6 min read.
Guochao has become a crucial buzzword in China ever since the successful debut of domestic sportswear brand, Li-Ning, at New York Fashion Week in 2018. Comprising “guo (国)” and “chao, (潮)” which represent “country” and “fashionable (潮流)” respectively, this movement has received overwhelming support from Millennials and Generation Z consumers in particular.
A large part of guochao can be attributed to an improvement in quality of local brands’ products. With their strong understanding of the domestic market, local brands have gained a competitive advantage over their foreign competitors in being quick to respond to consumers’ needs and shorter the production cycle to meet increasing demands. According to Baidu and the Research Institute of People.cn, the percentage of keyword searches for Chinese brands surged to 70 percent of all searches on the Internet in 2019, up from 38 percent in 2009. Meanwhile, the tags associated with Chinese brands have also changed from “OEM (original equipment manufacturer)” and “low quality” in 2009 to “core technology” and “independent R&D” in 2019.
Why Millennials and Generation Z?
Having grown up in an era where China, the world’s second-largest economy, is quickly catching up with its western counterparts, many Millennial and Generation Z consumers have developed genuine confidence in their national identity and traditional culture. While foreign brands used to have a halo effect surrounding its physical and aesthetic quality when compared to local brands, many Chinese brands have made significant headway in improving the quality of their products, introducing trendy elements and creatively incorporating technology into them.
These factors have all drawn younger consumers towards local brands, who tend to prioritize seeking novel products, rather than focusing on purchasing luxury items like older generations did. For Millennials and Generation Z, creativity, innovation and sustainability are key. This shift in preference signifies that famous international brands such as Nike and Adidas no longer have a leg up on local brands, if the novelty of their products were comparable. Therefore, as long as domestic brands ramp up their research and development for their products, they are no longer viewed as inferior to big foreign brands by younger consumers.
Moreover, the high digital penetration rate of Millennials and Generation Z in China has also fuelled the rise of e-commerce platforms. Being the main platform for Millennials and Generation Z to do their shopping, e-commerce platforms have increased the accessibility of domestic brands to young Chinese consumers significantly, while allowing brands to adapt to consumer needs quickly and improve their products accordingly. According to Mirae Asset, as compared to traditional marketing and sales practices, digital platforms provide more innovative ways of communicating with consumers. They are also more interactive and can thus improve consumer experience, while promoting brand loyalty.
Given the paradigm shift of consumerist habits and preferences among Millennials and Generation Z, it is no surprise that many guochao trends have surfaced in the Chinese market, centered around creativity, innovation and sustainability.
Trend 1: Athleisure
One of the leading sectors in the guochao movement is the athleisure and sportswear industry, given how health awareness has become an important aspect of daily life, alongside improvements in Chinese consumers’ standard of living. In striking a balance between staying fit and healthy, while being relaxed and comfortable, many young consumers have turned to athleisure as a fashion statement. To them, sportswear has expanded beyond functional shoes and apparel to include urban lifestyle outfits that are wearable on a daily basis. For example, yoga pants have become increasingly popular among women, with many young female consumers donning them as casual wear, instead of just workout gear. Similarly, ‘smart’ watches have also become trendier and more popular than luxury watch brands.
As a result, the size of China’s sportswear market has grown steadily over the years, with domestic brands like Li-Ning and Anta rising in popularity. Unlike in the past where foreign brands were preferred over local substitutes due to the general perception that the former had goods of higher quality, consumers from younger generations no longer hold such a belief. Not only have the quality of local brands’ products improved significantly in the past few years, younger consumers also increasingly find it pointless to pay 40 to 50 percent more for Nike or Adidas products when local brands such as Li-Ning and Anta are equally functional and trendy.
Even at comparable price points to foreign brands, local Chinese brands have also increasingly retained their popularity in recent years. According to Mirae Asset, industry growth in athleisure gear will continue to benefit both global and local brands, but domestic brands are expected to experience stronger growth due to the ongoing trade war between the U.S. and China.
Trend 2: Smartphones
When it comes to Millennials and Generation Z, the Internet and smartphones are undoubtedly their primary sources of information, as well as their main modes of communication. As a result, they have also influenced the Chinese smartphones market significantly.
In the smartphones market, foreign brands such as Apple and Samsung have faced increasing pressure from local brands since the beginning of the 4G era. In 2019, the International Data Corporation reported Samsung’s market share in China to have shrunk to a mere 0.8 percent, while Apple’s market share dropped to 8.9 percent, as part of a persistent downward trend since 2015. Meanwhile, domestic trends began gaining traction, especially Huawei, whose market share nearly doubled from 2017 to 2019, following U.S. sanctions on its products. As a result, the combined market share of the top 4 Chinese smartphone brands soared to 84.6 percent in 2019, as compared to only 46.1 percent in 2015.
Now, with Chinal leading in the global deployment of 5G technology, Chinese consumers have increasingly turned towards smartphones of local brands, including Huawei, Oppo and Xiaomi. Even new entrants like the Chinese smartphone maker Realme, which offers the lowest price for a 5G smartphone in China currently, have also gained prominence among Chinese consumers. In fact, the two-year-old Chinese startup has already emerged as the world’s 7th biggest smartphone market by shipments in the first half of 2020, according to Counterpoint’s research, surpassing more established players like Sony and LG Electronics.
Trend 3: Brand Collaborations
With an increasing focus on novel products that are able to stand out from the crowd, China’s Millennial and Generation Z consumers have also fuelled a culture of “mega-collaborations” between different brands. Previously, one would never have expected brands as different as Pepsi and People’s Daily to be able to establish common ground, much less collaborate on a product. However, 2020 has seen an expanding range of brand collaborations extending across genres and industries, in order to keep up with the ever-changing preferences and demands of young Chinese consumers.
With an increased emphasis on individualism, alongside growing sentiments of patriotism, both local and foreign brands have been able to tap into the national pride and cultural heritage shared by many young Chinese consumers. Collaborations such as that of Pepsi x People’s Daily or KFC x Liushen (a traditional Chinese medicine brand) have found success by incorporating strong cultural elements provided by the domestic brand, as well as the exclusive nature of their limited-edition collections. Therefore, for international brands looking to penetrate the Chinese market, experts have identified such collaborations to provide an opening going forward.
As China continues to be a major focus of attention for local and international brands alike amid the ongoing COVID-19 pandemic, competition will likely intensify in securing the support of Millennial and Generation Z consumers. Given how the “Made in China” tag is winning the hearts of many young Chinese consumers, the popularity of domestic brands across all industries can only be expected to rise even more.
Additionally, trade tensions between the U.S. and China have further fuelled a strong sense of national pride and identity among young Chinese consumers, which have steered them away from international brands and towards local substitutes. Therefore, international brands that wish to remain competitive in the Chinese market should actively seek ways to dissolve geopolitical tensions with its audience and establish meaningful connections with them.