It's not just Labubu dolls. Chinese brands are booming

Business Times

4 days ago

LABUBU dolls are hard to come by. Even at the giant flagship store of their maker, Pop Mart, in Shanghai, throngs of customers are told they need to wait a week or longer. The grimacing elvish creatures, which come in 'blind boxes' that keep buyers in suspense over which one they might get, sell for as little as US$20. But a rare variety sold for US$150,000 at an auction on Jun 10. It is not just Chinese children trying to get their hands on the dolls; celebrities including David Beckham, a British ex-football player, and Rihanna, an American pop star, have recently gone public with their appreciation.
The Labubu craze has sent Pop Mart's shares up by 170 per cent since the start of the year. It is one of a growing cohort of Chinese consumer brands whose popularity is surging. For decades Chinese shoppers tended to look overseas for the latest trends in cosmetics, fashion, hospitality and more. Now they are flocking to local luxury firms, high-end make-up brands and milk tea shops. What is more, many of these brands are gaining a devoted following abroad. Western brands should be worried.
It is an odd time for a boom among Chinese consumer products. Sputtering economic growth has caused household spending to weaken. Yet the strain on Chinese shoppers' wallets is one of the factors propelling local brands. As consumers have become more price sensitive, cheap but decent quality home-grown brands have thrived.
Many urban Chinese coffee drinkers, for example, have found local chains such as Cotti or Luckin just as good as Starbucks, an American company, but often half as expensive. Laopu Gold, a Chinese maker of luxury jewellery, has found success selling elegant bracelets and earrings that tend to be cheaper than those offered by Tiffany & Co, another American stalwart. Songmont, a local handbag brand, has launched a costly advertising campaign in airports across the country, pitting itself against foreign competitors that are often twice as expensive, or more. Part of Pop Mart's success with Labubu dolls has come from targeting frugal spenders with high-quality, 'emotive' products, says Lina Yan of HSBC.
Yet consumer downgrading is only part of the explanation for the buzz around Chinese brands. In many cases, shoppers are paying just as much or more for local equivalents. For instance, the best-selling products at Chagee, a tea chain that went public in New York in April, are tea lattes that sell for 15-20 yuan (S$2.70-3.60), on par with Starbucks' top products in China. The group has marketed itself as a premium brand, not a budget one, notes Han Zhang of Deutsche Bank, another lender. The fastest-growing segment of electric vehicles in China is not the cheapest but those priced at between 200,000 and 400,000 yuan, considered 'entry-level luxury'. Foreign carmakers have long dominated this market segment, but many popular new models in this range are from local rivals such as Nio and Li Auto.
Chinese consumers are also now far less enamoured with foreign goods simply because they are foreign. Laopu's rapid rise is proof of that. The firm, which sells intricate gold jewellery with a distinct Chinese flair, has managed to keep its sales per store above 300 million yuan, at least 50 per cent higher than most of its foreign rivals. Its share price is up by more than 2,000 per cent since it listed in Hong Kong about a year ago. It is one of only a small number of home-grown luxury brands in China. The industry has long been dominated by foreign firms. But most of them are now doing poorly in the country. Western luxury brands once filled a gap simply because there were no real local alternatives, says Amber Zhang of BigOne Lab, a research firm. However, 'that doesn't mean Chinese consumers naturally resonate with the design or cultural message of those Western brands'. Rather than trying to appear Western, both Laopu and Chagee have flaunted their Chineseness. It has worked.
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Fans argue that, despite its lower prices, Laopu's materials and design are of higher quality than most foreign offerings. This points to another shift in spending habits in China: shoppers are better informed about products today than they used to be, mainly thanks to social media. Many feel that they have been fleeced by foreign companies that were able to sell at inflated prices purely by not being Chinese. Today, young women scour the labels of cosmetics brands to find local products with the same active ingredients as foreign ones but at lower prices, notes an industry analyst.
That has helped yet another hit Chinese brand, a cosmetics maker called Mao Geping, which raised US$300 million in an initial public offering in Hong Kong in December. Its share price has soared by about 250 per cent since then. Home-grown cosmetics companies have been trying to steal share from foreign firms such as L'Oreal and Estee Lauder for years, but have struggled to compete at the pricier end of the market. Mao Geping, which is named after its founder, a famous make-up artist, has become the first local company to make it onto the list of the top ten high-end make-up brands in China.
Whereas foreign firms tend to focus on the country's largest cities, local brands operate farther afield. Many got their start in smaller inland cities. Chagee opened its first store in the city of Kunming, in the south-western province of Yunnan, in 2017, and most of its shops remain outside rich coastal areas. Mixue, a cold-drink chain, started as a shaved-ice stand in one of China's poorer provinces. The country's most popular fast-food brands have mainly expanded in smaller cities before trying their luck in places such as Beijing and Shanghai.
Hoteliers are doing the same. H World, a Chinese hotel chain, will open about half of its new properties in third and fourth-tier cities over the next year, says He Jihong, its chief strategist. Foreign hotel chains are much less active in small cities. This could be one factor keeping H World's hotels fuller than those of foreign rivals. Its occupancy rate was above 80 per cent last year, while the figure for Marriott International, an American chain with a large presence in China, fell below 70 per cent, making the country one of its worst performing regions.
The focus on small cities is important because spending there appears healthier than in big cities. Purchases of fast-moving consumer goods, such as packaged food and beauty products, expanded by 5.5 per cent in 2024 in cities with fewer than one million people, whereas they shrank by 4.6 per cent in the biggest cities, according to Bain, a consultancy.
Foreign brands in China are scrambling to fend off their new competitors. Lavazza, an Italian coffee chain, has tried selling salted-duck-egg coffee, with limited success. Some Western businesses, including Starbucks and Haagen-Dazs, an ice-cream chain owned by General Mills, an American food giant, are reportedly sounding out local investors for their Chinese operations in an effort to inject new ideas.
The competitive threat is not contained to China. Pop Mart now has stores in more than 20 countries, including at least 37 in America. Mixue can be found across South-east Asia. Chagee will have more than 1,300 shops outside China by the end of the year, up from almost none four years ago. And analysts believe that the more foreign recognition these brands get, the more popular they become within China. The social media craze in the West over Labubu dolls is thought to be adding to their local cachet. For decades, retail trends swept into China from abroad. Those days may be ending.
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