. M&A is one strategic tool increasingly being utilised. Recent transformational acquisitions include Haier of GE; Midea of Toshiba; Samsonite of Tumi.

3.   Creating trust online

Customers increasingly interact across wide range of social media channels and branded websites, and make decisions based upon those interactions. Trust is fostered throughout this experience and it is essential for consumers in the luxury and personal beauty space.  

4.    How to win with data

With data analytics, companies can personalise customer experience, particularly for millennial shoppers, so as to increase retention and customer lifetime value.


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