Notes from the Road: new retail, new opportunities in China

The global pandemic has accelerated changes in China’s consumer habits, disrupting the retail sector. 4Factor analyst Jay Wang went on the road to discover how quickly new concepts have filled the gaps left by the old, creating opportunities for investors.

Oct 4, 2021

12 minutes

Jay Wang
The global pandemic has accelerated changes in China’s consumer habits, disrupting the retail sector. 4Factor analyst Jay Wang went on the road to discover how quickly new concepts have filled the gaps left by the old, creating opportunities for investors.

The fast view

  • Exploring China’s shopping malls has shown me how quickly new concepts have filled the gaps left by those that failed to survive the last two years.
  • The accelerated shift to online has lowered barriers to entry, as nascent brands without much upfront investment can use social media platforms to scale up revenues and build brand longevity.
  • The retail sector is ripe for disruption, creating new opportunities in consumer products.
  • Community group buying is another disruptor, as companies can serve a new demographic in lower-tier cities. This could create opportunities over the long term for investors.
  • On-the-ground insight allows us to more easily identify and assess opportunities as they emerge.

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Capturing consumer spending power

01
The changing face of China retail
02
Gen Z are the key drivers of change
03
A sector primed for disruption with low barriers to entry
04
Increasing consumer power outside the main cities – community group buying
05
The key ingredients for success and how to find the winners
01

The changing face of China retail

Aerial view of Shanghai
The pandemic has accelerated changes in consumer habits. The old is being replaced with the new, creating opportunities for investors.

The global pandemic has taken its toll on service industries and accelerated changes in consumer habits, particularly in China, the world’s second largest consumer market. During my travels, it emerged that China’s shopping malls are evolving rapidly to replace the retail and restaurant concepts that did not survive the disruption of the past two years. In addition, internet giants that benefitted so much from the growth of online shopping and gaming are also evolving under the increasingly watchful eye of the regulators. They are developing new concepts, such as community group buying, which will provide them with routes into new markets. With such rapid changes, we felt it was important to gain first-hand insight into emerging trends to help evaluate new concepts and opportunities.

In recent weeks, I have spent much of my leisure time in mostly newly-built shopping malls in cities across eastern China, including Nanjing, Shanghai and Hangzhou. Instead of finding the old familiar shops, movie theatres or full-service restaurants, I noticed different brands springing up in prime spots, such as Muji and Xiaomi. Emerging domestic brands taking more shelf space and attracting customers include Perfect Diary, Manner Coffee, HeyTea, Genki Forest, Relx, and Super Monkey. I had to look harder to find the familiar consumer brands, such as Yili, Moutai* or Haidilao. COVID has clearly presented a serious challenge for traditional leisure businesses – cinemas and restaurants – but I was surprised by the speed with which these new brands have moved in to fill the gaps left by the old.

With such rapid changes, we felt it was important to gather first-hand insight into emerging trends to help evaluate new concepts and opportunities.

 

* This stock is held in 4Factor portfolios.

No representation is being made that any investment will or is likely to achieve profits or losses similar to those achieved in the past, or that significant losses will be avoided.

This is not a buy, sell or hold recommendation for any particular security. For further information on specific portfolio names, please see the Important information section.

Authored by

Jay Wang
Analyst

Important Information

This communication is provided for general information only should not be construed as advice.

All the information in is believed to be reliable but may be inaccurate or incomplete. The views are those of the contributor at the time of publication and do not necessary reflect those of Ninety One.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

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