Latest Insight

(December 2018)

How Important Will China be to the Premium Clothing Market over the next decade?

 

Of the 108 countries Global Demographics Ltd covers, 89 publish sufficiently detailed data to provide a measure of spending patterns by income and expenditure category.  These countries account for  88% of  the global population in 2017 as estimated by the UN Population Division..

The total expenditure on clothing and footwear of all household in the 89 countries for which we have data amounts to an estimated US$1,812 Billion in 2017.  Households with an income in 2017 US$ values over US$125,000 account for 23% of the total spend.  That is, an estimated clothing and footwear spend of US$412 Billion in 2017.

This segment showed virtually no growth between 2007 and 2012 reflecting the economic environment of the times, but since then grew at 4.4 % pa to 2017.

In the same period (2012 to 2017) China’s affluent household spend on clothing and footwear grew at a very significant 26.3% per annum reflecting the double benefit of an increasing number of affluent households (from 776,000 to 2.16 million in the 5 years to 2017) and increasing spend per affluent household on clothing and footwear  (US$7,367 to US$ 8,514  - at an exchange rate of 6.34 and in constant 2017 values)

This made China the 4th most important market in the world in terms of clothing and footwear expenditure by affluent households.  Will it retain that position, or move further up? 

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Please note that all currency items in this article are in US$s 2017 values – i.e. the effect of inflation has been removed from historic data and all projections are in present day real values.

Also, note that the term ‘Affluent Households’ refers to households earning over US$125,000 pa in real 2017 values using the 2017 average exchange rate to the US$.

The spend of Affluent Households is important to many market segments including recreation, transport (Cars), health and in this instance clothing.  While they are 4% of all households in the countries covered by this study and probably less globally, they account for a much higher proportion of total consumer spending.  In the case of clothing and footwear the Affluent Household accounts for 23% of the total spend on clothing and footwear by all households.  Hence, they are important to that industry

Not surprisingly, it is highly concentrated in a relatively few countries.  Figure 1 shows the countries listed from the largest to smallest in terms of total spend of Affluent Households on clothing and footwear.  The first 5 countries account for 81% of the total affluent spend on clothing and footwear and the top 11 (of 89) countries account for 95%.  In short, the health of the affluent clothing and footwear market is significantly determined by these 11 countries.

Figure 1: Cumulative share of total spend of affluent households on clothing and footwear by country – 2017.

Fig 1.jpg
 

 

Within this set of key countries obviously the USA, with its large population and high affluence, is the most significant market at 61% of the total spend.  Also, despite the subsequent discussion, it largely holds that position through to the next decade (declining marginally to 59%). Furthermore, while its share may be static/declining marginally the total value of the USA Affluent spend on clothing and footwear is projected to grow at 3.1% per annum to 2022 and 2.4% per annum to 2027.

There is then a very significant drop to the next most important Affluent Clothing and Footwear market – which is Japan.  It accounts for a total spend of US$ 39 billion in 2017, compared to the USA’s US$ 251 Bn.

China is 4th at US$ 18.395 Bn, which is just on half that of Japan.

However, the dynamics of the next decade rather favour China.  Its population is growing (albeit at a much slower rate) and its household incomes are growing because of productivity growth and an increasing share of that productivity going to the worker (and hence ultimately the household).

As such the total number of affluent (and mainly urban) households in China is projected to increase from 2.161 million in 2017 to 4.92 million in 2027.  A significant increase in absolute number but do appreciate that the 2.1 million affluent households in China in 2017 is nonetheless only 0.48% of all households in China.  This is why the absolute number can increase so much – it is a small increase in the absolute percentage of households that are affluent.

Japan, in comparison, has no projected growth in the number of affluent households for the next decade because of projected limited increases in productivity per worker (it is already high by global standards) and the absolute number of workers is declining which constrains growth in household incomes (fewer workers per household).  

Overall with a Compound average growth rate of 9.3% pa for the next 5 years and then 7.6% for the subsequent 5 years to 2027, China is one of the most rapidly growing Premium Clothing and Footwear markets in the world.  India is another, but it is significantly smaller in absolute value (just US$ 112 Mn in 2017).

Figure 2 (a and b) shows the projected (and historic) trend in total clothing and footwear expenditure for the top 6 countries excluding the United States of America (which is excluded so that more relevant detail is provided in the chart for the smaller markets).  The second chart (b) shows the historic and projected change in share of total premium clothing and footwear market for the same 6 countries.

Figure 2: Historic and projected absolute value and share of total premium clothing and Footwear Market – top six countries excluding the USA.

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This demonstrates that even with a more subdued (but still above average relative to most countries) total real GDP growth of 4.1% per annum for the next decade China’s share of the Premium Clothing and Footwear market will continue to increase – both as a proportion and in absolute value.  A market that is projected to grow from US$ 18.4 Bn to US$ 41.5 billion (US$ real 2017 values) in a decade (average CAGR of 8.5% pa) has to be of importance to any premium clothing or footwear brand wanting to achieve above average growth.

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