Final Project: Conspicuous Consumption at Xidan

By all reports and numbers, the Chinese economy is experiencing meteoric growth.  After the 改革开放(Gaigekaifang)- the opening of China to the rest of the world and foreign investment- China’s economy has grown to become one of the largest in the world. Hundreds of millions of people have been lifted out of poverty, and an entirely new global economy has been created. Furthermore, along with this massive growth have come massive changes to the economic and social landscape. As state-owned enterprises fade from the prominent position they once held, private firms, many of them foreign, have entered the market to fill the void. However, these firms have not only filled a void, they have reshaped the entire commercial landscape. The once austere Chinese consumer has given way to a new generation of Chinese whose purchasing patterns more closely resemble their western counterparts. Despite the generational shift, there exists some major differences in the Chinese market that foreign firms entering the Chinese market must be aware of. First, the rise in conspicuous consumption has created a sharp divide amongst product perceptions. Also, brand perception is everything in China, where foreign is “hip” and luxury is the a status symbol. Though there exists a Chinese middle-class in regards to the people, because of the above differences, there really is not a Chinese middle class product range, at least not yet.

Conspicuous Consumption Graph

CLSA study on Chinese consumption of luxury goods

By all accounts, China’s thirst for luxury goods is growing at unprecedented rates. A recent report created by CLSA and publishedby the Economist suggests that by 2020, the Chinese luxury goods market will equate to nearly 20% of the global market for luxury goods, and many say that 20% is a conservative estimate.[i] That could equal nearly 80 billion US dollars worth of sales a year. However, the key is to look at what is driving this growth and examine what effects it has on branding and purchasing decision.

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The ‘A’ is Joy City and the surrounding buildings are all malls apart of the Xidan district

I recently conducted a series of interviews and observations while in China, the content of which focused primarily on the Xidan shopping complex in downtown Beijing, and more specifically, the Joy City Mall. The Joy City Mall is a large modern luxury shopping mall, carrying stores such as Armani, Calvin Klein, Zara, and Hugo Boss, that is part of a larger complex of malls that carry all price ranges of products. Joy City, though, is the most upscale of all the malls, and also boasts a fine-dining area as well as elegant marble floors and spacious layout. In line with the overall trend I discovered, an interview subject described going to Joy City as more than just shopping. They indicated that it was about taking in “a fancy experience”[journal entry]. They went on to clarify their statement by describing the people that shop at Joy City as trying to experience an American experience. They interview subject wanted to impress upon me the fact that shopping at Joy City was not about just buying products; it was more about the overall experience, and more importantly, a western experience. But this phenomenon is not universal in China. In Joy City, I was hard pressed to find someone that appeared to be over 40 in the mall, and research supports the generational divide.

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Hand drawn map of Xidan from initial visit

It did not take long for the generational homogeneity in Joy City to be noticed. Dining at an upscale restaurant in Joy City with Carine, a Beijing native and my initial contact, I could not help but notice that almost the age of entire restaurant customer base was twenty-five or younger. Recent studies have identified three distinct generations in modern China that each exemplifies different consumer habits. The first generation grew-up in relative poverty and therefore is unlikely to consume many luxury goods. The second generation, buys some luxury goods but is still relatively price sensitive, while the third generation has been consuming luxury goods since birth, and are characterized as the least price sensitive.[ii] The generations tend to match up with defining era’s in China’s last fifty years. The first generation, the ones least likely to purchase luxury goods, lived through the hard years of the Cultural Revolution during 1966-76. The second generation, which buys some luxury goods but remains price conscious, is defined by the Economic Reform Era of 1980-1991. Thile the third generation has really only experienced the “Era of Globalization in China” since 1991.[iii] The third generation of Chinese citizens is the one driving the massive surge in luxury spending, and they are the ones that are frequenting Joy City.

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Winding alleyways of lower-tier chinese malls at Xidan

This three-generation gap can be easily identified in the several square blocks of Xidan. As noted earlier, there are several types of malls that sit right across the street from each other. Joy City is the most upscale mall with the youngest crowd. However, across the street, there are several large buildings with few windows that house the less formal and more functional vendors. In these buildings, winding interior alleyways and dark stairwells lead to small vendors hawking their wares. Little women sit on upturned five-gallon buckets and shout out prices and products to everyone in earshot. At these locations, few prices are set and it is up to both parties to come to an agreement. In these lower tier malls, the average age of the consumer rises dramatically. There is a marked difference in the experience as well. The frivolities of the potted plants, marble floors, and spacious promenades, such as seen in Joy City, are gone. Here, people are buying for necessity and everyday life, not for the luxury of the upper class. When trying to figure out how these two very different locations can compete for business, I realized that the consumer lines have already been drawn, the consumers were decided seemingly at birth. However, there is still generational overlap.

When interviewed several subjects about why the young people liked the foreign brands so much, I received several different explanations. The first explanation for the desirability of foreign brands was quality. There exists a perception that foreign brands produce higher quality products than Chinese brands [journal entry]. In regards to the clothing being purchased at Joy City, it must be considered that these people were comparing the clothes of a Zara or Calvin Klein to the brand-less clothes of the vendors haggling across the road. Although Carine, my main interview subject, also said that most Chinese consumers view the two price points differently. People will buy most of their clothes at the lower end malls, while saving up for an outfit or two from a high-end foreign brand.

This leads me to the next reason that people said that they bought from the western companies was to look good, one person even said, “to look rich.” This raises several more explanations for the appeal of Western brands. The first is the appeal of fashion for fashion’s sake. It is about being trendy and appearing well dressed. Even this is drawn in part from Western influences, though. Nearly every Chinese person that I spoke with, through formal interviews and in daily life knew the American television series’ Gossip Girl, Vampire Diaries, and Desperate Housewives. The first time I met with my language partner, she tried to connect with me through these shows. She was shocked when I said I had not seen them, because she believed these shows were an inherent part of American culture.

In a display of American soft power, these shows shape not just the Chinese perceptions of Americans, but also of American consumption habits. As one person pointed out, the characters of these shows never wear athletic shorts, sweatpants or t-shirts. When one considers that the common word amongst young Chinese for trendy or stylish is 洋气 (Yangqi)-which literally translates as “foreign style” – it is easy to see how the perception that foreigners all dress nicely all the time, combined with the belief that foreign style is the ideal, combine to create a massive market for higher-end, foreign clothes.  This also provides another explanation for the lack of older Chinese in Joy City. Not only were the older generations shaped by different experiences, they are not being influenced by the same media sources.

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Glistening facade of Joy City

Arguably, one the biggest reasons for the appeal of Western brands and the increase sale of luxury goods is the phenomenon of  ‘conspicuous consumption.’ This is defined as “behavior in which an individual displays wealth through a high degree of luxury expenditures on consumption and services.” [iv] One of the main ways I witnessed this at Joy City, was through purchase of luxury brands and the carrying of shopping bags, conspicuously stamped with the brand logo, whether it was Burberry, Hugo     Boss, Coach, or Apple. The purpose of carrying these bags was to be seen, and it was seen, but it was also described to me. Several of my interview subjects, when asked about why they would shop at Joy City versus a different mall, said that Joy City had “the best brands” [interview with Carine]. Throughout my research, this idea of “brand” has come up over and over again.  Even in my excursions to the Zoo and Silk Markets, the vendors do not advertise what products they sell, rather they promote the brand the supposedly carry. On a recent outing the Silk Market, I entered a lady’s booth and began perusing button-down, Oxford shirts. She quickly began showing me all the brands she carried and told me “Armani is popular with the Europeans. CK (Calvin Klein) is really popular with the Americans.” Even this lady understood the value in the brand name she was “carrying,” and she perceived the value they were to me. As I continued to research, I found out just how important brand name is to the Chinese consumer.

Recent studies have shown that the Chinese consumer cares more about what brand the product is, than almost anyone else in the world. A 2011 Harris Interactive Survey of young Chinese and American adults found that 72% of Chinese respondents considered “brand name” to be an important factor when purchasing clothes.[v] To put that in perspective, Americans responded in nearly the opposite fashion, with 76% of respondents saying “brand name” was unimportant when making purchasing decisions. Why is brand so important to the Chinese consumer? Perhaps it has to do with conspicuous consumption.

NPR: Gatsby-Like Extravagance And Wealth … In Communist China

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Notes describing the ritual of gaining other’s approval before a purchase

This conspicuous consumption can be seen in nearly every facet of consumer culture and daily life in China. The Chinese lifestyle has even been compared to The Great Gatsby.[vi] However, the comparison between Chinese consumption and American consumption was recently quantified in a study by Podoshen, Li, and Zhang, in which Chinese respondents showed more agreement, when asked to scale agreement to the statements “I admire people who own expensive cars, homes and clothes” and “The things I own say a lot about how well I am doing in life.” The divide between American and Chinese was the greatest when Chinese answered nearly an entire standard of deviation more affirmatively to the statement “I like to own things that impress people.” Though the differences between China and the west are not always excessive, but there are consistent.  The same study asked the same people about conspicuous consumption, and all four questions had statistically significant differences between the Chinese responses and the American ones. In all four questions, the Chinese respondents indicated the importance of the brand connotation, of a product they were considering buying, amongst their friends and society. The Chinese consumer puts much more emphasis on what the brand says about them to society, than the American consumer. This conclusion, paired with the responses regarding what owning luxury items says about the owner, can be combined to conclude that it is important for the Chinese consumer to own the best brands because it indicates wealth and success.

The desire and thirst for western luxury goods has been clearly outlined, but what is most shocking is the prices. There is a common misconception in America that everything is cheaper in China. In fact, the Chinese consumer wants quality, brand name recognition, luxury, and western. When I was walking through several Joy City stores such as Calvin Klein, Nike, and Levi’s, the prices were higher than in the US. A pair of Nike running shoes that retails in the US for $110 [journal], was going for $145. A pair of Levi’s jeans will set you back $150 [journal], and one of the customers I interviewed, said that the prices at Calvin Klein were thirty percent more than in the US. Two of the people I interviewed attend college in the US; both of them said they buy almost all brand name products, whether it’s clothes or electronics, in the US where it is cheaper.

There are several theories as to the reasoning behind this trend. The most obvious answer for why companies charge Chinese customers more is because they can. As noted earlier, the young, third generation Chinese consumer is not as price conscious as their parents or grandparents. They want western products and are willing to pay more to get them. The second idea relates to the earlier mentioned market division. There are still only a limited number of truly middle class stores. For the most part, if you are not buying from a mall like Joy City, you are shopping at a low-end store or haggling with a vendor. Though this is changing, for now this duality remains the defining characteristic of the market. Along with this, there is a desire to flaunt wealth by buying expensive products. If a pair of Levi’s jeans was only priced at $75 (450RMB) than it does not serve the purpose, of conspicuously consuming. The brand derives status from the price.

When one considers that fact that the per capita GDP in China is under $10,000 US, less than a fifth of the US per capita GDP, it begins to make sense.[vii] Though the market for luxury goods is growing, the average Chinese person still has far less disposable income than the average American. If the Chinese consumer is going to pay significantly more for a pair of western jeans compared to a low quality Chinese brand, than they might as well buy a nice pair that elevates status. The dualities of the price-points forces all foreign brands to either commit to the luxury market or compete with the vendors in the “haggle” malls. However, this duality is already changing.

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H&M’s recent push into marketing in China uses the same western marketing images, appealing to “Yangqi”

The rise of China’s middle class is creating a new market tier. There is greater demand for less expensive but still high quality products, as the recent arrival at Joy City of H&M, a low cost European inspired clothing store, can attest. The store, blaring American Top 40s music, was packed with young Chinese shoppers, most younger than 30 [journal entry]. Though the products there were also more expensive than they would be in America, the items were still much cheaper than at Zara, Calvin Klein, or Coach. The store was crowded with young people buying clothing showing that this new class of store has a customer base.

There are a lot of reasons why there is such a large divide between the low and high end in the Chinese marketplace, and Xidan is a perfect microcosm for the greater Chinese economy. However, with the much-touted rise of the Chinese middle class, things are already beginning to change. The arrival of new stores like H&M, and the enthusiasm they are met with proves that the consumer is waiting for a new option. And though the young Chinese consumer is described as less price conscious, that is beginning to change as well, especially as more and more middle class Chinese get the opportunity to go abroad and buy products at foreign prices. Though the luxury market is slated to grow and the conspicuous consumption in China is also an important part society, there is room for change, as long as foreign companies understand how the Chinese market is different from anything they are used to.

 

 

All currency conversions use $1=6RMB



[i] “China’s luxury boom: The Middle Blingdom,” The Economist, February 17, 2011.

[ii] Heather Hillard, Erika Matulich, Diana Haytko, and Hermand Rustogi, “”An international look at attitude towards advertising, brand considerations, and market expertise: United States, China, and India,” Journal of International Business Research 11 (2012): 29-41.

[iii] Jeffrey Podoshen, Lu Li, Junfeng Zhang, “Materialism and conspicuous consumption in China: a cross-cultural examination,” International Journal of Consumer Studies 35 (2011): 19.

[iv] Ibid.

[v] Regina Corso, “Harris Polls: Few Hate Shopping For Clothes, but Love of It Varies By Country,” Last Modified June 24, 2011, http://www.harrisinteractive.com/NewsRoom/HarrisPolls/tabid/447/mid/1508/articleId/825/ctl/ReadCustom%20Default/Default.aspx

[vi] Frank Langfitt, “Gatsby-Like Extravagance And Wealth … In Communist China,” NPR, July 5, 2013, http://www.npr.org/player/v2/mediaPlayer.html?action=1&t=1&islist=false&id=199110663&m=199114125

[vii] CIA World Factbook: China, US

Work Cited

“China’s luxury boom: The Middle Blingdom | The Economist.” The Economist – World News, Politics, Economics, Business & Finance. http://www.economist.com/node/18184466 (accessed July 29, 2013).

CIA World Factbook. United States of America. China. (accessed July 28, 2013).

Corso, Regina A.. “Harris Polls: Few Hate Shopping For Clothes, but Love of It Varies By Country.” Harris Interactive Surveys. http://www.harrisinteractive.com/NewsRoom/HarrisPolls/tabid/447/mid/1508/articleId/825/ctl/ReadCustom%20Default/Default.aspx (accessed August 1, 2013).

Hillard, Heather, Erika Matulich, Diana Haytko, and Hemant Rustogi. “An international look at attitude towards advertising, brand considerations, and market expertise: United States, China, and India.” Journal of International Business Research  11 (2012): 29-41.

Langfitt, Frank. “Gatsby-Like Extravagance And Wealth … In Communist China,” NPR : National Public Radio : News & Analysis, World, US, Music & Arts : NPR. http://www.npr.org/blogs/parallels/2013/07/09/199110663/Gatsby-Like-Extravagance-And-Wealth-In-Communist-China (accessed July 27, 2013).

Podoshen, Jeffrey S. , Lu Li, and Junfeng Zhang. “Materialism and conspicuous consumption in China: a cross-cultural examination.” International Journal of Consumer Studies 35 (2011): 17-25.