China's top growing consumer sectors: Where to invest in 2023? - China Opportunity Finder
Identify the strong sectors and latest performance of industry leaders, including Nike, Anta, Lululemon, Apple, Huawei, L'Oreal, P&G, Estee Lauder, Shiseido, LVMH, Proya, Luckin, & Starbucks
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Year-to-date in 2023, we have seen a consistent recovery of consumer confidence in China. This is especially evident in the increase in discretionary shopping during the second and third quarters of the year. While most categories are showing signs of recovery, it is important to note that the average selling price (ASP) for some categories remains stagnant or even declining. This suggests that although consumers are willing to spend, they are still cautious in their purchasing decisions.
In today's post, we will share data that is typically only available to our institutional clients. This data will help you identify sectors that are experiencing exceptional growth in terms of both gross merchandise value (GMV) and average selling price (ASP), allowing you to uncover investment opportunities. Specifically, we will feature comprehensive online sales data from Tmall, JD, and Douyin, as well as offline store expansion and Meituan order data.
We will do a comprehensive bottom-up screening of online sales and store expansions in China. The objective is to identify emerging sectors and evaluate the performance of industry leaders. Ticker-level data includes industry leaders that generate significant portions of their revenue from China, such as Nike, Anta, Li Ning, VF Corporation, Lululemon, Apple, Huawei, Samsung, Vivo, L'Oreal, P&G, Estee Lauder, Shiseido, LVMH, Proya Cosmetics, Luckin, and Starbucks. Make sure to read our post before the next earnings report to gain insights into their expansion plans and competitive landscape in the Chinese market.
Key trends: Consumer sectors in China for Q1-Q3 (until Aug) 2023
For investors eyeing China's dynamic consumer sectors, understanding the current landscape is pivotal. Let's decipher the patterns in the Gross Merchandise Volume (GMV) and Average Selling Price (ASP) across key categories from Q1 to Q3 (July & Aug) 2023:
Most categories, except for Book & Videos and Virtual Goods, experienced a rebound. There was a notable increase in GMV across most sectors, suggesting a robust consumer market during this period. However, fluctuations in average selling prices (ASPs) suggest varying levels of consumer confidence: while spending increased in certain sectors, there was noticeable caution in others such as car accessories, clothing, computer & office, home appliances and general household items. This caution was reflected in either decreased or stagnant ASPs.
Spotlight on Investment Opportunities:
Sports & Health: This sector has demonstrated consistent growth in both GMV and ASP throughout Q1-Q3, indicating a cultural shift towards wellness and premium health offerings.
Digital Electronics: After a decline in Q1, this sector experienced a significant recovery by Q3. The impressive 54% growth in average selling price (ASP) during Q3 indicates a resurgence in discretionary spending.
Personal Care & Makeup: This sector has shown steady GMV growth and a significant 17% rise in ASP by Q3.
Our focus will be narrowed down to three main sectors: Sports & Health, Digital Electronics, and Personal Care & Makeup. We will explore the online sales of subcategories to identify emerging markets within these sectors. Additionally, we will compare the latest sales of industry leaders.
Sports & Health
Within the subcategories of Sports & Health products, we have noticed a notable rise in consumer interest in outdoor activities. This is evident from the significant increase in GMV for cycling, outdoor clothing, outdoor equipment, and outdoor shoes.
Medical devices have experienced a consistent increase in both GMV and ASP year-to-date. Unlike during the Covid period, when sales of medical devices were mainly driven by oximeters, the category has now found a new growth trajectory fueled by rehabilitation assistance and blood glucose instrument products. Yuyue Medical (SHE:002223), an industry leader, has witnessed a continuous surge in GMV and ASP from Q1 to August 2023 across Tmall, JD, Taobao, and Douyin.
Robust Outperformers: The emerging local brand "蕉下" (Janez Holdings) has seen a surge in sales, driven by the popularity of sun protection products and outdoor activities in 2023. Both 361 Degree (HKEX:1361) and Lululemon (NASDAQ:LULU) have shown strong performance with consistent year-on-year growth in 2023. However, Lululemon has started to experience declining average selling price trends in 2023 Q3 (July and August) after a sales surge in previous quarters. This indicates that consumers are increasingly prioritizing value for money and rational spending, which may pose potential risks for Lululemon's profitability in the Chinese market for the remainder of 2023.
*See our previous comprehensive analysis of Lululemon's sales (by categories and product lines) and the effectiveness of their market expansion efforts in China.
Recovery Stories: Skechers (NYSE:SKX)' resurgence in Q2 2023 indicates a noteworthy recovery, following setbacks in previous quarters.
Potential Risks: Adidas (XETRA:ADS)'s continued suboptimal performance suggests the presence of underlying challenges, which deserve closer operational scrutiny. VF Corporation (NYSE:VFC), Li Ning (HK:2331), and Under Armour (NYSE:UAA) have also shown below-average online sales performance in 2023 YTD. Nike (NYSE:NKE), in particular, is also struggling with below-average growth in online sales and stagnant ASP in the first two quarters of 2023.
Continue reading to discover the key trends and opportunities in the digital & electronics, personal care & makeup categories, as well as offline consumption activities. You will explore the competitive landscape and the latest performance of industry leaders:
Digital electronics: Online sales (up to August 2023) across Tmall, JD, Taobao, Douyin of industry leaders such as Apple, Huawei, Samsung, Vivo, and others.
Personal care & makeup: Online sales (up to August 2023) across Tmall, JD, Taobao, Douyin of industry leaders such as L'Oreal, P&G, Estee Lauder, Shiseido, LVMH, and Proya Cosmetics.
Offline consumption (featuring coffee sector): Luckin, Starbucks, and Cotti Coffee's store expansion and Meituan orders.
The Cell Phones sector showed a significant trajectory, with a downturn in Q1 but a remarkable rebound in both GMV and ASP by Q3. Other notable trends include growth in the Camera, Photo & Video category, consistent performance in Electronic Education, and a rebound in Video Games.
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