Foreign manufacturers of childcare products could find increasing opportunities in the Chinese market. According to Adil Husain and Jade Zhu of Emerging Asia Group, rising middle-class incomes and an increased awareness of product safety issues in China have spurred a preference and demand for high-quality and safe children’s products beyond infant formula. Parents are looking to foreign brands as reliable alternatives across the whole range of children’s products.
China’s Ministry of Statistics have estimated that 90 million babies will be born between 2011 and 2015, making China the world’s second largest consumer market (after the United States) for infant and children’s goods. In addition to market size, willingness to spend on offspring is a recognised trait of the Chinese household. The China Chain Store & Franchise Association reported that Chinese households spent roughly CNY 5 trillion in the under-12 market in 2012, with spending expected to grow at an annual rate of 15 per cent and surpass CNY 2 trillion by 2015.
Exploring Online Channels
Demand for convenient, safe and affordable children’s products has seen an increase in online presence of juvenile product providers on Chinese ecommerce websites. With sales on Tmall.com and Taobao.com together exceeding CNY 1 trillion in 2012, establishing a web-based marketing and retail presence has become crucial in reaching the Chinese mass consumer market. The number of Chinese online shoppers reached 250 million, in 2012.
The market for children’s products is still a “sunrise industry,” according to Sophia Zhuang, Investor Relations Director at Goodbaby, a leading Chinese manufacturer of child-care accessories. “Though 15 million babies are born in China every year, only around five million strollers are sold in the country, roughly one third of the potential market. Car seat penetration is even lower, at less than one per cent,” Zhuang says.
Strong interest in providing the best head start for children is manifested in online consumer discussions on China’s parenting websites. Babytree.com, a platform that markets itself as Facebook for parents, receives between 27 and 30 million unique visitors per month according to its CEO Allen Wang.
Marketing through these wide-reaching platforms can quickly provide foreign brands access to a large potential customer base. Babytree.com sends out roughly 100,000 packages with samples from about half a dozen rotating brands each month.
Foreign brands typically test the waters by working with individual vendors and smaller stores on the consumer-to-consumer (C2C) website Taobao.com.
Once brands have scale they can transition to Tmall.com, the business-to-consumer (B2C) spin-off from Taobao.com. Tmall.com has drawn international brands such as Germany’s Nuk and Danish toy icon Lego to its platform. The sales data of Taobao.com and Tmall.com demonstrates growing demand for foreign goods among their 500 million registered users.
Drawing Customers to Physical Stores
Experiencing products in person is preferable for juvenile durables, such as strollers and car seats, meaning physical retail presence remains a necessity. As Chinese customers display a healthy scepticism towards the actual origin and authenticity of goods sold through Taobao.com and its rivals, physical stores are ideal channels for discerning parents looking for high-end, premium children’s goods. “The post-80s generation customer relies on the internet for information, but when it comes to juvenile durables, real life experience is vital before making a purchase,” Goodbaby’s Zhuang says.
Brick-and-mortar shops, such as the Shanghai-based chain Lollipop, tend to be narrower in their merchandising selection than online stores due to the limitations of shelf space, lending a more high-end image as well as an increased perception of credibility and quality assurance. A speciality children’s store might focus on only two to four products in each category, selling only top-of-the-range items. “We stock Bugaboo and Stokke strollers, as these are amongst the most high-end strollers on the market,” says Wendy Krueger, co-owner of Lollipop. She says the customer mix at physical stores in central locations and high-end malls tends to be affluent, educated, and impulsive in their shopping habits.
Consequently, although success in the mass market requires competitive pricing for online stores, high-end products are more likely to sell through physical outlets where customers are less price-sensitive.
A question of authenticity
For many Chinese consumers, there is a perception that products imported from the United States and European Union have higher quality and safety due to stricter product safety standards.
“The Chinese consumer responds to EU certification seals on products and marketing,” says James Feldkamp, co-founder and CEO of Mingjian.cn, a consumer website offering independent, expert comparative tests, product ratings and safety news for Chinese consumers. “If manufacturers can provide products of consistently high quality and safety across global markets and clearly communicate their value proposition, that will prove very powerful and valuable to the Chinese consumer,” he says.
However, any foreign brand with popular and desirable goods must cope with the threat of fake products and consumer scepticism towards product authenticity in China.
“At a major mother-and-baby exhibition in China, I came across products purportedly from an Australian brand that I had never heard of,” says Leo Xiang, the founder of online retailer Ever Nurture. “On closer inspection, I learned that the products were entirely Chinese, and the so-called Australian connection was just a ploy to confuse Chinese consumers into believing the products were foreign. Actually, everything was designed and made in China.”
Successful entry into China’s childcare products market depends largely on the pace at which consumers’ trust can be earned; it is not simply about selling a brand with foreign origins. Foreign brands must optimise the price point for the specific channels used to sell products and target the appropriate customers accordingly.
Marketing strategies must also establish transparency and direct communication with consumers to prove value proposition. Ultimately, however, brands must create a safe product that meets or exceeds the highest international standards.
Adil Husain is the President of Emerging Asia Group and Jade Zhu is a Consultant at the firm. Emerging Asia is a market intelligence and M&A advisory firm headquartered in Shanghai with a strong practice in specialty consumer products.