Industry overview of the home decor market in China

[Data source: qianzhan.com, “Size of home decor market in China”]

The home decor market in China shows a steady upward trend and is gradually entering  a more mature stage. The size of the Chinese home decor market has exceeded 2 trillion yuan. It is predicted that the market size will reach 2.59 trillion yuan by 2020, maintaining a compound annual growth rate of about 7%. Since the reform in 1998, the Chinese home decor market has experienced the stages of concept initiation, policy reform, and standard-setting. The State Council of China released “the Guiding Opinions on Actively Promoting the ‘Internet Plus’ Action Plan” in July 2015. The home decor industry vigorously responded to the policy on “Internet Plus” transform and upgrade. Currently, the home decor market in China is still mainly driven by new apartment owners. However, with the continuous development of China’s urbanization process, the demand for renovating old homes is increasing in recent years, especially in first-tier cities.

Consumer demographics of the Chinese home decor marketChinese home decor’s primary customers consist of men and women born in the 80s (33%) and 90s (27%). 87% of customers born in the 80s are married and have children, while 65% of customers born in the 90s are unmarried. According to a survey, customers born in the 70s and 80s prefer practical and eco-friendly decorated homes while the younger pay more attention to smart home and personalized trendy decorations. For all age distribution of customers, a simple, clean and practical home is at the top of the list.

Information customers care about while decorating their home

Budget, decoration style, experience from others, environmental indicators, furniture style and brand are the top 5 elements that people most concern in the process of home decoration. For overall style, around a quarter of customers like modern minimalist or ‘Nordic simplicity’ style, known as beiou fengge (北欧风格) in Chinese . At the same time, over 20% of people don’t have a specific pursuit of style. People lay great emphasis on healthy and eco-friendly home decor products, and this is reflected in that they will seek information about environmental indicators, considering the safety of decoration materials and ensuring the health and environmental protection during construction. In addition, more and more people pay attention to smart home and high-tech elements of electrical appliances. 

Customized home decoration products are increasingly welcomed

In a wave of consumption upgrade, customized home decoration products are more and more welcomed in the Chinese home decor market. As shown in a survey, over 70% of people will choose customized productions during the whole process of home decoration. 55% of researched consumers state that they want partially customized home furniture, while 17% of them choose a whole-house customized solution. Besides the advantage of saving time and cohesive style, a whole-house solution can make the home look more high-end and custom-made. Although still at an early stage of development, such a solution is more prevalent in people born in the 70s and people who lived in first-tier cities. 

Elements of choosing home decoration companies in China

Reputation, customer services, the quality of materials, and price-performance ratio are the core elements that consumers will take account of when selecting home decoration companies in China. Customers in the Chinese home decor market are more rational, and people will also consider the various aspects of home improvement companies like whether the products are eco-friendly, whether the designs are reasonable, etc.   However, there is a lot of negative feedback toward home decoration companies in China. According to a survey, consumers are unsatisfied or concern with the home improvement companies in the following contents: the quality of materials and work, extra charge, hidden contract traps, construction delay.  

The rise of the Chinese e-commerce home-decorating market

[Data Source: 2019 Tencent market research and industry analysis, “The type of decoration company used in the process of home decoration”]

Although the traditional home-decorating is still the mainstream, the Chinese e-commerce home-decorating market is booming. Among the total consumers surveyed, 77% of them choose the traditional home decoration, while 9% of them choose e-commerce home decoration, and the rest of them adopt two types of decoration more or less evenly. Nevertheless, it seems that e-commerce home decoration is more favored by people born in the 90s and people who live in first-tier cites.    Consumers list convenient purchasing experience, high price-performance ratio, many varieties, discounts and home delivery as top 5 advantages of Chinese e-commerce home-decorating. And the primary cons are poor information transparency, bad after-sale service and non-guaranteed quality of materials.

High acceptance of advertisements for home decoration

Due to the demand for information, home improvement advertisements are generally accepted by Chinese consumers. In a survey question about the response of online ads for home improvement, around half of people who are in demand of decorating home state that they will read the ads and look through the introduction of products, while over 30% of them will click the link and favorite the ads page. For the online advertising channels, ads on digital social medial are most popular, and over 30% of people can accept ads in WeChat moments, WeChat public accounts, news APPs like Tencent News and Toutiao (TopBuzz) and short-video APPs like Tencent Video and Tiktok. So, in order to reach their target customers, merchants can take advantage of multiple channels to advertise.  

Promotion strategy of home decoration companies in China

With the trend that millennials are becoming the primary consumers, home decoration companies and suppliers should know and understand the needs of these customers to win the market. Tips for marketing to millennial home-owners First, based on consumer insight, build segmentation strategies targeted at different customer groups. Those with family may be more concerned about safety, while those in high-tier cities may be more concerned with appearance. Second, monitor and optimize the outcome of ad serving by leveraging the power of digital platforms.Third, integrate online and offline channels to promote effectively. Most millenials are avid users of social media platforms like WeChat.  Last, focus on new core demand like decoration style, eco-protection, smart home and price-performance ratio to satisfy the needs of different customer segmentation.

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Performance of China’s furniture market: decreasing performance in 2018

According to the National Bureau of Statistics, in 2015, there were 5,290 furniture enterprises in China with a total estimation of 769.61 million pieces of furniture produced. China’s furniture industry has made tremendous progress, and the country has become a world-class location for setting up furniture factories and an important export base. According to the Chinese Family Development Report in 2014, there were roughly 430 million households and it is expected to be 500 million by 2030 in all provinces of China. To add to that, the low labor cost and large consumer market in China has attracted many foreign furniture enterprises. Due to large differences in practices throughout the country, China’s furniture industry is neither homogeneous nor predictable. Chinese consumer expectations and purchasing behaviors have marked regional variations, particularly for products reflecting cultural and personal tastes.

Sales volume stabilizing

The sales volume of furniture experienced growth in 2016 and 2017. Nevertheless, in 2018, it decreased to 758.79 million. In the same time, the market size of China’s furniture industry shrunk to 525.33 million RMB in comparsion with 732.98 million RMB in 2017. This is due to the fact that China’s furniture market was highly affected by the performance of the real estate market in China. In 2018, the policy of China’s real estate market became tightening thus it led to decreasing performance of China’s furniture market.  

[Data source: chyxx, ‘Production volume in China’s furniture market’]

[Data source: chyxx, ‘China’s furniture market size’]

Performance of IKEA in China: affected by preferences of furniture consumers in China 

China’s furniture market is still developing with advanced manufacturing and application of information technology in production. Furniture enterprises will have to upgrade their products to bring greater added value by raising the level of technology in innovation to achieve “low cost, high quality, high efficiency”. At this moment, the future development trend is green manufacturing in which the whole life cycle of products must be conducive to the environmental protection and the reduction of energy consumption. Foreign industry players will need to step up their pace of entering china. As of 2015, global furniture retail giant IKEA in China has opened up to 18 stores and the largest sourcing country with 22% of its global purchases with about 300 local suppliers. The company intends to expedite its pace of expansion in China, hence number of stores is increasing every year.

As of August 2019, IKEA in China has opened 28 stores. Even though this figure is increasing, the growth rate of sale volume in China’s market dropped to 9.3% in 2018 in contrast with more than 10% from 2011 to 2017. This can be explained by the fact that furniture consumers in China are demanding products with more than design, in other words, quality matters. IKEA’s furniture receives criticism in China for not being durable and this has affected IKEA’s reputation in China. Apart from the quality, some Chinese netizens say the interior and the location of IKEA’s stores are not consumer-friendly.

[Data source: winshang, ‘Number of IKEA stores in China’]

IKEA in China’s strategy for the China’s furniture market: Standardization VS localization

Furniture Retail Giants, IKEA Group a franchisee of Inter IKEA Systems BV brings its unique style and sales model to China. IKEA in China belongs to IKEA Group and operates as a joint venture. This venture served as a good approach to test the market, understand the local needs and adapt strategies to gain competitive advantage. IKEA had to make adjustments to its marketing strategy as the company uses its product catalog as a major marketing tool. IKEA in China realized that digital marketing was the way to go, with that IKEA Group used digital technologies using the internet such as Chinese social media and micro-blogging for their marketing campaign to gain market attractiveness and brand recognition. Also, IKEA  had to adjust its store location strategy as most consumers in China use public transportation. Rather than the usual stores in the suburbs, IKEA sets up its stores on the outskirts of cities which are connected by rail or metro networks.

IKEA in China has made all the necessary adjustments to certify that there were minimal obstacles in its growth ambitions, and brand promise. IKEA has demonstrated courage, adaptation, and awareness to shift its production, work with local sources, overcome legal requirements and adapt brand proposition to suit the level of development of the market and consumer perception. With that, to grow globally requires sacrifices and innovation from global teams, listening to the local team, and learning with an open mind.

As mention as an example above, IKEA entered the Chinese market by learning from their mistakes and continuously adapting to the changing environment. Not many companies have the ability to go through trial and errors because it is very costly when mistakes are made. Moreover, IKEA’s strategy in China’s market embodies either standardization or localization, sometimes both of them.

IKEA’s strategy in China’s market: maintaining core value of IKEA’s business (standardization)

“To create a better everyday life for the many people” is the IKEA vision. The business objective of IKEA is to “offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.” In order to execute this business objective, IKEA applies the same business model (the inferior of the store, a range of products and services and the management style) everywhere, including China. Furthermore, the design of IKEA’s furniture which features simplicity are are popular among young people in China. This has become one of IKEA’s business drivers in China.

IKEA’s strategy in China’s market: updated sales channels (localization)

Development of IKEA’s E-commerce

Since E-commerce is a current trend in China’s business market, many firms have keep pace with it and updated their sales channels, IKEA is among them. In 2016, IKEA officially launched the online shopping service in Shanghai. Two years later, the service has expanded to 149 cities in China. In 2018, IKEA made an official announcement that its official website is the only online sales channel in China. By collaborating with Amazon and Boyol the logistic firm, IKEA categorizes the products into “small-scale parcels” and “large-scale parcels”. What is more, the delivery price of small-scale parcels is 9.9 RMB whereas that of big-scale parcel is 69 RMB. It can be seen that IKEA attempts to lower the delivery fees in order to maintain and expand its customer base in China. Updating sales channel is a milestone in IKEA’s business in China as the company tries to reach its customers in multiple ways.

Collaboration with downtown shopping centers

IKEA received criticism on the inconvenience of their store locations, as they are located in remote areas. In order to tackle this issue and satisfy customer’s need, IKEA has established collaboration with downtown shopping centers, that is, building mini IKEA stores in these shopping centers. In 2016 and 2017, IKEA opened Pick UP & Order Point stores with the area of 1800-3000 square meter in Wenzhou and Beijing respectively. These actions have proven that IKEA has tried to approach IKEA customers in China while meeting their expectation.

[Photo source: winshang, ‘Guohua Shopping Center and IKEA’]

Pop-up stores are the current trend

Going to a place and posting photos regarding the experience on social media platform has been a trendy consumer behavior in China. By taking advantage of this, from August 24th to October 7th, IKEA launched its pop-up store in Beijing featuring youth and urban lives. It was such a good promotion which potentially led to increase in customer base since many young people noticed it and went there to take photos. It was not the first trial for IKEA to open such an unusual store. In December 2017, IKEA have started opening pop-up stores for the purpose of selling small-scale items. By the end of September 2019, IKEA has opened 2 concept stores in China in order to amaze IKEA customers in China meanwhile promoting their services and products.

[Photo source: China.cn, ‘Pop-up store of IKEA in China’]

[Photo source: China.cn, ‘Pop-up store of IKEA in China’]

IKEA’s strategy in China’s market: service and product diversification (standardization + localization)

IKEA’s catering business in China is astonishingly successful. In 2015, IKEA’s cafeterias served over 31 million IKEA customers in China, sold 6 million units of meatballs and 12 million units of ice-cream. Cafeterias have large contribution regarding the sales value of the whole IKEA business. In the global market, it occupies 5% of the total sale value while 10% in China’s market.

As for the standardized food, Swedish meatballs and IKEA’s ice-cream are the signature dishes. Because of IKEA, Swedish meatballs and sauces come to be the nation’s dish of Sweden. Moreover, IKEA customers in China like the meatballs. Selling Swedish meatballs in IKEA enables Chinese customers to taste something exotic.

[Photo source: Sohu, ‘Swedish meatball of IKEA’]

China’s IKEA stores localize the food options

Apart from the signature, in order to tailor to local tastes, IKEA also keeps developing and launching localized dishes that fit the preference of IKEA customers in China. For example, in Guangdong, there is dim sum in IKEA’s cafeterias; in Sichuan, customers are able to taste Sichuan hotpot; in Shandong, spicy crayfish are the common dishes in the cafeteria. Although, people can have these authentic dishes in other restaurants instead of IKEA, it is a method to keep people in the store so they do not have to leave when they get hungry. In order to distinguish from the authentic Chinese dishes, IKEA promoted the localized dishes by linking them with Northern Europe on social media platforms. By doing this, IKEA is able to create sensations and draw existing and potential consumers’ attention.

[Photo source: Sohu, ‘Dim Sum of IKEA in Guangdong’]

[Photo source: Sohu, ‘Hot pot of IKEA in Sichuan]

[Photo source: Sohu, ‘Spicy crayfish of IKEA in China’]

[Photo source: Sohu, ‘IKEA’s promotion in China via social media platforms’]

IKEA’s challenge in China: how to turn controversial consumer behavior into business opportunity

With the increasing scale of IKEA’s market expansion in China, the company has confronted with a troubling phenomenon. Consumers would sleep and hangout on display furniture in IKEA’s stores. Initially, it was reported by western media and went viral on social media as people discussed whether it was appropriate or not. One interesting review argued that sleeping on IKEA’s display furniture was understandable as the noon nap is a common habit in China. In order to deal with the challenge, IKEA announced that they had no intention to prohibit customers from sleeping on their furniture as they did not perceive that it was a problem. Instead, they were delighted to see that consumers thought IKEA was like their home. The rationale behind the permission was that the more consumers try on, the more they likely to purchase, since sleeping on IKEA’s display beds is a mean of trial. In addition to IKEA’s permission, IKEA also set up pop-up displays their so that customers are able to have a rest in the area of pop-up displays.

[Photo source: World, ‘IKEA allowed customers to sleep in its Chinese stores’]

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According to IBISWorld, in 2019, the revenue of the kitchen appliance market in China was $51.9 billion. From 2019 to 2024, the revenue is forecast to increase at an annual rate of 2.8% to $59.55 billion.

Compared to developed countries, the penetration rate of household appliances in China is relatively low. Hence, China has great potential in the household appliance market. In the next five years, the household appliance market in China will integrate cloud-computing, Big Data, the internet of things and other cutting-edge technology.

What will drive the market growth?

In the following five years, it is anticipated that demand for replacing appliances will be a major driver of growth. The household appliance market in China is significantly affected by the real estate sector. What is more, the penetration rate of household appliances in China in tier 1 and 2 cities has reached 85%. The penetration rate of household appliances in China in tier 3 and 4 cities is less than 50%, which indicates that households in these areas will be a major growth market for this industry. The focus for tier-1 and 2 cities will be replacing current appliances, while in lower tier cities it will be first time purchases.

In the past, domestic brands in China’s household appliance market have focused on middle- and low-end markets while high-end markets are dominated by foreign brands. With the development of China’s living standards, domestic demand for high-end products is increasing, which will motivate domestic brands to launch more of these products over the next five years.

Low import demand: influenced by culture and lifestyle

According to IBISWorld, compared to exports, imports in China’s household appliance market are low, with a value of $288.6 million in 2019, which was 0.9% of domestic demand. Major imported products are dishwashers and electric stoves, occupied 55.7% of the total imported value.

Over the five years, import growth in China’s household appliance market experienced a significant fluctuation, growing 48.3% in 2015. Imports grew significantly from 2010 to 2012, owing to the increase in export rebates.

In the future, imports are expected to increase at an annual rate of 5.7% from 2019 to 2024. However, imported products will continue to account for a small percentage of the domestic market due to the cultural and lifestyle differences in China. In addition, favorable government policies and the remarkable performance of domestic brands impedeon imports.

[Data source: IBISWorld, ‘Import partners in China’s kitchen appliance market’]

Overview of the kitchen appliances market in China

Influenced by adjusting policy of China’s real estate market and fierce competitions among market players, the household appliance market in China has underperformed. Additionally, the gross margin rate of the kitchen appliances sector was over 40%.

Shrinking market size: affected by the real estate sector and market competitiveness

In 2016, the market size of kitchen appliances was 62.7 billion RMB while the growth rate was 7.9%. In 2017, it reached its peak with the market size of 69.7 billion RMB and the growth rate was 11.2%. Since 2018, the tightening policy of China’s real estate market has significantly affected the performance of the household appliances market in China, including the kitchen appliance sector. Due to increasing number of new entrants in the kitchen appliance market in China, the market competitiveness has become tighter. Moreover, the business development model of kitchen appliance market in China is problematic and lacks dynamics.

[Data source: qianzhan, ‘Market size of China’s kitchen appliance market’]

Relatively low market penetration

The penetration rate of kitchen appliances in China is relatively low in comparison with that of developed countries (i.e. United States, Germany, France and United Kingdom).

[Data source: qianzhan, ‘Comparison of penetration rate of kitchen appliances between tier1 & 2 cities in China and developed countries’]

Market expansion in tier 3 and 4 cities: great business opportunity

In China, due to decades of urbanization, the market demand of tier 1 and 2 cities are nearly saturated. Rising household income in tier 3 and 4 cities and rural areas indicate potential business opportunities.

The penetrated distribution channel of e-commerce service providers has facilitated the market expansion of kitchen appliances in tier 3 and 4 cities. For example, Suning has established 1300 direct-sale stores, 1800 authorized service stations and 200 online concept stores. JD has established 1300 service stations and 1000 county-based service centers, hired 50,000 promoters in rural areas. More than 18,000 of online stores have been set up on Taobao, which can reach 10 provinces with the population of 200 million in the countryside. 

Trends of the kitchen appliance market in China: quality and function matter

According to qianzhan, kitchen appliance consumers in China are more demanding of quality, appearance and function. In order to fulfill their needs, companies in this sector have dedicated to providing a variety of products with different functions.

In terms of functions, kitchen appliance consumers in China ask for integrated kitchen, juicers, electric ovens and steam stoves is rising. With the growth of middle class in China, Chinese consumers will be more demanding, and this will foster the innovation of products in China’s kitchen appliance market.

In terms of product intelligence, value-added functions (i.e. Wi-Fi, intelligent reminder and remote control) are now applied in kitchen appliance products.

Product segmentation of the kitchen appliance market in China

[Data source: IBISWorld, ‘Product segmentation in China’s kitchen appliance market’]

The electric cooker market in China: occupies the largest market share

According to IBISWorld, in 2019, electric cooker market in China was the largest, accounting for 30.7% of total industry revenue. China is the largest global production base for electric cookers. Currently, low- and middle-end products make up the largest share of the segment. However, domestic brands in China’s kitchen appliance market are working to develop high end products to fulfil rising demand. With changes in consumption patterns and increases in consumer purchasing power, demand for middle- and high-end products, such as induction heat and tailless electric cookers, has surged in recent years. Domestic brands in China’s kitchen appliance market are also developing new high-end energy-efficient products.

The range hood market in China: potential business opportunity

According to IBISWorld, in 2019, range hood market in China account for 26.2% of total industry revenue. Range hoods have become necessities in Chinese kitchens over the past three decades. To appeal to more customers, companies have launched new products like near-suction range hoods, which occupy 20.7% of total range hood sales.

In 2018, the sales volume of range hoods was 18 million, which was way smaller than the sales volume of air conditioners, refrigerators, and washing machines combined(40 million). This indicates a potential business opportunity in the range hood market in China. However, in 2018, affected by the periodical recession of real estate industry in China, the sales performance of range hoods failed to meet the expectation.

[Data source: chyxx, ‘Sales volume of kitchen appliance market in China (2018)’]

Baking utensil market in China: becoming a trendy kitchen appliance

According to IBISWorld, in 2019, the baking utensil market in China accounted for an estimated 22.5% of total industry revenue. Spurred by the development of ovens and induction cookers, and the growing popularity for baked goods, the sales volume of electric baking utensils has been rising. Cabinet and desktop ovens are common in baking utensil market in China while cabinet ovens are more favored by kitchen appliance consumers in China. In 2018, the sales volume of cabinet ovens was predicted to be 557 thousand with the YOY of 6.8%.

The microwave oven market in China: stable sales volume

According to IBISWorld, in 2019, the microwave oven market in China contributed 14.4% of industry revenue, with sales of 77.8 million units. From 2012 to 2018, the average sales volume maintained at 110-130 million. It is expected that sales growth rate will maintain at 6%-10% until 2030.

[Data source: chyxx, ‘Sales volume of microwave ovens in China (2012-2018)’]

The dish washer market in China: significant growth in recent years

In 2018, the sales volume of dish washers was 1.36 million with the value of 5.9 billion RMB. Even so, dish washer market in China is relatively small and the penetration rate of dish washers in China is relatively low in contrast with developed countries. However, in long term, it is predicted that dish washers will become necessities in China as the penetration rate of dish washers is positively correlated with the economic development. This has been proven to be correct. From 2010 onwards, the YOY of dish washers has been surging. In 2020 and 2030, the YOY is projected to be 73% and 36% respectively.

[Data source: chyxx, ‘Sales volume of dish washers in China (2009-2019)’]

The coffee machine market in China: growing market size

Regarding the performance of coffee machine market in China, since 2009, the market size has been growing. In 2017, the sales volume was 2.29 million and the market size was 0.6 billion RMB. It is anticipated that the market size of coffee machine sector in China will have continuous growth in the future.

[Data source: abaogao, ‘Market size and proportion of import of coffee machines (2019-2017)’]

Key players in the kitchen appliance market in China

Overall, the top brands in are domestic, Media, Robam, FOTILE and Galanz.

Key players in China’s range hood and stove market: Ruled by domestic brands

[Data source: chyxx, ‘Market share of range hoods brands in China (2017)’]

[Data source: chyxx, ‘Market share of stove brands in China (2017)’]

The top 4 players in China’s range hood and stove market are domestic brands and they occupied more than 50% of the market share in 2017. Robam and Fotile were the main players and accounted for more than 30% of the market share. Followed by Midea, Vatti and Siemens with the average market share of 10%.

Key players in China’s microwave oven market: overwhelmingly dominated by domestic brands

[Data source: dingkeji, ‘Market share of microwave oven brands in China (2019)’]

Galanz and Midea, as the notable domestic brands and had and accounted for more than 90% of the market share in 2019. While Panasonics, as a Japanese brand, occupied merely 2.1% of the market share. Other foreign brands such as Whirlpool, SANYO, Toshiba, Siemens together accounted for less than 2%.

Key players in China’s electric oven market: Siemens ranked at third

[Data source: dingkeji, ‘Market share of electric oven brands in China (2019)’]

In China’s electric oven market, the top 2 players were still domestic brands, Midea and Galanz, accounted for 33.9% and 27.4% of the market share respectively in 2019. The top 3 brands together accounted for more than 62.5% of the market share. Siemens is the top foreign brand with the market share of 12.5%.

Key players in China’s coffee machine market: led by foreign brands

[Data source: dingkeji, ‘Online stores: top-10 brands in coffee machine sector (March 2019)’]

The China’s coffee machine market partially relies on import since domestic manufacturing has already met China’s market need. In 2017, foreign brands occupied approximately 44.97% of the market share whereas domestic brands occupied 55.03% of that.

Nevertheless, the market of high-end coffee machines in China is dominated by foreign brands. In March 2019, the top 3 coffee machines brands that had the most sales volume in online stores were De’Longhi, Philips and Nespresso.

Brand analysis: top brands in China’s kitchen appliance market  

Midea Group

[Photo source: 16pic.com, ‘Logo of Midea’]

According to IBISWorld, established in 1968, the Midea Group is a large integrative modern corporation that dedicates to manufacture household appliances, but also provides transportation, real estate and financial services. In 1980, Midea Group entered the household appliances industry, launching the Midea brand in 1981.

The main industry products of Midea Group are rice cookers, extractor hoods, microwave oven and induction cookers. The company has become one of the largest white goods manufacturers in China. It has 14 domestic manufacturing bases in China, covering five major regions.

Midea has expanded its network to cover many third- and fourth-tier markets in China. The company has established 1,500 service centers to cover covered all third-tier cities.

Additionally, Midea Group has collaborated with other firms to expand their product categories in the last 2 decades. The group established business relationships with Sanyo and Toshiba to make high-end electric cookers and microwaves.

In February 2014, Midea Group built Shunde Innovation Center. In 2017, Midea continued to develop its manufacturing operations as demand increased. In the first half year of 2018, Midea was awarded nine patents for its dishwashing technology including its world-first hot air-drying technology.

Hangzhou Robam Appliance Co. Ltd.

[Photo source: qqzhi.com, ‘Logo of Robam’]

According to IBISWorld, established in 1979, Hangzhou Robam Appliance is headquartered in Hangzhou, Zhejiang province. Robam has developed into a professional producer of kitchen appliances such as range hoods, gas stoves, disinfection cabinets, electric ovens, steamers, electric pressure cookers and induction cookers.

In 2011, Robam developed 38 new products, opened 200 new specialty stores, and expanded its online and TV shopping distribution channels.

In 2015, the company set up 450 new specialty stores, with the total nationwide at 2,450. In 2016, the firm set up and rebuilt 89 experience stores and 449 specialty stores. By the end of 2016, the specialty stores of the company totalled 2,650.

In 2017, Robam expanded and set up 2,614 retail stores. In the first half year of 2018, the company continued to expand. The market shares of major products including hoods, gas stoves, disinfection cabinets, electric ovens, steamers had high ranking in China.

Ningbo FOTILE Kitchen Ware

[Photo source: ebrun.com, ‘Logo of FOTILE’]

According to IBISWorld, established in 1996, Ningbo FOTILE Kitchen Ware Co. Ltd. manufactures electric and gas appliances and integrated kitchen solutions. Distribution channels of FOTILE include home appliance chain stores, building materials supermarkets, tradition general merchandise stores, exclusive agencies and e-commerce. The company also has a research and development (R&D) team of 200 employees. Investment on R&D absorbs over 5.0% of production costs every year and the company owns 400 patents, 55 of which are invention patents.

Galanz Group

[Photo source: NetEase, ‘Logo of Galanz’]

According to IBISWorld, founded in 1978, Galanz Group is a comprehensive company that mainly manufactures microwave ovens, air conditioners. The company has R&D centers in Shunde and Zhongshan, 13 subsidiaries and 60 sales offices in China, and branches in Hong Kong, Seoul and North America.

Other household appliances made from Galanz Group include water heaters, gas stoves, range hoods and disinfection cabinets. Sales of Galanz household appliances experienced substantial growth in 2011. In June 2011, Galanz began to set up specialty stores in over 2,000 county-level cities for the purpose of market expansion.

In order to use advanced technology resources, Galanz sets up R&D centers in Japan, South Korea, the United States, Hong Kong and other locations in 2013.

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The building materials market in China

The building materials market in China refers to the materials used as exterior and interior decorations for public buildings. The rapid growth of this sector is mainly due to the macro environment and the government polices.

 [Data source: qianzhan, Output and YoY Growth of the Building Materials Market in China]

The total output of the building materials market in China was ¥ 3.94 trillion rmb in 2017. This  represents an increase of 280 billon from 2016 and a growth rate of 7.65%.

[Data source: qianzhan.com, The proportion of sector output within the decoration market.]

Overall, the growth of the building materials market exceeds the growth of the home-decorating market. However, the growth of the two sectors is gradually balancing out. While in 2017 the building materials market occupied around 52% of the total output of the decoration market in China, the home-decorating market occupied around 48%. Furthermore, the continued expansion of the building materials market in China may imply that China is still at the stage that requires the implementation of basic infrastructure and public facilities.

The home-decorating market in China

The home-decorating market in China refers to the interior decorations of residential houses.

[Data source: qianzhan.com, Market scale of home-decorating market in China]

The continuous growth of real estates sales and of the Chinese economy provide the foundation for the home-decorating market to further grow. The market scale had reached ¥2.23 trillion rmb in 2018, and is estimated to exceed over ¥2.59 trillion rmb by 2020.

[Data source: qianzhan.com, Percentage of different home-decorating in China, by type]

Newly purchased homes are the main driver of the home-decoration market in China. Nearly 73% of the total revenue is contributed by new home decoration.

[Data source: qianzhan.com, Consumers of home-decorating market in China]

The main consumers of the home-decorating market are millennials, which are those born during the 80s and 90s. They contribute to more than 60% of the market revenue. Those born in the 70’s are also a large consumer group at 16%, while the remaining 22% other ages.

The rise of the E-commerce home-decorating market

E-commerce home-decorating market in China boomed in 2015, which has become the key contributor to and further intensified the competition within the overall decoration market in China.

[Data source: ebrun, Market scale and growth of E-commerce home-decorating market in China]

The market scale of the E-commerce home-decorating market in China reached ¥258.9 billon rmb and achieved a 36% growth rate in 2018. Nonetheless, it is currently experiencing a bottleneck period with less than 5% penetration rate. This rate is fairly low when compared to other E-commerce markets such as car-hailing platforms and online travel agencies with around 1/3 penetration rate.

E-commerce ,  helps address the non-equilibrium profit margins that lie within traditional home-decorating market. E-commerce home-decor companies standardize decoration methods, prices, and simplify the working procedure. However, many consumers believe the materials and the user experience of E-commerce decoration companies are too expensive for the quality. As e-commerce does not always offer acceptable after service provision, many consumers are switching back to traditional of home-decoration methods.

Consumers are constantly pushing for transparency and information symmetry. The future of the E-commerce decoration market will no longer be on price wars, but quality and value wars.

Decoration companies in China

[Data source: qianzhan.com, Number of firms within the Chinese decoration market]

The market share of Chinese decoration market is fairly scattered. Around 82% are traditional decorating companies and around 18% are E-commerce home-decorating companies. There is currently a large amount of small to mid-sized decoration firms in China. The market scale is huge with fairly low entry barrier. Although, the total amount of firms within the industry experienced a decrease of 2.22% from 2015 to 2016, the total output had increased by ¥0.277 trillion rmb. This may suggest that the market share has became concentrated as regulations imposed on the Chinese decoration market gradually standardize.

A huge market with hundreds and millions of small businesses

Over 70% companies within the Chinese decoration market achieved revenue growth in the first half year of 2018. Gold Mantis (金螳螂) achieved top revenue gain of ¥10.904 billion rmb and China Red Star (红星美凯龙) was ranked at second place with ¥6.374 billion rmb revenue. The top three players within the home-decorating market are, listed in order; Gold Mantis, China Red Star and Oppe In (欧派家居).

[Source: ebrun Market share of E-commerce home-decorating market in China]

On the other hand, E-commerce home-decorating market is concentrated. To8to.com (土巴兔) occupied around 40% of the total market share, and Jia.com around 27%.

Although the overall market is fairly competitive, it has not yet reached the mature stage. This means that there is still a large room for small firms to develop along with the expansion of medium to large-sized firms.

Opportunities in the Chinese decoration market

Aesthetic home-decoration market in China

Currently, the decoration products in China are rather homogenous. However, consumers are gradually valuing creativity, quality and environmental aspects of decoration products as their living standards improve and consumption upgrades. The aesthetic home-decoration market in China may be the answer to consumers’ concerns. It refers to the mid- to high-end furniture brands with good designs and quality products. Firms have began implementing strategies to target luxury consumers by offering environmental friendly materials, customized product design, and foreign luxury brands.

Standardized regulation across the decoration market

As regulations imposed upon the Chinese decoration market become more standardized, the industry is expected to become more concentrated. Comparing to the current market environment with mixed standards, quality and prices, the future expectation for the market will center around transparency and price equilibrium. For E-commerce home-decorating, focusing more on after-sales provision and product quality allows room for future development.

Smart home is the new go-to for modern Chinese households

Smart home stores in China offer Chinese consumers a new form of experience. Many sellers of intelligent home technologies seek to introduce their products to potential consumers through such experiences. Examples of smart home technologies include automatic adjusting lights and Homepod etc. The smart home stores in China allow consumer to touch, test and experience the products in real person. A direct-to-customer strategy by engaging customers through these brick-and-mortar stores. Smart home technology is definitely a future trend that decoration or furniture companies need to consider.

The decoration market in China has a large potential to further grow in the near future. However, the development needs more funding and more creative and quality products.

Author: Chenyi Lyu

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Often referred to as the seniors’ Market, the Silver Economy in China covers all products and services intended for people aged 60 and older. As stated in its name, the Silver Economy is not only a ”market”  but also functions as an “economy”.

Senior citizens in China usually have stable lives and incomes with around 90% owning endowment insurance and property. Thus, elderly in China have a less stressful daily life. However, they grew up during a time with less security, having to experience events like the Cultural Revolution, resulting in more frugal consumption habits.

In urban areas, many Chinese senior citizens have only one child. Unlike the urban areas, Chinese senior citizens in rural areas have children who often move to cities for work. Seniors are emotionally dependent on their children, but the younger generation has less time to spend with their aging parents, so they are often lonely. Therefore, they have a strong demand for social entertainment and accompanying services.

The Silver economy in China is rapidly growing. With this growth, the Chinese senior citizens’ consumption is diversifying, while opinions from family can easily influence their consumption behaviors. International brands also benefit from the aging population, there is increasing awareness of health, fashion, and beauty, and e-commerce platforms are paving the way to make imported goods easily accessible for China’s elderly and caretakers. There is also room to develop in many segments.

China’s elderly population growth

China’s elderly population is increasing. By the end of 2018, China had nearly 250 million people aged 60 and above, accounting for 17.9% of the total population. Every year, 8-10 million Chinese people turn 60 years old. By the end of 2025, there will be around 300 million Chinese senior citizens, accounting for one-fifth of the total population.

The senior population is mainly concentrated in the eastern and southern parts of China. These provinces usually have more developed economies and larger populations. This indicates that local economic development affects the aging degree of the region. In 2017, Shandong province had the largest senior population in China, mainly due to its high level of economic development and large population (the region ranked third in GDP and second in population in 2017).

Income level of China’s seniors

In 2017, there were more than 110 million senior citizens with a monthly household income of more than 4000 RMB, of who 20 million had a monthly income of more than 10000 RMB. Individuals with middle and high-income levels accounts for 78% of the senior population. In contrast to younger people, they have less busy lives, meaning they can spend more time and money on higher-level and hedonistic consumption such as leisure activities, tourism, and artwork.

Over the last decade, the average growth rate of pensions for Chinese senior citizens exceeded the GDP growth rate, while pensions for the elderly maintained rapid growth. From 2009 to 2018, there has been immense growth in the income of China’s elderly, especially those who used to work in remote areas. Based on government policy, their pensions usually grow faster than average. With China’s pension system, senior citizens who paid accumulatively social endowment insurance for at least 15 years can get a pension every month in China after retirement. The amount of pensions that the elderly can receive monthly depends on qualifying years of personal social insurance contribution, social insurance contribution base, and social average wage.

From 2012 to 2018, the monthly pension of retirees over the age of 60 nearly doubled, and the disposable income of the Chinese aging population increased. The average monthly pensions in China for retired workers exceeded 3000RMB in 2018. Retirees in China’s eastern coastal provinces have a high pension income. These provinces tend to have a higher level of economic development due to the early reform and opening, as well as the advantageous regional geographical location. These regions have many more senior citizens than other provinces. Western provinces where ethnic minorities live in compact communities also have relatively high pension levels. Tibet has the highest pension in the country. State subsidiaries and fewer retirees are the main reasons for higher pension levels.

Behind the silver economy in China’s market growth

The market size of the Silver economy in China has been rising for several years. Along with the development of the elder service industry, it will sustain rapid growth for a few years.

According to Baidu Index, the four major trends related to the silver economy: products for elderly, pension services, nursing homes, and elderly insurance.

Products for the elderly

The number of searches of products for the elderly remained high from May to November, with the biggest consumption day being Double 11, China’s most popular online shopping carnival, in 2018. When people search for products for the elderly on Baidu, they usually browse different types of products and e-commerce sites for senior citizens.

The most related keywords to “products for senior citizens” are “health care products for the elderly,” “specialized shops for senior citizens” and “health and fitness”.

              Pension services

The number of searches of pension services peaked on April 17, 2019, when the government released news about pushing forward the construction of pension service infrastructure. When people search for China’s pension services on Baidu, they usually browse the latest pension policies and websites providing pension services.

The most related keywords to “pension” are “increasing”, “pension calculation method”, and “latest news on pension increases”.

Nursing homes

The number of searches for nursing homes fluctuated around the average index, and the search number reached the highest point at the beginning of the Chinese New Year. Baidu searches with the keyword ‘nursing homes’ are usually related to the prices for nursing homes and how to run a nursing home.

Related searches to “nursing homes” are “price,” “is it profitable to run a private nursing home,” and “how much is the nursing home per month.”

Elderly insurance

The number of searches of elderly insurance fluctuated greatly, reaching its peak in December of 2018 because December is the deadline for payment of pension insurance for urban and rural residents. When people search elderly insurance on Baidu, they usually browse insurance products and websites of insurance companies.

Senior citizens’ consumption

The consumption concept of China’s senior citizens is defined by the importance of health, family members’ opinions, practicality and frugality, and preference of in-store experience

Importance of health

For senior citizens, health is the major criteria of purchasing decisions, especially for daily-use products.

Accepting family members’ opinions

Senior citizens’ purchase decisions are easily influenced by the opinions of their family, especially by sons and daughters.

Practical and frugal

Senior citizens care about products’ practicality and price since they are more frugal than younger generations.

Preference of in-store experience

Many prefer offline shops because they can see and try the products/services.

Chinese senior citizens’ consumption can be segmented in many ways: by tier cities, income levels, and gender.

Different tier-cities

Senior citizens living in tier-1 cities showed a strong willingness to spend money on social lives and leisure. In contrast, senior citizens in tier-2 and tier-3 cities are more interested in goods related to health.

Different income levels

High-income senior citizens consume more healthcare and entertainment products/services. Low-income senior citizens’ daily expenses focus on daily-use and medical products.

Gender     

Senior women spend more money than men do. Chinese women have a stronger demand of consumption entertainment, fashion, and beauty. Additionally, their spending on daily-use goods is also higher than men’s.

Products and services in the silver economy

The Silver economy in China generally covers daily use products, healthcare products, fashion, housekeeping services, nursing care services, exercise, etc. consumed by the Chinese aging population, particularly those aged 60 or older.

Shift in consumption

With a rising disposable income, China’s elderly’s consumption is shifting from traditional frugality to enjoyment. They are willing to spend money in four areas, leisure and exercise, fashion and beauty, healthcare products, care services/goods.

The silver economy’s consumer preferences

The Chinese aging populations’ preferences differ depending on the cities in which they live. In many major cities, there are specific goods and services that are their favorites. For example, Shanghai’s aging population likes buying clothes. Beijing’s aging population likes buying cosmetics. Shenzhen’s aging population likes buying cameras. Hangzhou’s aging population likes medical cosmetology. Chengdu’s aging population likes buying sports equipment. Suzhou’s aging population likes buying digital products. These favorite goods show that China’s elderly consumption habit has shifted to spending more on things for enjoyment.

Tourism

Leisure and exercise is one of the four areas where the aging population is willing to spend money. In this area, tourism is one of the most popular leisure activities. Seniors make up more than 20% of China’s tourists every year. In the next few years, senior citizens in China’s consumption on travel will keep rising along with the consumption upgrade.

Most seniors like vacation packages and short-distance tours. The most popular destinations are Beijing, Guilin, Xiamen, Guiyang, and Urumqi. The most popular overseas destinations are Thailand, Japan, and Malaysia. When traveling, senior citizens demand beautiful landscapes, high-quality local goods, and safety.

Medical Tourism

China’s growing elderly population provides huge potential for the developing medical tourism market. From 2014 to 2018, there was a rapid increase in China’s outbound medical tourism. The market size reached 118.6 billion RMB in 2018, with more than 30.5% GAGR. Participating in China’s medical tourism market are three main types of companies, which include online medical companies, overseas medical institutions, and online travel agencies. There is a complementary relationship among the three types of participants of China’s medical tourism, and they work together to provide services for medical tourism.

East and South Asia are the top destinations for Chinese medical tourism. The United States and Western Europe are popular destinations as well. Distance and medical technology become important factors for Chinese medical tourists to choose destinations. The top 10 overseas medical tourism destinations for Chinese tourists rank as follows:

Exercise

The main forms of exercise for China’s elderly people are walking and jogging, Tai Chi, and dance. Among them, square dancing is the most popular activity for the elderly. Walking and jogging are both common exercises among seniors for its low intensity. Tai Chi is a traditional Chinese martial art and generally needs professional training. Dancing in public squares and parks is very popular among China’s seniors. More than half of the aging population exercises at least five times per week, usually in the morning and at night.

As the most popular physical activity for the Chinese elderly (especially women), dancing already showed a large market potential in recent years, In the evenings and mornings, seniors gather in parks and public squares to dance. In 2017, there were 100 million participants in China. On average, they spent 300-500 RMB per month on dance clothes and shoes. On Taobao/Tmall, the highest sales of dance apparel were in June and July. After that, the sales continually declined before March 2019. This means that summer is the most popular time for dancing.

Fashion and beauty

On Taobao/Tmall, around 60% of Chinese senior women buy cosmetics six times per year. In 2018, the average Chinese senior spent 1500RMB on new clothes. China senior citizens’ spending on medical cosmetics increased 4.4 times from 2017 to 2018.

Healthcare products

The healthcare products market in China is steadily growing, almost half of the market share comes from seniors. This means that aging people are the most important consumers of China’s healthcare market.

Despite more than half of seniors spending less than

1000RMB on healthcare goods in 2018, almost 20% of them were willing to pay more than 5000RMB a year on healthcare products. Offline shops are still the main purchasing channels for elderly people, as many of them have a lack of trust in the healthcare products from the internet.

Consumption of elderly care products

Reading glasses are the most popular goods since they are essential in senior citizens’ daily lives. However, many of them are cheap and lack high-quality brands. The average price of reading glasses is less than 20 RMB.

Online shopping

China has had more than 30 million middle-aged and elderly individuals (above 50 years old) who shop online. Senior citizens show a huge market potential as online consumers. More and more senior citizens in China are starting to use mobile apps for their online shopping.

By June 2018, China had more than 50 million internet users over the age of 60, which mean one of five senior citizens are netizens. In 2018, the registered users on Tmall.com among senior citizens exceeded 7.5 million. On JD.com, the main products purchased by senior citizens were fashion products, healthcare goods, home appliances, cosmetics and personal care, and food.

Most aging individuals are willing to use mobile payment methods with personal information disclosure being the main issue for them. Compared to 2017, the number of senior citizens who used mobile payment doubled in 2018. Senior citizens who used face scan and fingerprints payment increased 20% and senior citizens who used QR code payment increased 2.5 fold in 2018.

Elderly care service market in China

The market size of elderly care service is booming due to the dramatically aging population in China. In 2018, more than 20 million senior citizens lived alone, some of them were disabled. Many of them are in need of professional care. The most important services for the urban elderly are housekeeping and nursing care. The market of housekeeping services for senior citizens has been rising for several years, since the increase in the number of empty nesters in China.

In China, there are three different methods of elderly care services, in-home care, community care, and nursing homes. Nursing homes are becoming more important since it offers knowledgeable and professional nurses and medical care.

Chinese consumer perceptions of nursing homes

When it comes to nursing homes, consumers’ most common questions and posts on Zhihu include:

• Why are Chinese people unwilling to send their parents to a nursing home?
• Is there and premium nursing homes that offer high-quality services?
• What the elderly should know when choosing a nursing home?

On WeChat and Weibo, consumers display positive perceptions:

• Availability of professional medical services in the nursing home.
• The nursing home has companionship and nursing care for the elderly.
• Nursing homes usually have a clean and healthy environment.

Chinese consumer concerns about nursing homes include:

• Some violent incidents in nursing homes reduced people’s trust.
• The lifeless ambiance in some nursing homes.
• Some staff lack professional training about taking care of senior citizens.

The nursing home market is growing very fast in China with the increasing demand for eldercare. The Chinese government is leading to the development of nursing homes. However, the government encourages more private enterprises and investors to enter the market.

China has a huge demand for nursing homes, yet the demand exceeds the supply. In 2018, the aging population exceeded 249 million in China. Many of whom need nursing services. Among those senior citizens, about 10% of them are willing to live in the nursing home, increasing the demand to about 25 million. However, the total number of nursing homes’ beds cannot meet the demand. There is more than a 9 million supply gap.

Drivers for the nursing home market in China include safety and service guarantee and the lack of ability and time to care for elderly parents. It is affirming for family members to know that nursing home has a safety system, which includes the facilities and staff. In addition, the nursing home can offer professional care that a family cannot. Younger generations are moving away from their hometowns for opportunities, therefore they have less time to take care of their elderly parents. Thus, the nursing home is a good option.

Obstacles to China’s nursing home market include traditional culture and negative perceptions. The nursing home goes against Chinese tradition. It is difficult for both the elderly and family members to accept the elderly living in the nursing home, as their children believe it is their responsibility to take care of their parents. Some family members generally have negative perceptions of nursing homes, such as the smell of medicine, no privacy, etc. therefore, they prefer their elderly family members to stay at home.

Market trend analysis

The silver economy in China follows the national consumption upgrade trend with diversifying channels of consumption, and rapid development in elderly nursing and healthcare. Except for cheap daily-use products, middle and high-income Chinese senior citizens consume more on leisure, fashion, and beauty, such as tourism and cosmetics. Senior citizens are slowly embracing mobile payment and are using online shopping apps. Due to the Chinese aging population, there are many market opportunities in nursing home and healthcare industries. Nursing homes are increasingly accepted by Chinese families.

Author: Shayaiah Mitchell

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This article The Silver Economy in China: Consumption trends of China’s aging population| Daxue Consulting is the first one to appear on Daxue Consulting - Market Research China.

The market size of smart home systems in China

China’s central smart home systems consist of lighting control systems, security systems, entertainment systems (audio and video), home appliances, and others.  Recent trends reveal the market size of smart home systems to be increasing at an annual rate of 20%, with smart home appliances as the largest segment of this market in China. The trend demonstrates the high development of AI technology in China, as well as consumers’ increasing demand for high-tech products aside from just their mobile phone and laptops.

What is a smart home speaker and why are they now popular in the Chinese market?

By integrating voice command and smart assistant technology, smart speakers allow the user to perform many functions via voice control. Smart speakers offer the ability to connect to your other smart devices, such as phones or laptops, as well as home systems such as lighting systems, security systems, television, etc. The market for smart speakers has grown significantly since 2016 and has more than doubled since 2018. Recently, Chinese tech giants Tencent, Baidu, JD, and Alibaba have all come out with their smart speakers. These domestic brands are trendy in the Chinese market. Going along with China’s trend of “consumption upgrade,” we can see that Chinese consumers are now more sophisticated and are leaning more towards technologically advanced products.

How do Internet giants, appliance companies, and mobile phone operators compete in the Chinese Smart Homes market?

The market is primarily occupied by large internet/e-commerce brands, appliance companies, and Chinese mobile operators. Many tech giants Baidu, Alibaba, Xiaomi, Tencent, JD, Baidu, and Alibaba have launched their smart home system products. Baidu and Alibaba dominate this market primarily due to their brand presence and name popularity amongst Chinese consumers. While large appliance brands such as Haier, Midea, and Mitsubishi have been operating longer in the smart home systems market with their intelligent appliances, most of their products are priced higher than those released by their Internet/e-commerce counterparts. For example, Haier released its first smart home systems in 2004 is considered a pioneer in smart home systems. However, many consumers were not yet familiar with smart home products at the time. The market boomed around 2014 – 2016, Midea, JD, Alibaba, Huawei, Xiaomi, and other high-tech companies released more smart home products and systems in China. Higher disposable income paired with a more tech-savvy population led to openness towards smart home products in the Chinese consumer. In 2017 – 2018, other internet brands launched their smart home systems products, which largely boosted its popularity and usage within China. Additionally, while Chinese mobile operators such as China Telecom and China Mobile offer smart home solutions via broadband and smart/intelligent terminals (such as the popular set-up-box), these solutions aren’t very visible to the consumer, and thus mobile operators are not the most relevant or present brands in the minds of the Chinese population.

[Source: Daxue Consulting]

Domestic players dominate the Smart Speakers Market in China

As of September 2018, Tmall, Baidu, Xiaomi and JD were the dominant players in China’s smart speaker market. In total, they occupied more than 90% of the market share. Western products, such as Amazon’s Alexa and Google Home have not penetrated the Chinese market. This is because of domestic brands since Chinese products have a much better understanding of the Chinese language. Additionally, the price of smart speakers by local Chinese brands is much lower than international brands.

On Taobao/Tmall, sales of smart speakers are mostly from big internet/e-commerce companies. These large domestic brands have dominated the online sales of smart speakers by making full use of network traffic, lower prices, and Chinese shopping festivals (such as Double 11/Singles Day, which is the largest offline and online shopping day in China launched by Taobao).

[Source: Daxue Consulting]

Those with high disposable income are the primary consumers for Smart Products

Most of the Chinese population have not developed a consciousness for smart home systems. While smart speakers are the central segment of intelligent devices that have generated popularity amongst consumers, these products are still relatively new to the market and are costly to purchase. For example, many companies believe that smart home systems can be installed in private houses and apartments, but due to its high expense, many Chinese consumers have not developed a desire for these products. Based on information from Weibo and Wechat, consumers of the smart home market usually purchase smart systems for three main reasons: to make their lives more convenient and comfortable, for the enjoyment of high tech and AI products, and to increase home security (such as through alarm systems).  From this, we can see that consumers of this market are mainly those who live a comfortable life with high disposable income to enhance their experience through the use of technology. As new markets, however, hotels and offices are showing large demand for smart home systems as well to create a more comfortable and efficient indoor environment.

[Source: Daxue Consulting]

Chinese consumer analysis: Smart speakers

Married people and families with children are the main buyers of smart speakers in China. This is interesting because smart speakers generally have capabilities for children such as educational applications, storytelling, etc. Consequently, these functions have attracted many Chinese parents who feel like smart speakers would be of great use for their children, or if they feel like they have little time to spend with kids.

In addition, while smart speakers have many capabilities, Chinese consumers still mainly use smart speakers for listening to music, not taking advantage of the many functions of smart speakers and its smart assistant technology. Smart speakers are preferred over regular speakers in this case because voice control is seen as a novel and entertaining. Consumers usually use smart speakers in their living room, where they can listen to music or the news with their families. The kitchen is the second most common place that people utilize smart speakers, so they may utilize its handsfree wireless capabilities while cooking.

How do Chinese consumers feel about Smart products?

On social media, consumers of smart products have varied responses. On Taobao and JD, positive feedback of intelligent systems includes enhancement of convenience, high quality, and efficiency of use. Negative reactions concern difficult operations, slow responsiveness, poor quality, and high price. For smart speakers, positive responses also include enhancing convenience, being able to effectively control other smart home devices, and having interesting conversations with smart speakers. Negative feedback on smart speakers concerns the difficulty of an understanding speaker, slow responses, and lack of useful functions. On e-commerce websites, negative feedback on smart speakers also usually focus on the speaker’s lack of understanding ability and its high cost. Overall in the smart homes market, cost seems to be an occurring limiting factor for smart home-related purchases.

[Source: Sina Weibo. Translated by Daxue]

Case Study of two leading brands: Baidu Xiaodu vs. Tmall Genie

Tmall Genie

Taobao/Tmall launched their smart speaker “Tmall Genie” in 2017. Like all other speakers on the market, Tmall Genie is mostly sold online, while having one offline store in Hangzhou. This speaker is targeting all age groups, and TmallGenie frequently releases new arrivals (such as smart mini speakers for children) and events (such as discounted shopping) to attract more Chinese consumers of different ages. Tmall decreased its price by different discount activities during some famous shopping days (such as Double 11 shopping carnival). This strategy quickly increased its sales, and to expand its sales channels even further, TmallGenie is working with many big appliances brands to make its smart speakers be the control centers of more intelligent home devices.

Baidu Xiaodu

[Source: Tencent Video]

It is also one of the most favored among Chinese consumers, as Chinese people view Baidu’s smart speakers as being cost-effective products, high in quality, and rich in music resources. Baidu also made famous Taiwanese host Kevin Tsai as a spokesman for its Xiaodu smart speaker. The brand is also working with Haier, a leading smart appliances company, to make its intelligent speakers the control center for more smart appliances.

Xiaomi: A leader in smart home systems

[Source: Xiaomi website]

Future prospects for foreign companies in the Chinese smart home market

China’s market for smart home systems and devices are in an exciting position. While currently, smart products are mainly reaching consumers of the wealthier segment due to its costly purchase and installation, as the Chinese middle class continues to grow and its technologies continue to advance, there is a reason to believe that China will be moving towards a trend of smart homes. Smart home systems such as lightning and alarm systems are currently of interest by hotels and workspaces, a trend indicating its future growth. Smart speaks are the most crucial sector of smart devices that have seen tremendous growth in the past two years, with major tech giants releasing their lines of intelligent speakers. This shows that interior design and real estate agencies are becoming important buyers of smart home systems as many brands are seeking partnerships with them to expand distribution channels, and smart speaker technology will continue to advance with pairing other smart products as the main priority. Foreign companies should be aware that the smart home market has a highly competitive domestic landscape, with Chinese tech giants dominating the market share over foreign companies. International competitors may find it hard to penetrate the Chinese market, especially due to language barriers. However, with constant innovative developments in AI technology, foreign companies should be well aware of a smart home future in China that could be well under way.

Author: Julia Qi

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This article Towards a smart home future: China’s Smart Systems and Smart Devices | Daxue Consulting is the first one to appear on Daxue Consulting - Market Research China.

This market is often referred to as the white and brown goods market: ‘brown goods’ refers to light electronic products such as televisions, radios, video players or computers, in opposition to heavier electronic products such as air conditioners, fridges, and stoves, known as ‘white goods.’

At the end of 2017, China’s urbanization rate stood at 58.5% and is estimated to continue to increase by 1% per year. Thus, these advances in urbanization, the development of the real estate market and intelligent electronic devices provide fertile ground for the growth of the household appliance market.

Nonetheless, other socio-demographic factors are now challenging the rise of home appliance brands in China.

Contact us for any question on the Chinese market

Several difficulties encountered by household appliances brands in China

New home sales are one of the main drivers for the purchase of new home appliances in China. However, in recent years, the new housing market has slowed down.

At the end of 2018, growth in real estate sales slowed to 7.9%. The previous year, the annual growth rate was 26.4%. Level 1 cities such as Beijing, Shanghai, and Guangzhou even recorded an 8.5% annual decline, according to an HSBC report.

However, industry experts explain that the market of white and brown products can continue to evolve. Indeed, a significant number of the fridges, air conditioners and washing machines sold in the coming years will replace those of second-hand. HSBC estimates that by 2019, replacement demand will account for approximately 92% of home appliance sales.

Innovation is the critical differentiating factor

Opportunities for profit maintain remain strong for the country’s leading white goods manufacturers. Their strategy is to stimulate investment in smart products and research to deliver innovative products. They also invest in marketing and social media to attract the wealthiest consumers and to promote a young and creative brand image.

Indeed, Chinese consumers’ demand for smart products is growing. Even in the countryside, consumers expect products that can be remotely controlled and gadgets from the smart home industry.

According to a report published in 2016 by UBS, Chinese consumers are ready to pay about 1,600 yuan (US$232) more for smart fridges, washing machines or air conditioners. This is why some appliance manufacturers now spend a lot of time and money on research and development.

These technological efforts undertaken by brands in the home appliance market in China will significantly increase margins on products. This will allow the sector to remain competitive.

Chinese consumers are also in demand for reinsurance and security. The brand’s reputation has, therefore, become very important, both for the younger generations and for consumers who are going to buy their second or third fridge.

Thus, brands must redouble their efforts to offer reassuring and engaging content. For instance, Haier recently launched a communication campaign on Weibo to showcase its innovation efforts. The brand Midea, known for its rice cookers and air conditioners, has even created its own emoji on social media.

Most popular home appliance products in China

Daxue Consulting has conducted a short study and unveils which are the most popular home appliance products among Chinese families!

Television – Hisense（海信）

[Hisense Television – Home appliance market]

Fridge – Haier (海尔)

[Haier Fridge – Home appliance market]

Since its creation in 1984, Haier has focused on innovation and premium products which offer modern style and reliability. For example, at the end of 2017, the Haier group cooperated with the search engine company Sogou Inc in AI to improve its products from a technological point of view. The idea was to set up a joint R&D team to become the most innovative brand on the Chinese fridge market.

Air conditioner – Gree (格力)

[Gree air conditioner in China – Home appliance market]

Micro oven – Galanz or Midea (格兰仕)

[Galanz Microwave – Home appliance market]

Their main competitor is Midea which recently took the leadership of the microwave oven market in China in 2018 with an increase in its volume share. Midea has relied on technological innovation to stand out by adding steaming and roasting functions to their microwaves.

Smartphone – Huawei, Oppo or Vivo?

[Chinese smartphones – Home appliance market]

The smartphone market in China is evolving very rapidly. A few years ago Apple and Samsung were leading the market. Today, Apple is relegated to fourth place in terms of smartphone sales in China. Samsung is no longer even in the top five. Chinese brands are now fighting for the first place: Huawei, Oppo, and Vivo. They all have in common an innovative strategy.  According to a study, in 2018, Huwaei had 24.75% market share in China, Oppo 19.5%, Vivo 18.5%, and Apple 10%.

Tablet – iPad

[Ipad Tablet – Home appliance market]

Contact us for any question on the Chinese market

Solar water heater – Himin (皇明)

[Himin solar water heater – Home appliance market]

Washing machine – Haier

[Haier washing machine – Home appliance market]

Haier has consolidated its leadership in washing machines in China in 2018. The brand has been able to adapt its marketing strategy to the diversity of the Chinese market by segmenting its offer into several levels: with its high-end brand Casarte for wealthy consumers and Haier for mass consumption. Haier has the largest market share (38.2%) in the washing machine market in China.

Rice Cooker – Supor

[Supor Rice Cooker – Home appliance market]

As a result, the home appliance market remains stable in China and is made up of very competitive brands. The offer is highly segmented, allowing all Chinese, urban or rural, wealthy or working class to have access to this white and brown goods. The typical strategy of all these brands which are number 1 in a product category is innovation marketing. Mostly inspired by design thinking and innovative breakthrough methods, they have succeeded in developing their business in the Chinese home appliance market.

Daxue Consulting is happy to help you to adopt innovative methods on the Chinese market or if you want to discuss your implementation strategy, you can contact our team directly.

This article Home appliance market in China: the most popular brands within Chinese families | Daxue Consulting is the first one to appear on Daxue Consulting - Market Research China.

Until last year, video game consoles and games were banned from entering the Chinese market.  Since 2014 regulations have been cut down offering the possibility, for foreign companies to produce and sell video game consoles and games in China under the condition of passing the Chinese content review process of the administration and foreign companies are required to partner with a Chinese company operating in the foreign-trade zone. While most local companies are focusing on developing mobile video games, some others are still making sure they are ready to compete.

Console game in China facing a new market dynamic 

Video games multinationals leaders have grabbed the opportunity revealing different strategies to pierce the large and diversified Chinese market. The three major console manufacturers Microsoft, Sony, and Nintendo announced plans reflecting their heavy interest in entering the Chinese market. Microsoft formed a joint venture with the Chinese company BesTV investing $237 million ends of 2013. The new Xbox One was released in 37 Chinese cities and 4,000 retail sites last year in China. The Japanese company, Sony also joined the market, competing directly. Two joint ventures were formed with Shanghai Oriental Pearl in order to focus on console hardware and on software separately and are preparing to sell PlayStation 4 video game in China. Nintendo opted for a more targeted approach towards China; new devices more adapted to the emerging market will be developed during this year to make a noticeable entry. Regulations are currently being analysed closely to a probable release of “iQue player”. The CEO of Nintendo declared, “We want to make new things, with new thinking rather than a cheaper version of what we currently have, the product and price balance must be made from scratch.”

However foreign companies aren’t the only companies with ambitious plans. A joint venture between ZTE, a Chinese telecommunication equipment supplier and a Chinese video game company The9 Ltd. are planning to release a Chinese gaming micro-console called “FunBox”. Android and Huawei will be sharing the market too. The Android console and a controller will have a price advantage since it is half the one of the Xbox One and the upcoming PlayStation 4. Huawei recently presented its new console, called the ‘Tron”, that is scheduled to be released during the summer. Its price will be about the same as Android’s. At a longer term, the Chinese electronics makers TCL will be launching their own video game console too.

A lucrative market for console games in China

Video game console market in China will result from the huge confrontation of the world’s most successful console multinational and local companies. Microsoft, Sony, Nintendo, Huawei, Android and the local companies ZTE corp., The9 Ltd and TCL will all be entering and position themselves over the same market. This desire to capture a large market share in China comes from the idea that a successful launch in the console market could bring more Chinese buyers to pick up the company’s phones, tablets and software, at the same time and would enable to build a lucrative ecosystem in the most populous country on Earth at a long-term. By becoming the main platform for China, developers will be entangled to pass through the service before launching a new game representing a great source of income to the platform. Conviviality and experience of users should be analyzed carefully in China, but most of all game platform service must focus on the service they provide to independent stores for after sales service and support for the utilisation of the product. A strong customer presence can restrain the habit of cracking games and bring customers to purchase officially with authorized resellers. Up to now, the entry of console games in China’s market didn’t generate huge sales. For example, only 0,1 million units of Xbox were ordered in China. This is explained by the very high price of the devices that must be coupled with the purchase of the actual games sold around $65 in China, those amounts are rarely spent as the game can be found for free online. What explains better the poor sales performance of consoles in China is in 2012 more than 4 million video game consoles were sold despite the Chinese ban.

The Chinese console game: OTT

In China, people prefer keeping previous versions of console games going with endless amounts of cracked games available at a very low price than purchasing the expensive latest console version and its games. To address this trend, Alibaba, China’s biggest online commerce company has invested $10 million in another kind of product: the OTT TV box. These are small devices which connect to a TV enabling to expand its functions. It would enable to go online, watch in HD and play games from a cloud, all from the TV set. Alibaba chose OUYA to supply inexpensive consoles powered by Android’s latest technologies, one of the most popular operating systems in China.

The adaptation of console video games in the Chinese market throughout OTTs is a great opportunity that could trigger most households to purchases becoming a product with mass consumption. However its growth may be significantly slowed down since those devices require home high-speed Internet connection of 30 Megabits per second, but 9 Megabits per second is the average in China’s provincial cities.

Daxue Consulting Expertise

Daxue Consulting can provide you support in entering the growing market of video games market in China. We conduct all the market research and consulting services you may need, such as potential analysis, cost analysis, implementation feasibility etc. To know more about the Chinese video games market, do not hesitate to contact our dedicated project managers by email at dx@daxueconsulting.com.

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This article Console Games in China – The Next Level Up? is the first one to appear on Daxue Consulting - Market Research China.

Due to the following circumstances people will conduct purchases of refrigerators:

1. First-time purchase in rural area

Low penetration rate of refrigerator in rural area will be raised due to present continuous growth of rural inhabitant income. The potential of the rural market is enormous.

2. Second-time purchase: upgrade and replacement of old refrigerators

51% families have owned their refrigerator since 1994. Based on the fact that a refrigerator’s service life is from 10 to 15 years, these families are now becoming the major consumers to conduct a second time purchase to upgrade and replace refrigerators. Only 17.1% families have replaced refrigerators. In the future 5 years, 23 million refrigerators will be in demand.

3. Newlywed and relocation demands

The prosperous real estate market and numerous newlyweds in China boost the growth of the household appliances market. Brand new household appliances are necessary to those families.

4. Government policy: trade in old home appliance for a new one

In June 2009, China launched a home appliances and electronics trade-in implementation solution. This means that people who have the registered residences in the pilot provinces and cities can gain a 10% subsidy when buying new home appliances products if they provide their old ones at the time of purchase.

The home appliances trade-in policy is reportedly the sister policy of China’s rural home appliances subsidy program and it has helped many Chinese manufacturers cover deficits and increase surpluses.

  Sales channels

Sales channels in the mainland kitchen and bathroom appliances market fall into two types: traditional channels and new channels.

Traditional channels:

In this channel you will find large, medium and small department stores as well as franchised stores.

New channels:    

In this channel you will find:

1.Home appliance retailers：

国美 GuoMei  http://www.gome.com.cn/?cmpid=sem_baidu_pinpai_bt

苏宁 SuNing  http://www.suning.cn/

2.Building materials chain stores

HomeMart http://www.homemart.com.cn/index.html

3.General merchandise stores (e.g. Carrefour, Wal-Mart)

4.E commerce:

(1) Individual e-commerce platform of each brand

海尔商城 Haier http://www.ehaier.com/

美菱 http://www.meiling.com/

统帅Leader http://www.tongshuai.com/

Hisense http://www.hisense.com/

容声http://www.ronshen.com.cn/

Samsung http://www.samsung.com

LG http://www.lg.com

Panasonic http://panasonic.cn/

Sharp http://www.sharp.cn/

(2)  Taobao Tmall: a Chinese-language website for business-to-consumer (B2C) online retail, spun off from Taobao, operated in the People’s Republic of China by the Alibaba Group. It is a platform for local Chinese and international businesses to sell quality, brand name goods to consumers in mainland China, Hong Kong, Macau and Taiwan. http://www.tmall.com/

Taobao: a C2C platform www.taobao.com

(4) Individual e-commerce platform of home appliance retailer

国美 GuoMei  http://www.gome.com.cn/?cmpid=sem_baidu_pinpai_bt

苏宁 SuNing  http://www.suning.cn/

(3)  Dangdang.com: Dangdang’s main product categories include household merchandise, cosmetics, digital, home appliances, books, audio, and dozens of clothing, maternal and child categories.  www.dangdang.com

(4)  库巴 Kuba: main product categories include household merchandise, cosmetics, digital, home appliances, books, audio, and dozens of clothing, maternal and child categories. http://www.coo8.com/

(5)   新七天XinQiTian: New 7’s main product categories include digital and home appliances.  http://www.new7.com/

Where to buy refrigerators?

The new channel is growing and rapidly expanding. After several years of development, home appliance retail chain stores have become the major channel for people buying household appliances. It is estimated that specialized home appliance chain stores account for over 70% of the home appliance retail market in large and medium-sized cities, and they are extending to small cities.

Young consumers tend to conduct purchases of home appliance on E-commerce platforms because the price is lower and the process is convenient. Taobao and Jingdong are their first choices.

But most people would like to see the real products instead of the picture on the website, and sometimes use the products themselves. So many of them nowadays first check out the products in the store and then conduct purchases on line.

Sources:

http://wenku.baidu.com/view/40196df7ba0d4a7302763af3.html

http://wenku.baidu.com/view/40196df7ba0d4a7302763af3.html

http://e.weibo.com/samsungchina?ref=http%3A%2F%2Fs.weibo.com%2Fweibo%2F%2525E4%2525B8%252589%2525E6%252598%25259F%3Ftopnav%3D1%26wvr%3D5%26b%3D1

http://china-trade-research.hktdc.com/business-news/article/China-Consumer-Market/China-s-kitchen-electrical-appliance-market/ccm/en/1/1X000000/1X002MNJ.htm

http://wenku.baidu.com/view/7ee967dc28ea81c758f57872.html

This article The purchase of refrigerators in China is the first one to appear on Daxue Consulting - Market Research China.