China Consumer

Third-tier targets

How to entice consumers in rural China?


Trendsetter for rural shoppers

Many mall operators attract shoppers by placing large retailers as anchor tenants on the ground floor. Wanda Group has a different strategy in Bengbu, a third-tier city in Anhui province, shunning big brands like Levi’s and H&M in favour of local names that most people outside China have never heard of.

Take PeaceBird. The homegrown casual wear brand has over 4,300 outlets around the country and it consistently outsells Swedish fashion giant H&M in Bengbu where they are competing in the same shopping mall, says CBN Weekly.

The reason? “Bengbu is a labour export town, which means that a lot of locals here have left for other cities like Shantou for work. Those who stay behind are not usually very receptive to the latest fashion trends,” Jiang Keman, a manager at a local InTime mall, observes.

In many ways Bengbu highlights the differences in consumer habits between different Chinese cities (Bengbu has a population of about one million). Brands that have done well in places like Beijing and Shanghai, don’t necessarily have similar success in smaller cities.

For instance, on an average day at the InTime mall in Bengbu, global footwear retailers like Skechers and Japan’s Onitsuka Tiger are not short of visitors. However, shoppers often leave without buying anything. It is not until the Lunar New Year period that sales see an uptick – because that’s when most migrant workers return home to shop for gifts for their relatives.

Bargain hunting is one of the reasons consumers in lower-tier cities are shunning foreign brands. But rural shoppers say they are often more attracted to the designs of homegrown labels. One consumer told CBN Weekly that she bought a jacket from H&M for Rmb299 ($48) but she still preferred a similar style but more expensive jacket from PeaceBird, which cost Rmb499, because the latter is “trendier”.

PeaceBird’s goal, says Beijing News, is to be younger and hipper than Zara’s teen line TRF. To that end, the company has over 500 in-house designers who churn out over 8,000 designs a year, according to Economy and Nation Weekly. In addition to women’s fashion, it also carries men’s and children’s offerings and even home décor.

Still, most of PeaceBird’s bestselling merchandise would have Shanghai shoppers scratching their heads. But some of its success is also down to being able to capitalise on a window of opportunity where it can spot a trend in Shanghai and act to offer its own distinct take on it. “Bengbu shoppers look up to Hefei (the capital city of Anhui); and people in Hefei look up to Beijing and Shanghai. What usually happens is that Bengbu shoppers will only embrace a trend once they have seen it in Hefei or Shanghai. So there is a time lag when it comes to trend adoption,” says Jiang at InTime.

La Chapelle, another homegrown casual wear label, also generated as much as Rmb10 billion in sales in 2016 and 45% of it came from third-tier cities. To target shoppers in less developed cities, La Chapelle’s strategy was simple: make up a French-sounding name but keep the styles as close to South Korean and Japanese designs as possible. It also keeps prices under Rmb300 an item.

When it comes to shopping habits, consumers in rural areas also stick with the maxim that “seeing is believing”. Even though they receive fashion tips from the internet and social media, they will also browse through bricks-and-mortar stores to confirm those trends before making a purchase. Small wonder then that PeaceBird says it is committed to opening new stores at a time when many other bricks-and-mortar retailers are struggling (see WiC364).

Still, with all these apparel makers targeting the same group of consumers – 25 to 35 year olds, a demographic that is notoriously fickle – the competition is cut-throat.

Look no further than Metersbonwe, a domestic brand that used to be especially popular in lower-tier cities too. Since 2013, the apparel maker has closed down more than 1,500 retail outlets. In the first nine months of last year, it also reported a net loss of Rmb1.5 billion, says Sohu, a news portal.

CBN says one of the few foreign brands that succeeds equally well in first- and third-tier cities is Japan’s Uniqlo.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.