Chinese Retail Demand and the Middle Class Sweet Spot
Despite the fact that the new iPhone won’t be in China for at least another year, its sales launch in the United States was still a very hot topic on Chinese tech websites and internet portals. This was highlighted in an article on Dow Jones Marketwatch and reminded me of my continued confusion and surprise every time I look around at the people crowded next to me on the post-work subway rush and discover that nearly everybody is buried in a brand new, several thousand RMB mobile phone. Another reminder of the Chinese obsession with new mobile phone technology was the cab driver I had in Shenyang last week as I headed out to the Taoxian International Airport. I pulled out my modest Motorola phone and before I had even opened my mail box he had pulled his brand new RMB 4000 PDA and shoved it, along with his two inch long pinky fingernail, in front of my face, exclaiming in his Dongbei accent, “it’s American!!!” Why did this 45 year old man from Shenyang need a fully tricked-out PDA especially considering that his annual disposable income probably isn’t much above the Shenyang average of RMB 12,000 per year?
One of the most universal explanations that I can think of for this phenomenon is that high-end mobile phones are a means to flaunt increasing wealth and prosperity that is within the economic reach of the vast majority of urban Chinese. Not everybody can afford to buy an RMB 400,000 BMW to demonstrate their prosperity, but even those who make a monthly salary of RMB 3,000 or 4,000 can save up for the hot new cell phone model. The notion of spending an entire month’s salary on a cell phone seems irrational to me, but it demonstrates a key characteristic of China’s increasingly unique consumer behaviour – a hyper-sensitivity to the relationship between luxury goods and increasing prosperity.
The combination of this dramatically increased willingness to spend for goods that previously were deemed frivolous combined with the scale of China’s growing middle class is fuelling unprecedented demand for certain segments of the retail market. Retailers who are able to position their products such that they are within the reach of middle income earners (I’m thinking of not only high-end phones but also goods like RMB 4,000 handbags and the newest Zara branded shirts) while still maintaining a recognizable, high-end image, are poised to reap the benefits.
