Chinese Gen Z can make or break western brands

But what really sets China’s Gen Z apart from previous generations, and poses the greatest threat to multinationals from Sony to Christian Dior and Nike, is their growing nationalism, fueled by Beijing’s desire to increase the country’s increasing global influence. It has put governments and corporations on an increasingly delicate basis lest they find themselves at the center of a storm of criticism.

Young proud Chinese caused the backlash against Hennes & Mauritz AB and Nike after the companies denounced the use of cotton from the controversial Xinjiang region over allegations of human rights violations against the Uyghur minority† H&M, in particular, has become a cautionary tale with its operations in China yet to recover.

The gap left behind paved the way for local rivals such as Anta Sports and Li Ning — who support Xinjiang cotton — to surpass them in sales by introducing products aimed at local consumers, including clothing decorated with Chinese characters and sneakers inspired by them. the Forbidden City. By the end of January 2022, Anta and Li Ning dominated 28 percent of sneaker sales, 12 percentage points higher than before the outrage in Xinjiang.

Young, proud Chinese protested against H&M and Nike after the companies denounced the use of cotton from the controversial Xinjiang region over allegations of human rights abuses against the Uyghur minority.Credit:Getty Images

It’s a shift reflected in other consumer segments as well, with local beverage company Genki Forest moving to Perfect Diary cosmetics brand gaining market share and customer loyalty in sectors previously dominated by international names.

“The main focus of local brands is to maintain their brand position that is relevant to Chinese consumers, while global brands need to balance trends not only in China, but also globally to ensure that things don’t become different in different countries” said Kenny Yao, a director at AlixPartners Shanghai, a consulting firm that advises clients on business development in China.

A new generation

Unlike their parents, the Chinese Generation Z is usually less impressed with products simply because they are foreign.

Western trends dominated the market as China began opening up to foreign investment in the late 1970s. It sparked an influx of brands from McDonald’s to Toshiba, Adidas and Starbucks Corp. That helped China’s rise to the world’s second largest economy.

Sarah Lin, a 22-year-old student in Beijing, said her parents are still excited about items that only have a foreign language label because they assume it’s a premium product. But during the time she studied abroad, she realized that many brands that are considered high-end in China are mass-market names at home. Now she prefers to research products and likes to buy domestic names because of their improved quality and designs that appeal to her.

“People used to think that those who wear Li Ning couldn’t afford Nike, but foreign brands are not as mysterious to me as they were to my parents,” Lin said. “I don’t want to pay a premium for the origin of a brand, I only pay for the designs and the value for money.”

Meeting the needs of more demanding customers also proves to be a challenge for some foreign brands. Every year, companies from LVMH to Zara release collections from handbags to sweaters to mark the Lunar New Year, but their styles – usually decorated with traditional folk art and lots of red and gold – are often fooled by young Chinese consumers who want to express their individual style. rather than buy mass-produced fashion that treats them like a monolith.

“China’s biggest misconception is that modernization means westernization. That has been the gamble for all brands.”

Zak Dychtwald, founder of trend research firm Young China Group

Other firms were more focused on appealing to Gen Z. Prada SpA’s recent Lunar New Year collection included a competition for artists under 30 to rate their work and choose a project. Toothpaste brand Crest used a multi-day immersive event where users had to solve a murder mystery as part of a new product launch.

growing pride

A growing sense of cultural pride has developed alongside a maturation of Chinese brands. And while the shift to buying locally isn’t unique to China, few places in the world have the extensive government support and state media apparatus to take the idea so extensively to consumers.

The revival of hanfu – a traditional, flowing style of dress characterized by a robe worn over a skirt – is a prime example of this. Initially a small-scale move in the mid-2000s, it has grown into a market worth 10 billion yuan a year and attracting investor interest. Designer Shisanyu raised more than 100 million yuan in April last year, led by Loyal Valley Capital and Bilibili, while Sequoia-backed retailer Shierguangnian has emerged as a bestseller.

Like their peers around the world, the Chinese Gen Z grew up online and the use of social commerce in the country has become an increasingly important tool for brands. The sales channel, which allows users to purchase products through social media platforms and interact directly with live streamers, is expected to grow to more than $1.6 trillion ($2.3 trillion) business by 2025. That’s about half of total e-commerce revenue, up from a fifth in 2019, according to China Renaissance.

It has proved to be a prolific source of income for domestic brands. Florasis, a Chinese cosmetics brand founded in 2017, has become the largest in the country, supported by live streamers demonstrating products and interacting with users.

But Western companies, not as used to the sales method, have had more mixed results. A one-hour livestream of Louis Vuitton in 2020 attracted viewers, but also complaints that the setting was too low-key for the luxury label.

Chinese consumers are reviving traditional clothing such as hanfu.

Chinese consumers are reviving traditional clothing such as hanfu.Credit:Getty Images

Both domestic and foreign companies are also grappling with mounting headwinds in the near term as China’s push for COVID Zero is mired in a cycle of closures and reopenings that are taking a growing economic and social toll. Youth unemployment hit a record high in April and Generation Z has the most conservative view of increasing spending this year, according to an OC&C report in December.

Demanding flavours

Still, Gen Z’s rising power means their preferences will reshape the consumer sector in the coming decades.

“Foreign brands should be aware that compared to older generations, young Chinese shoppers are even more demanding,” said Veronica Wang, partner at OC&C Strategy Consultants. They “can no longer arrogantly enter the market and say ‘hey, this is our cool product, get it’. They should try to better understand what Chinese consumers want and like, embrace Chinese culture and be more open-minded to adapt to the local market.”

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Wang highlighted South Korean eyewear brand Gentle Monster as an overseas label capable of gaining ground among younger Chinese consumers through constant product innovation and themed retailing, responding to Gen Z’s desire for an unforgettable experience. Foreign companies will also need to strengthen their teams in China, who can better read local consumption patterns and make new product rollouts more efficient.

“China’s biggest misconception is that modernization means westernization,” says trend researcher Dychtwald. “That has been the gamble for all brands.”

Bloomberg

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