Australian Resources Analyst, Fundamental Equities
A shift is taking place within the Chinese consumer market – and developed markets more broadly – to spend money on experiences rather than on traditional material products. For the Australian market, this means a boost to tourism from Chinese nationals and to the education and housing sectors from Chinese immigrants.
An evolving trend within developed markets is the consumer preference to spend on experiences – aligned to lifestyle and values – which is overwhelming the consumer desire to spend on products and brands.
The below chart shows the substantial increase in activity-based expenditure, and an example of the trend to spend less on traditional goods like cars and apparel.
Consumer spending on experiences exceeds spending on ‘things’
Source: Sanford Bernstein, Bloomberg, CLSA
Trend extends to the rest of the globe
Following a recent visit to the US, we reported back on the phenomenon that American consumers are spending more on experiences than on ‘things’. From 2000-2011, revenue growth in consumer companies that sold ‘things’ – such as physical products like clothes and household goods – was almost exactly the same as revenue growth in consumer companies that sold experiences like travel and dining out. Both were around 8.7% and 8.8% respectively. However, after 2011 something interesting happened – the ‘experience’ basket started growing at twice the rate of the ‘things’ basket.
Shift in spending trends is a global phenomenon
Source: Evercore ISI
Why the shift in consumer behaviour?
This shift in behaviour most likely reflects the transition to millennials (15-35 year-olds) as they become the dominant source of incremental consumer spending; and as baby boomers retire and are therefore more likely to travel and dine out.
Despite their low income average, China’s millennials desire international brands, lifestyle and health and wellness products; and they are willing to undertake material search costs to maximise their disposable incomes. This has contributed to strong growth of online retail within this cohort.
Social media has also facilitated the rise of ‘conspicuous leisure’, with platforms such as Facebook, Instagram and Snapchat inspiring the observation and creation of lifestyle image posts that highlight an active and adventurous lifestyle as a global citizen.
China is currently Australia’s most important nationality by spend – more than double that of the UK which is in second place. Tourism Australia forecasts the potential for this segment to be worth up to $13 billion by the year 2020, and Chinese tourism is likely to be a dominant theme for years to come. Goldman Sachs estimates that passport ownership in China is 4%, which is comparably much lower than 25% in Japan and 35% in the US. However, this number is expected to increase to 12% by 2025. Two thirds of current outbound travellers are millennials and it is expected that the 74 million Chinese college students graduating over the next decade will boost to passport ownership.
According to independent brokerage and investment group CLSA, approximately 15% of China’s 350 million-strong middle class population wish to emigrate, with Australia being the second most preferred destination. Australia may see a spike in Chinese immigration during the next five to ten years, which demonstrates the likely increasing demand for education and housing in the country.
The future of Chinese consumption
Australia’s tourism, education and property sectors will continue to benefit from Chinese expenditure, a trend that we expect will last for decades to come.
The continual shift in spending from baby boomers to millennials will only progress with time, as will the relentless rise of social media, thus cultivating the trend for consumer spending on non-material expenses and changing the landscape for investors globally.
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