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China's Resilient Big Spenders: What They're Buying and the Benefitting Stocks

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China's "Premium" Consumer Population Presents Big Opportunity for Foreign Sportswear Brands

A Lucrative Consumer Base

According to a report by Bernstein, China's "premium" consumer population presents a huge opportunity for foreign sportswear companies. This consumer base is roughly the size of the adult U.S. population and is considered to be more immune to short-term economic concerns compared to mainstream and lower-end consumers. The premium segment in China is composed of 263 million people, one-fifth of the country's total population.

Growth Potential in the Premium Segment

The premium segment in China is expected to grow at a faster rate than the mainstream market. Bernstein's analysis divides the premium segment into two categories: a top group of 93 million consumers earning an average of $95,000 annually, and another 170 million consumers earning an average of $26,000 annually. This significant growth potential makes China an attractive market for international sportswear brands, despite intense competition from domestic brands.

Competition from Domestic Brands

Two leading domestic sportswear brands in China, Li Ning and Anta Sports, are listed in Hong Kong and have experienced strong revenue growth despite the pandemic. Both brands have a strong presence in the Chinese market and pose competition to international brands like Nike and Adidas. The competition is intensified by the price difference, with Nike and Adidas offering higher-priced products compared to local competitors like Anta.

Premium Brands and Market Segmentation

In China, sportswear brands are perceived in a similar way to car brand rankings. Nike and Adidas are considered the highest-end brands, similar to Benz and BMW, while other brands like Anta are considered more affordable, like Audi or Toyota. This perception creates distinct market segments based on price. Nike and Adidas offer premium products that have a higher price point compared to local competitors.

Expanding Presence in China

To tap into the growth potential of the premium segment in China, foreign sportswear brands like Nike and Adidas are expanding their presence in the country. Bernstein believes that the premium growth potential in China is a key factor in the positive outlook for these brands. Even Hoka, the premium shoe brand owned by Deckers, is planning to expand in China by opening physical retail stores in major cities and establishing an e-commerce presence.

Considering Smaller Cities and Untapped Markets

While the premium segment offers great opportunities, it's important not to overlook the fact that many of China's consumers reside in smaller cities. These less developed regions, with a population of about 1.2 billion people, account for a significant portion of consumer spending. Companies like Pinduoduo and Cotti Coffee are targeting these untapped markets, alongside the big cities, to capture the potential growth in these regions.

Hot Take: Seizing the Opportunity in China's Premium Consumer Market

The presence of a large and growing "premium" consumer population in China presents a significant opportunity for businesses looking to enter the sportswear market. With a consumer base roughly the size of the entire adult population of the United States, foreign sportswear brands have a chance to tap into this lucrative market.

Despite facing competition from domestic brands such as Li Ning and Anta Sports, international companies like Nike and Adidas can capitalize on their reputation as top-tier brands to attract the premium segment in China. By offering high-quality and higher-priced products, they can establish themselves as leading players in the market.

However, it is essential for new businesses to adopt a nuanced approach and consider the untapped potential in smaller cities and less developed regions. These areas account for a significant portion of consumer spending and should not be overlooked. By targeting both major cities, where the premium segment is concentrated, and smaller cities where substantial consumer bases exist, new businesses can maximize their growth potential in China.

Expanding their presence in China, both physically and through e-commerce, is crucial for foreign sportswear brands to capitalize on the growth potential of the premium segment. As more consumers in China embrace a premium lifestyle, businesses that establish a strong foothold in the market now will have a valuable advantage in the future.

In conclusion, while competition from domestic brands exists, new businesses should not shy away from entering China's premium consumer market. By offering quality products, considering market segmentation, and targeting both major cities and untapped regions, there is ample opportunity for success in this highly promising market.

Article First Published at: https://www.cnbc.com/2023/07/16/what-chinas-resilient-big-spenders-are-buying-and-the-stocks-that-benefit.html

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