The Memes 2018

Enter the Dragon

“These days everything from Ganpati’s for visarjan to some of the world’s best mobile phones seem to come from China. Chinese companies are among the world’s largest and even the way they use digital media for commerce and communication is ahead of the rest of the world”

- Mayank, 24, business student, Bangalore

Consumerism and capitalism make perfect bedfellows. We are used to looking at the West to understand what tomorrow holds for consumption and retail, to identify trends, inspirations and strategies for the future. Not anymore. If you want to know about the future of consumption in the 21st century, look at Chairman Mao’s China.

Over the last decade, China has pivoted from aneconomy driven by exports to an economy led by domestic consumption. After declining from the high of 55% share of GDP in the 1970s, China’s consumption spending touched a low of 35% in 2010. It has been steadily increasing since then and is expected to touch 44% by 2020. In a $12 trillion economy, that’s huge! Every single percentage point increase leads to billions of dollars for new opportunities, innovations and trends that are defining the future of consumption.

Take for instance, the Singles Day sales. Alibaba alone, clocked revenues of $25.3 billion. It was $830 million in 2012. At $25.3 billion, it not only eclipses India’s entireannual online spend (including on travel and other services) of $24 billion but even Black Friday sales in United States that amounted to $7.9 billion in 2017.

In fact, the Chinese way of consumption is fundamentally different from the West, where shopping starts with a search and consumers move from one online platform to another. In China, shopping is about more than just the transaction. The Internet ecosystem is tightly integrated and consumers make a seamless journey between entertainment, discovery, and social engagement with friends, celebrities, and Internet influencers. Chinese consumers rarely visit company or brand websites. Instead, they discover what they want to buy through online marketplaces such as Taobao, entertainment apps like iQiyi, and super-apps like WeChat. According to China’s National Bureau of Statistics, Chinese consumers spent $750 billion online in 2016—more than the US and the UK combined.

But even that is changing rapidly. Even at this size, Chinese consumers’ online spend is barely 18% of the total spend and the industry leaders feel it will be mighty difficult to push this share ahead through online alone.

China’s Internet leaders are now transitioning seamlessly in the journey from online to the real world. At heart of Alibaba’s Singles Day event was a four-hour gala, watched by more than 400 million people in China. The event was fully interactive – shoppers could watch and press ‘buy’. Sharing the center-stage were hundreds of thousands of actual high-street stores, linked to the internet, powered by computer algorithms, and cloud computing, offering shoppers a seamless shopping experience that is further blurring the lines between online and offline retail.

In fact, for the past two years, Alibaba has spent over $10 billion, integrating physical stores, buying into large department stores as well as the country’s largest hypermarket network, and opening its own neighbourhood chain, HEMA, to take technology out of the screen and into the heart of brick-and-mortar stores. In comparison, Amazon’s recent acquisition of Wholefoods almost seems like an afterthought.

In fact, the transformation isn’t limited to Alibaba or ecommerce alone. China has now billion dollar brands in almost every category. For a nation where a vast majority is lactose intolerant, at least two diary brands Mengui and Yili clock in more than $5 billion in revenues. The $7.6 billion beverage brand Moutai, takes on the likes of Coke and Pepsi. In fashion there now almost a dozen billion dollar brands. And we are not even counting global leaders in mobiles and electronics like Lenovo, Haier, Xiaomi and the likes.

Chinese brands are not afraid to test new products, fail, and try again, rather than adhering to a rigid schedule of product launches. They’ve become increasingly sophisticated in their use of multimedia and multiple channels to reach and engage consumers. What’s more, they’re at the forefront of using data, analytics, and consumer insights to better understand the customer—and are moving towards true consumer-driven product development.

That the future of consumption lies in China is undisputed. Take for instance the emergence of Celebrity Influencers of China. These are professionals who live-stream shopping trips, make up, or cooking sessions to legions of followers who then have an option to buy items similar to those used by their favorite stars.

Some bloggers can earn millions of dollars modeling their own clothing brands on China’s version of eBay, and by constantly interacting with their legions of followers. They do everything from live-streaming shopping trips to blogging about Taobao’s many other offerings – from cookery to baby care. One live stream last December hosted by leading online star Zhang Linchao – who has almost four million followers on China’s Twitter-equivalent Weibo – attracted a million viewers. According to data from brokerage Guotai Junan Securities, online star Zhang Dayi made 300 million yuan ($46 million) in sales in 2015, while Zhu Chenhui made 150 million yuan ($22 million). China’s celebrity influencers for consumption have more followers and earn more than its movie or sports stars!

China’s emergence as a global leader in the political space, coupled with America’s increasing isolationism is dominating discussions in the corridors of power. This emergence has been fuelledin no small measure by China’s dominance of global consumption trends over the last decade. The world today is looking East. China watchers point out that China’s consumer boom probably started in 2005 when Chinese per capita consumption crossed $2000. Globally, the $2000 mark is seen as an inflection point beyond which discretionary consumption changes the nature and scale of consumption.

India now at $1750 per capita consumption or Rs 4.5 lakh annual income per household is within a striking distance of the $2000 mark. The need of the hour now is for India to forge its own path and use its own ideas in driving a domestic consumption-led economy, instead of blindly aping the West.

With ecommerce itself becoming a traditional business, pure ecommerce players will soon face tremendous challenges. We anticipate the birth of a re-imagined retail industry driven by the integration of online, offline, logistics and data across a single value-chain
- Jack Ma