Foreign Brands’ Sales Shrink in China: McKinsey Report

Foreign brands in China are seeing a decline in sales in the hyper-competitive fashion, apparel and luxury market.

McKinsey’s latest report found that 52% of surveyed Chinese consumers prefer local fashion apparel brands to foreign ones. The top local Chinese brands, in 2021, made up 60% of total sales in the apparel market, up from 54% the year before. Foreign brands’ sales dipped from 46% to 40% from the year before.

However, premium brands still outperform mass brands. The report says that consumers still trade up to more premium brands when they are looking to reward themselves. With the introduction of trendy and innovative local brands, many foreign brands that once enjoyed a leading position in the mass or mainstream segment are feeling the pressure, and have seen steep decline in sales.

Brands China
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Chinese Companies Offer Excellent Products

According to the McKinsey report, Chinese companies today offer excellent products that are competitive or sometimes even superior to their foreign peers. Preference for local brands has accelerated in the past few years.

Research highlights that domestic companies are reacting faster to trends, are closer to the consumer, and are making bolder investments. It has important implications for consumer companies. McKinsey’s survey indicates that 49% of Chinese consumers think domestic brands are of better quality than foreign brands versus 23% who believe the converse is true. It found that good quality was the third most important reason consumers chose Chinese brands, behind affordability, value and supporting local companies, while innovation was fifth.

The report says that Chinese consumers care less about the origin of a brand and more about the benefits and features it can deliver. It translated into consumers increasing their purchases of local brands over the past several years. While foreign brands lead the market for internal combustion engine (ICE) cars, Chinese brands lead the electric vehicle (EV) market in terms of volume sales. This demonstrates their capacity to compete not just on price, but on technological innovation.

Chinese brands account for more than 80% of domestic market share, backed by sustained investment in innovation. The trend reflects Chinese brands’ ability to produce high-quality products with a differentiated value proposition that appeals to Chinese consumers.

Information and Guidance

Consumers look for information and guidance when making choices about products they have never purchased before. It creates a unique opportunity for brands to shape how consumers think about entire product categories, even before they make their first purchase.

Experts believe brands need to establish a presence across the different offline and online touchpoints where consumers gather the information that influences their purchasing decisions. It should be noted that Chinese consumers have become much savvier and more skeptical in recent years about marketing gimmicks brands use to woo them.

Some brands have addressed consumer concerns around product safety and reliability through creative ways, such as by inviting them to their factories to see how products are made, creating open kitchens that show exactly how food is prepared, adding bar codes on packaging that enable them to track a product’s origin and journey along the supply chain. The report says brands that can build a deeper understanding of consumer needs and expectations, and which provide information that helps them make better decisions, will be better positioned to capture their attention, and a bigger share of their wallets.

Economic Pressures

Rising inflation and economic pressures drive consumers to be more discerning. They have to choose products for quality and functionality. Thus, domestic brands are preferred over foreign ones.

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