In contrast to the mainland’s previous demographic shift, which saw residents from rural areas flock to its “key” first-tier cities (Beijing, Shanghai, Guangzhou and Shenzhen), China will undergo “a rebalancing of the economy driven by active government policies and deep social trends.”
The country’s 613 cities are divided into four tiers according to myriad factors — value of the city’s economy, political clout, strategic importance and population size being a few — but investment is now helping drive growth and close the gaps between tiers. Where fashion and beauty brands have long concentrated their efforts on engaging with consumers in top-tier cities, a levelling out will be game-changing for retail strategies across fashion, beauty and luxury categories.
According to Cheng, much of this economic development is happening in China’s 19 “city clusters” — made up of three world-class clusters, eight medium-sized clusters and eight small-sized clusters — that are each as big as an entire country in other parts of the world.
Because of high intra-cluster connectivity (from digital infrastructure to transportation), cities like Chengdu, which boasts a population of over 16 million, are the new critical points-of-contact for those aiming to succeed in China. Other hubs to watch include Wuhan, Hangzhou, Chongqing, Xi’An and Nanjing, but the list goes on.
China will undergo “a rebalancing of the economy driven by active government policies and deep social trends.
These demographic shifts have also birthed a new wave of shoppers (alongside a rise in wealth) in second-tier and below cities. “I have many friends who used to think first-tier cities were their only destination but are now ready to move back to second-tier cities where they can enjoy a similar quality of life [with an improved] work-life balance.”
For brands, China’s growing middle class, crowded retail sectors in first-tier cities and low costs in lower-tier counterparts signal room for growth. But the sea change will also complicate China’s already opaque retail landscape. “We have seen plenty of cases [where] brands fail to capture the [consumer] appetite from lower-tier cities, because nuances [in taste and behaviour] do exist,” says Cheng.
“In lower tiers cities, [logos] might often be more important than brand equity, and KOLs usually have a larger influence than branded official content. The competition with local brands is [fiercer] there.”
Nonetheless, Cheng urges brands to look ahead, or risk being left behind. “If you want to win China, win the future cities.”
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