November 16, 2020

The Rise of Chinese Brands

There was a time when China was regarded as the blue ocean for international brands. However, in recent years international brands are losing the attention from their Chinese customers, and local brands are winning consumers’ hearts instead. After “Double 11,” the largest e-commerce shopping festival in China, the trend of emerging Chinese brands has become even more clear. A few noteworthy observations below.


Let’s set the stage: The Rise of New Chinese Brands

Historically, international brands like Apple, Nike and ZARA used to take over the best-seller lists of China’s Double 11. However, in the past 12 months, things have changed. According to statistics from Tmall, one of the leading Chinese e-commerce platforms, nearly 80% out of the 299 brands which made it into the 100-million-dollar-club in 2019 (brands that saw over RMB 100 million in sales revenue during Double 11) were local ones. A report published by Ali Research also indicated that the online market share of domestic brands in China has reached up to 72% in 2019.

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The online market share of domestic brands in China has reached up to 72% in 2019.

This year, e-commerce giants such as Tmall, JD.com, and Pinduoduo even launched their own incentive programs to accelerate the development of Chinese brands. As a result, during the Double 11 period this year, 357 Chinese brands established for less than 3 years were best-sellers on Tmall. Compared to the same period last year, only 11 achieved that status. A beauty startup called “Perfect Diary” became the first Chinese brand ever to win first place in the cosmetics category, defeating all international opponents such as L’Oréal, Estée Lauder, and Lancôme. The preference for local Chinese brands over international households names, has arrived.


In a Nutshell: What Triggered the Wave?

The fundamental improvement of China’s manufacturing and brand marketing has driven this shift in consumer behavior. Chinese products have improved their quality, design and prices that have helped overcome historical resistance to buying local.

Superior online shopping experiences with native social media integration is another reason fueling consumer preferences for local Chinese products. Through digital and influencer marketing and analytics, brands can effectively reach qualified customers and deliver relevant content. Furthermore, closed borders due to the global pandemic increased the cost of international logistics, driving many Chinese companies to prioritize their domestic customers. Consequently, customers are now more likely to buy domestic products because there are more options available to them.

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Gen Z consumers share the domestic brands they recommend on social media.

Last but not least, Gen Z has contributed significantly to the rise of Chinese brands. With a population of 260 million, Gen Z is now one of the main forces of consumption in China. When it comes to purchasing decisions, young shoppers are more price sensitive and value driven. Chinese brands provide products with lower costs, better quality and cultural meaning significance, perhaps explaining why Gen Z consumers chose Perfect Diary over L’Oréal, Lining over Nike, SanturnBird over Nespresso, Wang Baobao over Cerear, and Chicecream over Haagen Daz nowadays.

The shift in consumer behavior is also reflected in the capital market. In the past 2 years, many new local Chinese consumer brands have received investments from well-known VCs, such as Sequoia, Hillhouse Capital Group and Source Code Capital. For example, SanturnBird coffee and Wang Baobao cereal closed their series B round with more than RMB 100 million in funding. Perfect Diary also completed a round of financing with USD 140 million, which increased its post-money valuation to USD 4 billion, and it is now preparing to go public in the United States. We predict the wave of both consumer interest and institutional money will continue into the foreseeable future.


Why Should This Matter to You?

Besides the emerging brands in China, we have also seen some Chinese brands that have already expanded into the global market. Pop Mart, a toy company from Beijing, has successfully expanded into several Asian countries with its popular IP “Molly”. And SHEIN, a fast-fashion e-commerce platform, expanded so fast that it has already become a major competitor of ZARA and H&M. According to Google Trends, its search volume was already 3 to 4 times that of ZARA in the United States since this January.

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The Search Volume Comparison between SHEIN and ZARA in the US market.

These Chinese brands that have successfully expanded into the global markets have successfully localized their content to engage with diverse consumers. Sometimes, consumers don’t notice that the brand they are purchasing is not only manufactured in China, but branded in China as well. This certainly will keep international incumbent brands on their toes…

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