China’s Gen Z can make or break Western brands

But what really sets China’s Gen Z apart from previous generations, and poses the biggest threat to multinationals from Sony to Christian Dior and Nike, is their growing nationalism, fueled by Beijing’s desire to flex the growing global influence of the country. This puts governments and businesses on an increasingly delicate footing, lest they find themselves at the center of a storm of criticism.

Proud young Chinese have sparked a backlash against Hennes & Mauritz AB and Nike after the companies denounced the use of cotton from the controversial Xinjiang region amid accusations of human rights abuses against its Uyghur minority . H&M, in particular, has become a cautionary tale with its China business yet to recover.

The gap left behind has paved the way for local rivals like Anta Sports and Li Ning – who support Xinjiang cotton – to outsell them in sales by introducing products targeting local consumers, including clothing emblazoned with Chinese characters and sneakers inspired by the Forbidden City. At the end of January 2022, Anta and Li Ning dominated 28% of sneaker sales, up 12 percentage points from before the Xinjiang outcry.

Proud young Chinese have sparked a backlash against H&M and Nike after the companies denounced the use of cotton from the controversial Xinjiang region amid accusations of human rights abuses against its Uyghur minority.Credit:Getty Images

It’s a shift that has spilled over into other consumer segments, with local beverage maker Genki Forest to cosmetics brand Perfect Diary gaining market share and customer loyalty in industries that were once dominated by international names.

“The primary goal of local brands is to maintain their relevant brand position for Chinese consumers, while global brands need to balance not only trends in China, but also globally to ensure they don’t become no different in different countries,” said Kenny Yao, a director at AlixPartners Shanghai, a consulting firm that advises clients on developing businesses in China.

A new generation

Unlike their parents, Chinese Gen Zers tend to be less impressed with products just because they’re foreign.

Western trends dominated the market once China began to open up to foreign investment in the late 1970s. This sparked an influx of brands ranging from McDonald’s to Toshiba, Adidas and Starbucks Corp. This has helped fuel China’s rise to become the world’s second-largest economy.

Sarah Lin, a 22-year-old student in Beijing, said her parents were always enthusiastic about items that only had foreign-language labels because they assumed it was a high-end product. But while studying abroad, she realized that many brands considered high-end in China are mass-market names in her country. Now she prefers to research products and is happy to buy national names because of their improved quality and designs that appeal to her.

“In the past, people thought that those who wore Li Ning couldn’t afford Nike, but foreign brands aren’t as mysterious to me as they were to my parents,” Lin said. “I don’t want to pay a premium for a brand’s origin, I’ll only pay for its designs and value for money.”

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

“China’s biggest misperception is that modernization means westernization. That’s every brand’s bet.”

Zak Dychtwald, founder of trend research firm Young China Group

Other companies have been more targeted in appealing to Gen Z. Prada SpA’s recent Lunar New Year collection involved a competition for artists under 30 to have their work judged and chosen for a project. Toothpaste brand Crest used an immersive multi-day event where users solved 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 buy local is not unique to China, few places in the world have the government support and state media apparatus to get the idea across to consumers so comprehensively. .

The revival of hanfu – a traditional, flowing style of dress characterized by a dress worn over a skirt – is a good example. Initially a small-scale movement 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 became a top seller.

Like their peers around the world, China’s Gen Z have grown up online and the country’s use of social commerce 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 become a $1.6 trillion-plus ($2.3 trillion) business. dollars) by 2025. That’s about half of total e-commerce. sales and up from a fifth in 2019, according to China Renaissance.

It has proven to be a fertile source of revenue for national brands. Florasis, a Chinese cosmetics brand founded in 2017, has become the country’s largest, supported by live streamers showcasing products and interacting with users.

But Western companies, less accustomed to the sales method, have had more mixed results. An hour-long livestream by Louis Vuitton in 2020 drew viewers but also complaints that the setting was too low-end for the luxury brand.

Chinese consumers are fueling a revival of traditional clothing, such as hanfu.

Chinese consumers are fueling a revival of traditional clothing, such as hanfu.Credit:Getty Images

Businesses at home and abroad are also grappling with growing near-term headwinds as China’s pursuit of COVID Zero leaves it stuck in a cycle of lockdowns and reopenings that increasingly strain the economy and society. society. The youth unemployment rate hit a record high in April and Gen Z has the most conservative view on increased spending this year, according to an OC&C report in December.

Discerning tastes

Yet the growing power of Gen Z means their preferences will reshape the consumer sector for decades to come.

“Overseas brands should be aware that compared to older generations, young Chinese buyers are even more demanding,” said Veronica Wang, partner at OC&C Strategy Consultants. They “can no longer come into the market arrogantly, saying ‘hey, this is our cool product, take 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 introduced South Korean eyewear brand Gentle Monster as a foreign brand capable of gaining traction with young Chinese consumers through constant product innovation and themed stores, which testify to Gen Z’s desire for a memorable experience. Foreign companies will also need to empower their teams in China, who can better read local consumption patterns and make the rollout of new products more efficient.

“China’s biggest misconception is that modernization means Westernization,” said trendsetter Dychtwald. “It’s the bet of all brands.”

Bloomberg

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