Chinese consumer market set to grow by $1.8 trillion by 2021

03 August 2017

Consumption across the world’s largest economies is set to increase significantly over the coming years to 2021, and while the US is projected to remain the largest consumer economy, growing by $2.9 trillion, China will rapidly rise by $1.8 trillion too. Consumer goods companies, among others, are exploring ways to tap into the increasingly enticing Chinese market to sell their goods, however, questions on the sustainability of increased consumption regarding resource inefficiency and climate change continue to linger.

Consumer goods companies are eyeing up the potential for growth across the globe, trillions in new consumer consumptions is projected to come online in the coming decade. A new report from Boston Consulting Group (BCG) explores growth in consumption in the Chinese market. The report, which was created in collaboration with Alibaba, explores growth in consumption as well as wider market trends and consumer groups.

Consumption across the world’s largest economies is set to grow significantly in the years between 2016 and 2021. The US will see the biggest growth, with consumption up $2.9 trillion, from $12.8 trillion to $15.7 trillion. China will see the second biggest increase, with consumption behaviour up $1.8 trillion, from $4.4 trillion to $6.1 trillion. India, meanwhile, will see growth of $0.8 trillion, to $2.1 trillion total.

China adds nearly $2 trillion in consumption

According to the study, growth in China is set to significantly outperform the economy, whose growth rate stands at under 7% last year, while consumption growth stood at around 10% - largely due to the structural shift in the Chinese economy, as part of the latest five-year plan. The rapid expansion of the Chinese and US economies is likely to put increasing pressure on consumer goods companies to clean up their supply chain and improve their sustainability track records. Plastic waste in China has been highlighted as a key area of concern in recent reports.

Meanwhile, various studies have highlighted that finite resources with the current global cradle-to-the-grave model, which could be replaced by a circular one, may mean that extensive damage will be done with little real value gained from the consumption itself.

Factors driving consumption growth

The research considers various factors influencing the growth of consumption in China between last year and 2021. One of the major factors cited is growth in income, with the emerging middle class accounting for around 25% of the impact of income, while the upper middle and affluent classes account for 75% of the impact – with many wealthier consumers purchasing big ticket consumer items, as well as trading up to better quality goods and services.

Later generations, the research notes, are more keen to spend – with 69% of the spending impact arising from millennials. Multi-channel purchasing is also a noted factor in consumption, while there is a general split between those that purchase products and those that purchase services. The higher tier cities, which house more of the affluent, are also the more likely factor to affect purchasing behaviour.

Middle class growth in China

The growth of the emerging middle class is set to stagnate this year, before beginning a slow decline to 2030. The upper middle class and the affluent class are meanwhile expected to see strong growth in the same period. The affluent class will hit around 60 million households by 2030, up from around 20 million this year – with incomes of more than $3,400 per month. The upper middle class is set to explode, hitting 150 million by 2030, up from around 50 million today – with incomes for the group between $1,800 and $3,400.

The study further identifies millennials as a key segment of consumption behaviour. The segment is set to generate around 11% CAGR in consumption growth to 2021, compared to 5% CAGR for older age groups - the result is that millennials will account for 69% of total consumption growth in the period, or around $2.6 trillion across the economies surveyed.

Young consumers show higher consumption

“A lot is changing in China, but the fundamental story is one of very strong growth through 2021,” said the report’s co-author Jeff Walters, a Partner at BCG. “This market is growing by trillions of dollars, and companies that take the right steps today will set themselves up to win over the long term.”

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Lack of high street openings sees UK retail in precarious state

11 March 2019

Changes in consumer behaviour, particularly in favour of online shopping, are starting to take their toll on shop-fronts in the UK, while stagnant wages are hitting peoples’ willingness to go out for food and drink. As a result, the rate of closures is more than four times that for the same period in 2017, although largely reflecting of a lack of new openings.

The retail market has fallen under a cloud of uncertainty in the UK; consumer confidence has dipped, while wages have continued to malinger in negative territory. Retailers are also under pressure from disruptive technology, as consumer sentiment shifts to more online shopping and at-home leisure. While retailers have been able to weather the storm for the past years, transformations, low consumer spending and technology have begun to take their toll.

New analysis from PwC explores the current market conditions in the UK for retail shops, focused on net openings and closings. The market changes in the UK have seen the net closures to date hit 1,123 in H1 2018 across the UK’s top 500 high-streets. The rate of closures was considerably above openings for the first half of 2018, at 1,569 openings and 2,692 closures. Compared to H1 2017, more than four times as many shops closed than opened.

Openings and closures for retail industry

The study considered the most prominent areas to see a reduction in openings and net closures across the retail landscape. Overall, fashion stores were the hardest hit in absolute terms, with a total of 104 closures for H1 2018, followed by public houses and inns, which saw 99 closures in the same period. Electrical goods stores saw a net -44 decline, with a total of 8 openings for the period. Meanwhile charity shops were in a state of relative flux, with 80 openings to 117 closures. The firm notes that service sector shops, including estate agent, banks, recruitment agencies and travel agents, among others, too have begun the process of moving online.

Not all areas of retail saw closures, with coffee and ice cream shops seeing a small net increase in openings over all. Book stores – predictions of their total obliteration appear to have waned – saw a net 18 openings, while supermarkets drew the highest overall growth relative to closures, at 18 opened and 6 closed.

Regional figures for the UK

Not all areas have seen the same level of closures, with the Greater London area and the South East the hardest hit by the current wave of closures, at -268 and -197 net change, respectively, compared to -23 and -25 closures for the same period in 2017. The middle of England too saw considerable closures, with the West Midlands clocking a net -89, and Yorkshire and the Humber down -117 stores overall.

Commenting on the figures, Lisa Hooker, consumer markets leader at PwC, said, “Openings simply aren’t replacing closures at a fast-enough rate. Specifically, the openings across ‘experiential’ chains, such as ice cream parlours, beauty salons and vape shops, haven’t been enough to offset closures in the more traditional categories. Looking ahead, the turmoil facing the sector is unlikely to abate. Store closures already announced in the second half of the year due to administrations and CVAs already will further intensify the situation.”

Related: Artificial Intelligence offers $340 billion opportunity to retail sector.