By 2015, China is expected to have more than 4 million wealthy households, making it the world's fourth-largest country in terms of its number of wealthy households after the United States, Japan, and the United Kingdom, says a new report by global management consultants McKinsey & Company. The number of wealthy households—defined as urban households with annual income in excess of 250,000 renminbi—reached 1.6 million in 2008.
The research, which included face-to-face interviews with 1,750 wealthy households from 16 cities in China, highlights the rapidly growing and fast-changing nature of China's wealthy consumers. While the wealthy currently account for less than 1 percent of urban Chinese households, their numbers are growing at around 16 percent per annum. About one-half of today's wealthy consumers were not wealthy four years ago, and more than half of those who will be classified as wealthy in five to six years are not wealthy today.
Spending habits can change quickly when market growth is so explosive. For example, only a few years ago, Chinese consmers made most of their luxury goods purchases abroad. Today, 60 percent are made in mainland China, says McKinsey.
At present, the wealthy are concentrated in the east and central south regions of the country, and around 30 percent live in China’s four largest cities. The top ten cities are home to 50 percent of China's wealthy consumers, compared with around 25 percent in the top ten U.S. cities. McKinsey estimates that three-quarters of the growth in the wealthy consumer segment will come from consumers who do not currently live in the four biggest cities.
According to McKinsey, the most striking difference is how much younger wealthy Chinese consumers are than their global peers. On average, wealthy consumers in China are 20 years younger than those in the United States and Japan. Some 80 percent are under 45, compared with 30 percent in the United States and 19 percent in Japan. They are also much better educated than other Chinese consumers and are more often self-employed.
There are also marked differences between the wealthiest consumers and most other consumers in China. For example, wealthy consumers trust foreign brands more, are typically among the first to buy new technology, and are far more willing to pay a premium for high-quality products than their mainstream counterparts. Wealthy consumers also differ in another, more suprising way: 53 percent of wealthy respondents in McKinsey's survey confessed that they have a difficult time striking the right balance between their work and personal lives, compared with just 17 percent for mainstream consumers.
According to McKinsey, China's wealthy consumers are not only different from their foreign peers and less-wealthy Chinese consumers, they are also different from each other in terms of their attitudes and behavior. The research identified seven distinct segments of wealthy consumers, defined according to their different needs and attitudes. For example, consumers in what McKinsey calls the "demanding segment" do not a have a taste for luxury goods, rarely buy the very best, and are content with look-alikes. They also make an effort to compare prices before buying, even for products they can easily afford.
By contrast, consumers in the “luxuriant segment” are most familiar with, and concerned about, luxury. They never settle for less than the best and are attracted by high-end brands such as Hermès and Chanel. They also avoid the brash, opting instead for understated, sophisticated chic. In addition, they are health conscious.
"Current global economic conditions will slow the spending of even the wealthy. But that does not detract from the importance of China’s wealthy consumers to manufacturers, retailers, and service companies across many sectors. Better understanding these consumers will help them in their task, enabling them to better meet the needs of different types of wealthy consumers in China, and to market to them in more compelling and cost-effective ways," said Vinay Dixit, director of McKinsey's Asia Consumer Centers and coauthor of the report.
"As the pool of wealthy consumers in China reaches scale, global luxury players will need to invest in adapting their marketing approaches to the unique characteristics and needs of these consumers. At the same time, brands that currently target mainstream consumers could tap into enormous growth opportunities if they can tailor their brand's value proposition to reach China's wealthy consumers," said Yuval Atsmon, an associate principal in McKinsey's Shanghai office and coauthor of the report.
For more information, visit: http://insightschina.bymckinsey.com
Download the full report (PDF - 1.48 MB)
