Note: This picture is made by Midjourney AI.
Consumption:
How have spenders’ appetites changed
April 2024
Despite being recently promoted in 2023, Lin Xiaoxi, a 32-year-old employee at a technology company in Shenzhen, has become more cautious with her spending.
“I really enjoyed shopping before, but after the pandemic, I rarely consume and basically just go to the food court in the basement of the mall now,” Lin said.
“Because I’m getting used to online shopping which allows me to compare the prices, and also nowadays the economy is not stable, so I'd rather save more money.”
Lin's experience is reflective of a broader trend.
In the post-pandemic era, despite China's relatively steady economic growth, there has been an overall shift towards cautious consumption. This is evident in the retail industry's transition towards lower-priced shopping patterns, the closure of luxury brands targeting the middle class, and a shift in tourism expenditure towards experiential activities rather than shopping.
According to the official data, in 2023, China's economy grew 5.2%, slightly more than the official target, and the nationwide per capita disposable income was 39,218 yuan, a nominal increase of 6.3% over the previous year. The country’s latest GDP grew at 5.3% in Q1 2024.
Likewise, China's retail sales of consumer goods, a major indicator of the country's consumption strength, climbed 7.2% year on year in 2023, the National Bureau of Statistics showed.
However, positive data alone doesn’t boost people's confidence in consumption.
“If you look at the retail data, we still have some positive growth, but we may facing deflation,” said Terence Chong, associate professor of Economics at The Chinese University of Hong Kong.
“So we have a negative growth of the CPI, which has already reflected that people are not willing to consume that much and want to save more,” he added.
In 2023, China’s CPI only reached 0.2% year-on-year growth, way below the official goal.
“If you look at the deposit amount, actual savings are increasing, which means people have money, but they don't want to consume. That's the problem,” Chong said.
In the aftermath of the pandemic, how have consumer behaviors changed? How has the market responded? And what does the future hold for consumption in China? The following three stories explore the changes in Chinese consumption.
Where Are The Once-Avid Mall Shoppers Now
People seem to spend less in shopping malls.
Ascending from the bustling B1 and B2 levels to the upper floors of One Avenue, a mega shopping center in Shenzhen, a refreshing wave engulfed the atmosphere.
One Avenue Mall is located in the Futian District whose B1 level is directly connected to the subway. Entering the retail area on B1, a wave of enticing aromas from various delicacies such as hot pots, skewers, and freshly baked cakes immediately fill the air. Such atmosphere is intensified by the bustling crowd, with many young people holding snacks and cups of milk tea in front of different dining outlets.
There are almost no shoppers on the first floor of the One Avenue mall at 1 p.m.
As coming to the higher floors in the mall, the number of people gradually declines. On the upper floors, you can even catch a glimpse of the end of the mall at a glance.
One Avenue is not a single case. Nowadays, such a phenomenon is increasingly prevalent in shopping malls where the upper floors are sparsely populated while the dining areas thrive with activity.
After visiting four shopping malls in Shenzhen and interviewing 20 shoppers, reporter found over 70% of them expressed their primary intention was simply to enjoy a leisurely stroll and indulge in dining experiences, without intending to make additional purchases.
"After the pandemic, I don't have as much shopping desire. Everyone is saying that the economy is not doing well, so we need to be cautious with our spending," said Ava Wu, 34, a stay-at-home mother.
According to the 2023 Global Consumer Insights Survey released by PwC, 51% of Chinese consumers are reducing their spending on non-essential items, and for essential goods, people are opting for lower-priced purchasing channels.
"Compared to the Pre-pandemic period, although the number of shoppers hasn't significantly decreased, I found people have become more rational in their consumption," said Qiao Yongcheng, Deputy General Manager of Shenzhen TeeMall, one of the earliest large-scale shopping malls operating in mainland China.
MIXC World, a high-end shopping mall in Shenzhen, is crowded with people on weekends.
He mentioned that the rental model for malls typically includes a base rent plus a portion of the quarterly turnover of the tenant. However, after the pandemic, the mall has generally received a decrease in the share of the turnover.
"Businesses who choose to establish a presence in shopping malls this year have also become more cautious," he added.
Professor Chong attributes this trend to the underperformance of the property market.
In the past few years, people invested their wealth in the real estate market, but in recent years, housing prices have fallen therefore people's wealth couldn’t circulate effectively, he said.
Driven by the pandemic-induced shift in shopping habits, a new wave of consumer patterns has emerged.
In January 2024, the first Costco store in Shenzhen opened, recreating the same level of excitement of the bulk-buying frenzy witnessed during its successful openings in Shanghai and Hangzhou.
Photo provided by Guan
On the opening day, customers endured approximately a two-hour wait in queues to enter the store, followed by an additional hour of lining up to check out after selecting their desired items.
Bulk-buy warehouse-style stores like Costco have always been a thriving business. These stores feature a shopping environment that integrates storage and sales with competitively priced bulk goods and requires customers to have a membership card to shop.
Costco has now become one of the top five global retailers. Its first store in China opened in Shanghai in 2019 and had already attracted 200,000 registered members within less than two months of operation. Currently, Costco operates six stores in China.
"I really enjoy shopping at Costco because they offer a wide range of imported food items that I often can't find in regular supermarkets. Even if I find similar products at specialty import stores, Costco always provides better prices," says Ziyue Guan, a 26-year-old Shenzhen resident.
"And Costco is located near my home, so I visit frequently,” she added. “I've been there four times in the past two months, and each time it has been bustling with people."
Guan typically spends between 1000 to 1200 yuan on each visit, primarily on food and some daily essentials. She favors Sam's Club's self-branded food products, considering them healthier and relatively cheaper.
Guan mentioned that due to the large quantities of each package sold at Costco, it can be challenging for a single household to use up all the things at a certain period of time. As a solution, their community formed a Costco shopping WeChat group where members initiate collective orders and then divide the commodity into smaller portions and distribute them to group members.
According to Costco's financial report for the first quarter of the 2024 fiscal year, the company achieved US$57.8 billion in revenue, marking a 6.2% year-on-year growth. The net profit stood at US$1.589 billion, exceeding the US$1.364 billion recorded during the same period last year and surpassing market expectations.
“The success comes from the diversity and also because they sell it at a huge scale, so supermarkets are able to secure cheaper space and negotiate better prices with suppliers, thereby utilizing economies of scale,” said professor Chong.
Can international membership-based shopping malls become a new path for China's retail industry? While the business model of Costco is thriving, experts remain cautious about its sustainability.
Professor Chong stated that many foreign business models fail to achieve stable development in China due to different consumer habits and the inability to guarantee sustainable operating costs.
“In Shenzhen, although the land may be quite expensive nowadays, you can still find a lot of cheap labor because Shenzhen also imports a lot of labor from other provinces, but that may not be a permanent phenomenon once the cost increases,” he said.
Costco's current membership renewal rate in mainland China stands at 60%, which is much lower than its global average renewal rate of 90%, raising doubts about whether this explosive new business model can sustainably thrive in China.
Alongside the rise of offline bulk-buy warehouse-style stores, online shopping has also reached its peak.
Li Xin, 41, who works in the logistics industry, nowadays makes most of her purchases online.
"Online shopping is more convenient, especially during the pandemic when we can only buy things online,” Li said.
“Now that the restrictions have been lifted, many people still find online shopping more convenient as there are more options in terms of styles, and prices are also more favorable, so I think it has become a consumption habit that has continued from the pandemic."
Pinduoduo, renowned for offering the lowest prices across all online shopping platforms, is one of the fastest-growing companies after the pandemic.
Pinduoduo operates under the customer to business model where it gathers a large number of orders through group purchases and directly cooperates with suppliers, thereby eliminating various intermediaries and attaining price advantages.
The company's 2023 third-quarter financial report revealed a total revenue of 68.84 billion yuan for the whole quarter, marking a 94% growth compared to the third-quarter total revenue of 35.5 billion yuan in the same period of 2022.
The substantial growth in revenue has led to a surge in Pinduoduo's market value. As of December 1, 2023, Pinduoduo's closing market value was US$195.89 billion, surpassing Alibaba's market value of US$190.65 billion, making it the top-valued Chinese company listed in the U.S.
The growth in transactional service revenue is particularly notable, for which has increased by 315% compared to the same period in 2022, reaching 7.0223 billion yuan.
This growth is primarily driven by two aspects: overseas revenue from Temu and commission income from Duoduo Maicai, which refers to Pinduoduo's grocery delivery service.
"I usually buy fruits on Pinduoduo, which is much cheaper than the fruit shops on campus. I can buy enough fruits for a week for just 30 yuan, and it's very convenient," says Sally Sun, a third-year university student in Shandong Province.
Customers typically select their groceries and make payments on the Pinduoduo app, and then pick up their orders at a nearby self-pickup point the following day.
"Technology has revolutionized wholesale behavior. In the past, wholesalers sold to retailers, who then sold to customers; but now with technology, wholesalers can directly connect with customers, which means traditional retail may become unnecessary," said Chong.
However, people still hold positive expectations for the future of offline shopping malls.
Chong thinks that Shopping malls will still be there, which may sell things that are not easily accessible online and also become a place for social purposes.
"You cannot always stay at home buying things right? So you need a place where for people to socialize with each other, like cinemas and restaurants."
Meanwhile, shopping malls are finding ways to retain consumers.
TeeMall, where Qiao works, constructed a trendy photo zone in 2023, aiming to "create member stickiness."
"Although the industry competition is fierce now, I still have a positive attitude towards shopping mall consumption in the long run," Qiao said.
Luxury Bubble Bursts, Spenders Go For Cheaper Alternatives
As online consumption platforms like Pinduoduo thrived by promoting "downgraded consumption," the once-popular affordable luxury brands couldn't escape the fate of being eliminated by the market despite price reductions.
Xiaofan Zheng, 24, works in the marketing team for a tech company in Beijing. She used to be a loyal customer of luxury goods before the pandemic, particularly enjoying purchasing watches and handbags. However, she stopped buying luxury items last year.
"When I was in college, my family would often buy luxury goods for me, and it became my habit of consumption. Even after graduating and becoming financially independent, I continued buying luxury items, but recently it has accounted for a significant portion of my budget and therefore I just stopped buying," Zheng said.
She mentioned that the internet industry has become highly unstable since the pandemic.
“Previously, most employees could expect to receive 15 to 16 months' worth of salary,” she said.
“However, the company implemented an extreme distribution model last year, where some individuals received exceptionally high bonuses while the majority of employees like me received a minimal amount.”
As a result, she is considering resigning from her job.
Zheng is among the increasing number of young women who are changing their preferences, abandoning the purchase of affordable luxury goods that target the middle class with relatively lower prices, and instead, opting for cheaper alternatives.
The performance of affordable luxury brands has become bleak in recent years.
Carpi, the parent company of MK, had a net loss of US$34 million in the fourth fiscal quarter of 2023, with its sales falling by more than 10% and net profit down by 25%. Tapestry, the parent company of Coach, was not much better, with its annual revenue for 2023 being 0.35% lower from 2022.
“Those customers need to make a choice. If you still want to buy a luxury brand, you're not going to buy anything,” said Yuen Wai Kee, Assistant Professor of Economics and Finance at Hong Kong Shue Yan University.
In contrast, top-tier luxury brands have achieved remarkable performance through price increases.
In January, jewelry brand Tiffany & Co. adjusted prices globally for most of its products, with increases ranging from 5% to 10%. Later in February, luxury conglomerate Hermès announced price adjustments for its entire product line in 2024, with an average global increase of approximately 8% to 9%.
However, these price increases have not deterred the revenue of luxury goods. Instead, the top-tier luxury brands have demonstrated resilience in the face of rising inflation and market turmoil.
Luxury giant LVMH announced to record revenue of 86.2 billion euros in 2023, equating to organic growth of 13% with respect to 2022, with noting that fashion and leather goods saw growth of more than 30% in China in December.
Correspondingly, the company’s shares have surged during the past two years from 549.4 US. dollars per share in March 2022 to 847.9 U.S. dollars per share in March 2024.
Behind the boost in high-end consumption and the downturn of affordable luxury goods lies the reflection of changing consumer preferences in the post-pandemic era and, at its root, the accelerated socio-economic wealth polarization caused by economic fluctuations.
“This (phenomenon) is actually determined by the market, for any market crisis in general, basically, those wealthier people would become kind of richer while poor people become poorer because there are fewer business opportunities,” said Wei Li-qun, Professor of Management in the School of Business at Hong Kong Baptist University.
Shopper Zheng's current favorite has shifted from affordable luxury handbags to Lululemon activewear, which went viral among middle-class people.
On Lululemon‘s official website, a pair of yoga pants costs nearly 1000 yuan, which is lower in price compared to affordable luxury items but still two to three times more expensive than regular yoga pants. However, the price does not hinder its popularity, due to the brand's precise targeting of its customer base.
The leggings on lululemon’s official website in China generally sell for around 1,000 yuan.
In a 2015 New York Times article, Lululemon founder Chip Wilson said his “muse” and target customer in the early days of Lululemon was a 32-year-old professional single woman who makes US$100,000 a year, is “engaged, has her own condo, is traveling, fashionable, has an hour and a half to work out a day.”
This strategy is now seen as effective in the Chinese market.
In the fourth fiscal quarter of 2023, Lululemon's net income increased by 16% year-on-year to US$3.2 billion, and for the entire fiscal year, Lululemon's net income grew by 19% compared to 2022.
Meanwhile, the company has expanded its presence in mainland China, with a total of 127 stores. Compared to the 99 stores at the end of 2022, the brand opened a net of 28 new stores in mainland China in the past fiscal year
"I really love Lululemon's design and quality, and whenever I achieve a goal, I often treat myself with a new pant as a reward," shopper Zheng said.
Shifting Tides: Material Travel vs Experiential Travel
Even in terms of travel, people show a different taste and tend to seek non-monetary experiences.
In 2023, the most unexpectedly popular tourist city will undoubtedly be Zibo, the city that became famous for its affordable barbecue business.
As an old industrial city in Shandong Province, Zibo has faced numerous challenges such as economic decline and a lack of vitality after undergoing environmental reforms. However, the sudden surge in tourism has provided Zibo with a new opportunity.
According to data from the Zibo Municipal Bureau of Commerce, during the 2023 May Day holiday, accommodation bookings surged by 865% compared to 2019, making Zibo the top destination in Shandong Province. On the first day of the holiday, nearly 45,000 visitors flocked to a small street in Zibo's barbecue district.
During the Chinese New Year, people have to wait in line for about an hour before they can eat barbecue.
Interestingly, the buzz surrounding travel in Zibo was not centered around showcasing the city's traditional culinary delights or picturesque landscapes. Instead, viral videos on platforms like Douyin (the Chinese version of TikTok) highlighted stories that emphasize how "Zibo never fails to impress travelers."
Stories circulate on the internet about the city's special introduction of a free bus service dedicated to barbecue dining, free access to parking lots and restrooms in related government office buildings, overnight cleaning of shared bicycles for visitors, and efforts to prevent hotel price hikes.
Travel has seen rapid growth after the pandemic, but now people are more focused on cost-effectiveness and experiential value rather than excessive spending during travel.
Reporter paid a visit to the city during the 2024 Chinese New Year and interviewed travelers and shop owners there.
Qi Wen, a 55-year-old visitor from Shanxi Province, traveled to Zibo with her family during the 2024 Spring Festival.
"Zibo barbecue was particularly popular last year, and I was curious to know how good it really tastes, so I came here with my family for a trip, and also Zibo is not far from my home."
She mentioned that besides the affordable prices, Zibo attracted her because the city is very welcoming and hospitable to tourists.
"I feel that my perspective on travel has changed after the pandemic, I used to care about going to a place that everyone praised, taking photos, posting them on social media, getting likes from friends, and that was it,” Qi said.
“But now, I pay more attention to whether my family and I enjoy the time and how our overall experience feels."
Some merchants who were originally doing other businesses switched to selling Zibo specialties after Zibo became a popular tourist attraction.
Apart from domestic travel, tourists' focus during overseas travel is no longer solely on duty-free shopping.
Spending by overnight visitors to Hong Kong experienced a significant decline of nearly 40% in 2023, and it is anticipated to decrease further this year, eventually reaching levels similar to those of 2019, according to the Tourism Board.
On popular mainland social media platforms like Xiaohongshu, terms such as "Hong Kong in a Day" and "Tourist Special Forces" have become viral, with posts related to these topics accumulating over 54 million views.
In Hong Kong’s Elgin Street in Central, Fancy Wang, a tourist from Hangzhou, and her friends are sitting on the stone steps next to the Vission bakery, eating bread. Such practice has gained traction in Xiaohongshu, and dining on the steps in Central has become one of the popular check-in spots in Hong Kong.
"I saw someone recommending this bakery on Xiaohongshu, and I also wanted to experience the relaxed feeling of eating by the roadside," Wang said.
Wang mentioned that her primary purpose for visiting Hong Kong was to immerse herself in the unique culture and atmosphere. She particularly enjoyed the linguistic environment and fast-paced lifestyle of Hong Kong.
"This is actually my second time visiting Hong Kong, and unlike my previous visit, I didn't indulge in duty-free shopping because the current exchange rate is too high."
Wang also tried food in Fineprint, an Australian-style cafe in Central. (photo provided by Wang)
Professor Yuen said that one of the reasons for the decrease in consumer spending in Hong Kong may be a reduction in economic liquidity.
“Moreover, the low employment rate among young people, especially graduates who have a greater inclination towards travel, also contributes to the decrease in expenditures,” he added.
For the future of China’s consumption sector, experts were quite optimistic.
“We're in transition, and we can see that,” said Yuen. “We try to rely on internal consumption instead of external consumption, and China's authority is trying to solve it by increasing liquidity; for example, they increase the issue of government bonds.”
Yuen expected that it would take one or two peak seasons for China to regain its consumption power and revitalize its growth engine.