China’s Gen Z consumers are driving the growth of domestic Chinese brands due to their rising purchasing power, said a senior executive at consumer-focused private equity firm L Catterton.
This group of young consumers — born between 1996 and 2010 — accounts for 17% of China’s population but 25% of total expenditure on new brands, according to L Catterton’s latest consumer insights report on China.
Unlike previous generations, China’s Gen Z cohort is notably more globally minded and enthusiastic about “Made in China” products, Charlotte Chang, vice president of consumer insights at L Catterton, said in an interview on CNBC’s “Streets Signs Asia.”
“They’re so interesting, not only because of their outsized spending power and how digitally savvy they are. But also because they seem to exhibit this openness and interest in exploring domestic Chinese brands, a lot of which are actually direct-to-consumer (DTC) companies, which employ digital channels to interact directly with their consumers,” Chang said.
People walk outside a shopping mall complex during the country’s national “Golden Week” holiday in Beijing on October 2, 2020. (Photo by NICOLAS ASFOURI / AFP) (Photo by NICOLAS ASFOURI/AFP via Getty Images)
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In addition to their openness toward Chinese brands and high willingness to spend, Chang said China’s Gen Z consumers have also cultivated unique consumption habits, which create opportunities for new start-ups.
She highlighted cosmetics brand Perfect Diary and toymaker Pop Mart as having benefitted from this trend.
“To understand the success of these businesses … we need to dig into the psychology of these Gen Z consumers. They want something that is different from the previous generations and also want something that is an expression of their values,” said Chang, adding that those elements will be key for homegrown brands to maintain their attention.
Overall, Chinese consumer spending is set to more than double in 10 years, with an emphasis on services rather than goods, Morgan Stanley analysts recently predicted in a roughly 200-page report. By 2030, China’s private consumption is set to reach $12.7 trillion, about the same amount that American consumers currently spend, the report added.
Chang highlighted that China’s capital market has also doubled down on consumer brands, making it one of the few sectors to see an increase in activity in 2020.
“These Gen Z-focused, digitally savvy direct-to-consumer companies are fairly attractive investment targets for us and not only us,” noted Chang. “The whole consumer investment landscape in China was booming last year. The level of transactions grew 23% year over year, relative to 2019, despite the first half of the year being dampened in by the pandemic.”