Who Are Tomorrow’s Consumers?

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Luxury-brand companies’ stock prices plungedin July, after their financial results disappointed investors, owing largely toslower sales in emerging markets, especially in China. Meanwhile, news reportsindicate that high-end shopping malls in Indiaand Chinaare increasingly empty.

What is going on? Many analysts had expected emerging markets to generate exponential growth over the next decade. But nowthere is talk of how the global crisis is slowing down these economies and killing off discretionary spending.

But a slowdown in China’seconomic growth cannot really be blamed for slower sales of luxury goods orempty malls. The annual growth rate of China’s $7.5 trillion economydecelerated to 7.6% in the second quarter, from 8.1% in January-March – hardlya cause for panic. Moreover, two-thirds of the decline is attributable toslower investment rather than slower consumption. For all of China’slong-term structural problems, it is not exactly slipping into recession.

The real problem is that many analysts had exaggerated the size of theluxury-goods segment in emerging markets. China is by far the largestemerging-market economy, with 1.6 million households that can be called “rich”(defined as having annual disposable income of more than $150,000). But this isstill smaller than Japan’s4.6 million and a fraction of the 19.2 million rich households in the United States.The number of rich households amounts to barely 0.7 million in India and one million in Brazil.

The point is that developed countries still dominate the income bracket that can afford luxury goods. Theexplosive growth recorded by this segment in emerging markets in recent yearsreflected entry into previously untapped markets,with the subsequent slowdown resulting from saturation.The number of high-income households is still growing, but not enough tojustify the 30-40% compounded growth rates expected by some.

This does not mean that growth opportunities in emerging markets havedisappeared, but expectations do need to be recalibrated.Despite the economic boom of the last decade, China still has 164 millionhouseholds that can be called “poor” (with annual disposable income of lessthan $5,000) and another 172 million that are “aspirant”(between $5,000-$15,000). Similarly, India has 104 million poorhouseholds and 107 million aspirant households.

The real story for the next two decades will be these countries’ shift tomiddle-class status. Although other emerging regions will undergo a similarshift, Asia will dominate this transformation.

A study by the economist Homi Kharas of the Brookings Institution gives usa sense of the scale of this change. Heestimates that 18% of the world’s middle class lived in North America in 2009,while another 36% lived in Europe. Asia’sshare was 28% (after including Japan).

But Kharas’s projections suggest that Asiawill account for two-thirds of the world’s middle class by 2030. In otherwords, Asia will displace not just the West,but even other emerging regions. This is the real business opportunity.

Of course, the rise of Asia’s middleclass is not the only change we should expect. We are in the middle of a socialand demographic shift that will both destroyand create consumer markets. The aging of developed markets is well known, butthe latest data show that emerging markets are aging at an even faster pace.

China’s median age is today 34.5 years, compared to 36.9 years for the US. However,the average Chinese will be 42.5 years old by 2030, compared to 39.1 for theaverage American. The median Russian will be even older, at 43.3 years.

The impact of aging is already being felt in these countries’ educationsystems. The number of students enrolled in primary schools in China has fallen by 18% since 1990, and by anastonishing 33% in South  Korea. At the other end of the demographicscale, the share of the aged is growing explosively.

Meanwhile, the nature of the basic consuming unit – the household – is alsochanging rapidly. In most developed countries, the traditional nuclear familyis in severe decline and is being replaced by single-individual households. In Germany, forexample, 39% of households consist of just one person. Couples with childrennow account for barely 19% and 22% of households in the United Kingdom and the US,respectively.

Nevertheless, it is not all about consumer atomization.We are simultaneously witnessing the re-emergence of the multigenerationalextended family, with as many as 22% of American adults in the 25-35 age groupliving with parents or relatives. By contrast, the extended family is givingway in Indiato nuclear families, which now account for 64% of households.

All of these changes will profoundly affect the future of consumermarkets. For example, we need to revise our mental image of the nuclear familyfrom American suburbia to fit the rapidlyexpanding cities of India.

By the same token, our mental imageof the multigenerational extended family needs to include those in the West. Anaging but increasingly middle-class Asia willbe at the core of this new consumer landscape.

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关键词：Consumers Consumer Tomorrow con ARE especially companies emerging expected generate

Luxury-brand companies’ stock prices plunged in July, after their financial resultsdisappointed investors, owing largely to slower sales in emerging markets,especially in China.But a slowdown in China’s economic growth cannotreally be blamed for slower sales of luxury goods or empty malls.two-thirds of the decline is attributable to slowerinvestment rather than slower consumption.(a phenomenon)

What is going on?The real problem is that many analysts had exaggeratedthe size of the luxury-goods segment in emerging markets.China isby far the largest emerging-market economy, with 1.6 million households thatcan be called “rich” (defined as having annual disposable income of more than$150,000). But this is still smaller than Japan’s4.6 million and a fraction of the 19.2 million rich households in the United States.The point is that developed countries still dominatethe income bracket that can afford luxurygoods.The explosive growth recorded by this segment inemerging markets in recent years reflected entry into previously untapped markets, with the subsequent slowdownresulting from saturation.(explanation for the phenomenon)

This does not mean that growth opportunities inemerging markets have disappeared, but expectations do need to be recalibrated.The real story for the next two decades will be thesecountries’ shift to middle-class status.projections suggest that Asiawill account for two-thirds of the world’s middle class by 2030.

the rise of Asia’smiddle class is not the only change we should expect. We are in the middle of asocial and demographic shift that will bothdestroy and create consumer markets. The aging of developed markets is well known, but thelatest data show that emerging markets are aging at an even faster pace.The impact of aging is already being felt in thesecountries’ education systems.Meanwhile, the nature of the basic consuming unit –the household – is also changing rapidly. In mostdeveloped countries, the traditional nuclear family is in severe decline and isbeing replaced by single-individual households(the future trend of the market, aging and miniature of the faminly size)

we need to revise our mental imageof the nuclear family from American suburbiato fit the rapidly expanding cities of India.By the same token, our mental image of themultigenerational extended family needs to include those in the West(adaptive way to the trend)