By Wang Yajin

Following the relaxation of China’s zero COVID policy, normal production and life are turning. Despite the economic recession caused by the pandemic in 2022, the Chinese consumer market continues to show resilience.

While it takes time for economic recovery, revenge spending is not necessarily guaranteed. With new consumption patterns emerging in food, clothing, housing, and transportation in the post-pandemic era, consumer behaviour will likely be polarized and companies will have to ramp up branding efforts to retain their customers.

Economic recovery takes time; revenge spending remains unclear

After a sluggish 2022, boosting domestic demand and the consumer market is a top priority for 2023. With COVID restrictions now behind us, the Chinese economy is expected to stage an accelerated recovery with steadily growing consumer confidence and spending in 2023. 

That said, we shouldn’t be blindly optimistic that revenge spending will occur for a number of reasons:

First, economic recovery is a prerequisite for a rebound in consumption. To spur consumption, it is necessary to bolster consumer confidence, which can only be achieved with the recovery of the real economy. Despite a general air of optimism, COVID-19 concerns and uncertainties still abound. Moreover, it takes time and requires multiple factors to work in concert for the economy to truly recover.

Second, basic consumer demand remains unchanged. So far, revenge spending has occurred in only a few cities for brief periods of time. However, basic consumer demand has not changed and it will take longer for consumer confidence and purchase intention to be restored.

Third, COVID-19 has, to a certain extent, reshaped people’s daily lives and spending habits and created new consumer demand. Companies need to assess whether these new consumer habits and demand brought on by the pandemic will extend into the post-COVID era in the long run.

In the US, for example, quarantine and lockdown measures during the pandemic forced people to turn to online shopping and workout sessions. After the pandemic abated, shoppers returned to brick-and-mortar grocery stores, but much of the fitness consumption remained online, giving rise to a sustainable business model.

In China, the pandemic brought more online shoppers to an already relatively mature e-commerce market. After the pandemic, online shopping is expected to become a mainstream shopping channel, pressuring offline channels to develop comprehensive experiences encompassing dining, entertainment, social and more to attract and retain more consumers. For companies, it remains to be seen how many COVID-induced consumer habits beyond online shopping will remain after the pandemic.

Given these factors, China needs to step up policy support to deliver positive signals to boost and maintain business and consumer confidence; give priority to restoring and expanding consumption; strive to create more consumption scenarios, improve consumption conditions and enhance consumption capacity; and eliminate impediments to consumption in order to fully unlock consumption potential.

New consumption patterns emerge; nomadic living and work styles come in the spotlight

The following consumer trends are shaping 2023 in food, clothing, housing and transportation:

Clothing that offers greater ease and comfort was in style as people spent more time at home during the pandemic. COVID-19 has also given many the opportunity to take a step back and reflect on the importance of health and family. As a result, outdoor sports, such as camping, hiking and sports parks, are expected to emerge as popular lifestyle treads post-pandemic, giving rise to increasing demand for sportswear and yoga wear.

The pandemic has also changed how and what people eat, as more and more young people are paying attention to wellness.

According to data from Zhiweidata (a data provider offering news and social media data), post-95s represent the highest percentage of young people who are health-conscious (37%), with post-00s coming in second (32%). More and more young people hope to improve their health through well-balanced diets, personalized vitamins and other supplements. This emerging trend is bound to affect future consumption as younger consumers are likely to replace the middle-aged and elderly to become the primary target for healthcare products.

COVID-19 has also catalysed working from home (WFH) and has continued to reshape the way people work and learn. A 2021 online survey by market research firm Pollfish found that 65% of US employees whose work could be done entirely remotely were willing to take a 5% pay cut to work from home. In the post-pandemic workplace, WFH is expected to become the new normal for some companies, and how to work and socialise effectively from home will give rise to new consumption patterns.

Since the end of zero COIVD, China’s tourism and service sectors have gradual recovered and are on track to rebound in 2023. Niche travel destinations will increasingly become mainstream choices. Consumers will seek a deeper, more integrated travel experience that combines entertainment, sports and learning. With Gen Z becoming a major force in the consumer market, travel platforms must find ways to rise to their expectations.

In addition, there is a growing number of mobile work communities around the world, some of which are dedicated to young freelancers. The workplace of the future will be increasingly mobile, and the “digital nomad” lifestyle will become an important way of living and working, resulting in new consumption patterns that deserve attention.

As Warren Buffett once suggested, investing in yourself is the best thing you can do during an economic downturn. In times of increased uncertainty, such as during the pandemic, we’ve seen the rise of many paid knowledge industries. It will be interesting to see if this trend continues in the post-pandemic era.

Branding remains key in a polarized consumer market

In addition to the aforementioned emerging consumption patterns, the Chinese consumer market in 2023 tends to be polarized between consumers seeking value-for-money products and those craving luxury.

McKinsey’s latest nationwide survey of Chinese consumers showed that 58% of urban households indicated their desire to “save for a rainy day” – the highest level since 2014.

As a result of decreased spending power and more rational purchasing behaviour during the pandemic, we will likely see a “consumption downgrading” post-pandemic as consumers may prefer to choose affordable, practical brands with high value for money.

On the other hand, consumers with a stronger spending appetite will still pay for luxury goods. Data from consultancy firm Bain & Company shows that the international luxury market shrank by 23% in 2020, while Chinese domestic luxury consumption rose by 45%. The growth of China’s luxury market also slowed in 2021, but was still as high as 36%.

In contrast, it is more difficult for mid-range products with moderate quality, performance and price to survive. As a result, to achieve sustainable growth, companies must ramp up their branding efforts and establish a consistent and well-defined brand positioning and value proposition, both internally and with external partners and customers.

The 2022 Double Eleven report also underscores that it is increasingly difficult to retain customers through promotions and price cuts alone, and that companies should refocus on branding and quality to seek long-term development. Only by building strong brands can they survive today’s stiff competition, avoid price wars and continue to deliver perceivable value to customers. In the past, new categories of consumer goods did garner significant investments, but in the future, investors will focus more on a company’s ability in brand building.

Wang Yajin is a Professor of Marketing at CEIBS. For more on her teaching and research interests, please visit her faculty profile here.