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Beyond the Bale : June 2016
OFF FARM 5 “The world’s premium consumers are primarily located in the three regions that also dominate the total clothing market, specifically North America, Western Europe and ‘Affluent Asia’ (Japan, South Korea, Hong Kong, Taiwan, Singapore and Australia).” 85% of premium consumers are located in these regions (North America 48%, Western Europe 22%, Affluent Asia 15%), while China currently has just 1% of the world’s premium consumers. In 10 years’ time, the location of premium consumers doesn’t change much, except for China. See Figure 1 above. The geographic location of premium consumers will continue to be localised and hence accessible. “While the three older affluent regions are predicted to decline in global share, from 85% to 78%, they nonetheless still add 63 million people to the premium clothes buyer. Only China shows a growth in share over the next ten years, from 1% to 6%, which is an additional 20 million people. “So it is these two areas – the traditionally affluent regions plus China – that are where the growth is going to be and hence where the wool industry should focus its marketing.” In terms of specific countries, just 10 countries account for nearly three-quarters (73%) of global spending by the premium clothing segment. North America dominates with 33%, the UK is next at 9%, then Japan, Germany, Brazil, Italy, Canada, Australia, France and Switzerland. “These 10 countries are crucial – not only now, but in the future. In 10 years’ time, these 10 countries are expected to add a total of US$143 billion in consumer spending, which is a 33% increase in absolute size.” Dr Laurent pointed out that these 10 countries are largely all old countries in terms of their population – which is pertinent to his next reason why demographics are shifting in wool’s favour. EMPTY NESTERS DRIVE CONSUMPTION “There is something that a lot of people misunderstand about these countries – and Japan is a classic example,” he said. “They think that because the populations of these countries are old, they are going to have a lot of trouble looking after all the old people. So they expect the economy to slow, their workforce to decline, the economy to go down and they therefore expect there’s not going to be much market. “No. The reality is that the premium consumer base is also changing because of the growth in the ‘working age empty nester’ segment. These are people who are maintaining their income (by carrying on working later in life) and have fewer dependents, and who therefore have higher than average disposable income. “A whopping 24% of Japanese males aged 70-74 are still in full-time employment, which will rise to about 50% in 10 years’ time. They have a great nutritional history, are well educated; but they suffer pension insecurity and they want intellectual stimulus, so they stay in the workforce. “It’s not just Japan. In the US, 23% of males aged 70-74 are still in full-time employment; in the UK the figure is 21%. The older workforce is now a reality. “The implications are that the labour force of these countries does not decline and the household income of these people stays up longer. Furthermore, they spend significantly less on their children because they have left home, they have largely reduced their mortgage and debt commitments, and they have largely equipped their house. Working age empty nesters are spending above average on quality clothing. “They are working age empty nesters – and this is where the money is. The per capita spending power of the household has risen, and they are now changing their consumption patterns towards things like health care, fitness, and international travel. “Importantly, they are spending above average on clothing. And what’s the big characteristic in clothing that these people want? Quality! These people are moving up in quality of clothing. ‘Less but better’ is the way to go – perfect for wool!” CHINA’S PREMIUM MARKET WILL GROW While China is a relatively small market at present (less than 1% of the total premium spend), it offers significant growth potential at 20% per annum. By 2025 it is projected to be 6% of the premium market. Dr Laurent said the historical age bias of the rural-urban migration over the past 20 years means urban China now has a very large and growing working age empty nester segment – similar to the three traditional premium regions. “The 292 million 40-64 years olds in urban areas are predicted to increase over the next 10 years by 100 million people to 391 million. Over the next 10 years, the total spend on clothing in the premium sector is expected to grow by 20% per annum, from US$10 billion to US$60 billion in value. “Again, it’s all about the mum and dads with the kids gone. They’re still earning, and they’ve fully equipped their houses with washing machines and the like. It’s these people that are driving the rise in fitness, international travel, food consumption; wellness has suddenly become an important plus, they also understand the environment and sustainability. They are a beautiful consumer group. The premium market in China is forecast to rise from 1% global share to 6% global share during the next decade. “Clothing is a major category for them! They’ve got out of the stage of wanting the big brand and the big brand statement, and they are moving more to the issue of ‘Am I buying sensibly? Does it fit into my lifestyle needs rather than me fitting into a brand image?’ They are becoming a much more discerning customer prepared to spend money where they feel they’re going to get value. It’s a steamroller of money coming through and the wool industry can’t afford to ignore it!” How does the wool industry target these consumers over such a vast country? Luckily, the geographical distribution is very concentrated and hence accessible, largely in the east of the country. 23 Chinese cities (out of a total of 655 Chinese cities) account for 64% of households with a gross income of more than US$100,000 per annum. In fact just seven cities account for 50% of the target. MORE INFORMATION www.globaldemographics.com Only China shows a growth in share over the next decade (from 1% to 6%), of an additional 20 million people. While the three older affluent regions (North America, Western Europe, Affluent Asia) decline in share over the next decade (from 85% to 78%), they nonetheless add 63 million people. NORTH AMERICA 44% WESTERN EUROPE, 22% AFFLUENT ASIA, 12% CENTRAL AND SOUTH AMERICA, 7% CHINA, 6% REST 9% Figure 1. Location of premium customers in 10 years' time.
In the Shops - September 2016