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BCG: Omnichannel is Key to Retail Success in China

Walmart, the world’s biggest retailer, expects to open 115 new stores in China by 2017—and it’s not the only Western company taking aim at the emerging Chinese middle- to upper-class consumer. British fast-fashion retailer New Look is ramping up its current store count from 30 to 110 this year, while electronics giant Apple plans to open 25 new stores in the next two years.

And it’s no wonder: According to a new study published Monday by Boston Consulting Group (BCG), “high-speed” households (that is, upper-middle-class and affluent Chinese who live in households that earn more than $1,900 per month) will increase from 81 million today to 142 million in 2020, will make up the bulk of online shoppers and will likely be responsible for nearly 90 percent of the increase in consumption over the next five years.

Titled “A Tale of Two Chinese Consumers,” the report also warns that China has become a two-speed consumer market and that companies that want to successfully tap the newly affluent consumers’ wallets will need to tweak their marketing to suit and broaden their distribution channels, not just apply the same mass-market approach to all.

That’s because by 2020, 84 million of the projected 142 million high-speed households will be located in lower-tier cities, not to mention responsible for $3.8 trillion of the anticipated $5.6 trillion in total urban consumption. In order to reach these well-heeled, tech-savvy shoppers, BCG said companies will need to adopt an omnichannel approach (because 40 percent opt to shop online at least once a week) as well as maintain a physical presence in 615 cities.

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The research also found that these frequent online shoppers are younger, more affluent and tend to buy in all channels, with 35 percent planning to increase their spending over the next year and 58 percent saying they do not have enough things and want to buy more. Categories most likely to benefit from consumption growth include personal products such as apparel, skin care and vitamins.

“The overall economy may be slowing, but these more affluent consumers are optimistic about the future and their ability to increase their spending,” said Jeff Walters, a BCG partner and co-author of the report.

Notably, Chinese consumers pay more attention to rising incomes than to slowing economic growth when it comes to purchasing decisions, and less than 10 percent of households reported they were saving as a precaution against downturns. Meanwhile, only 27 percent said they were saving as a “general precaution,” compared to 46 percent two years ago, and 25 percent of respondents said they were saving simply because their paychecks were bigger.

With that being said, BCG suggests retailers should position themselves to convince these consumers to “spend more and save less” so as to boost the economy. Every 1 percent reduction in savings among high-speed consumers will generate $30 billion in additional spending, comparable to 0.3 percent GDP growth or, as BCG put it, the “equivalent to adding the consumer spending of Finland or Portugal to the economy.”

“By focusing on the high-speed parts of the Chinese consumer economy, companies can avoid getting stuck in the slow lane,” the report concluded.