Continued strong sales of consumer products has firmly established China's domestic market as a place where more brands - both local and foreign - want to be. In fact, for many it’s becoming a priority to succeed in China. While other more mature markets struggle to show strong annual growth, the China market is still young and full of opportunities. The market has the added advantage of the Chinese government’s intention of developing the nation’s consumer market so that it is less dependent upon exporting. “The China market is surging. It’s really crazy and it's being driven by TikTok,” said Susan Kwang from M.Oro Cashmere, a China-based spinner. “The domestic market is booming. It’s much better than expected,” said Jasmine Lam from China-based spinner Xinao. <h3><b>A Different Way of Managing Inventory</b></h3> The business model in China is very different from the way Western brands typically work. Unlike traditional brands who plan collections ahead of the season, place large orders with factories and then launch their products in stores or online in time with specific seasons, in China most brands work ‘on demand.’ In China, many brands pre-sell styles online. Only after consumers order the product do they then place an order with the factory. “Chinese brands are placing ongoing small orders. They use stock yarns so it's very fast and flexible. Also, there’s no sampling, which saves time and money,” said Ms. Kwang. “Because all selling is online, the QC is less strict. There’s no need for the color, fabric or other details to be so exact,” she added. <h3><b>No Place Like Home</b></h3> Travel bans related to Covid have shifted the focus to shopping at home. Industry insiders expect that this will continue, even after travel is possible. It’s a matter of convenience. There’s now no need to wait until you have time to travel or to have to spend the time and money to go overseas to buy the things you want. “Because people can’t travel it has boosted the domestic market sales. People will now buy luxury goods at home,” said Ms. Kwang. This is being supported by the government’s having extended duty-free shopping licenses to a growing number retailers in Hainan and other locations. Most mills agreed that there’s rising demand from Chinese domestic brands for high end yarns and fabrics. “The demand for cashmere is booming,” said Ms. Kwang. European mills report that it's the Chinese buyers who continue to buy the luxury European fabrics, even brands that tend to be more mid tier. Part of that the fierce competition amongst Chinese brands means that differentiation is a must. A key way to achieve that is through using unique materials and accessories. <h3><b>Proud to Be Me</b></h3> There’s a big trend towards buying local brands, especially those that touch on traditional Chinese culture. GenZ consumers are championing this and seek brands that in some way incorporate Chinese culture. “There’s now more support for local brands,” said Ms. Lam. Referred to as “China-chic” a term that describes the trend of China-centric design, this is a ‘can’t miss’ trend in China’s domestic market. Younger Chinese consumers are proud of their culture and don’t seek foreign brands for status or validation of their success. GenZ consumers are more confident than the past few generations, not only exercising independent judgment but also capable of appreciating and demanding top-quality products. Therefore, they prioritize personalization and self-expression in products, and want exclusive products, specially targeting them. Chinese brands are not specifically looking to replace global brands. Instead, they are looking for niches that are not being served by big brands - niches where they can serve a customer and make a living. International brands have an advantage in terms of ‘vertical differentiation’ where products are judged based on objective quality from the highest to the lowest. However local brands win when viewed in terms of ‘horizontal differentiation, where product differentiation is not associated with the product's quality or price point. Instead, these products might offer the same thing at the same price point, with the difference being design, color or even marketing. Because Chinese brands grew up in the domestic market, they are better able to catch the nuance and mood of local consumers. Global brands, in contrast, have the advantage of being well known and being able to capture international trends. There’s a place for both in China. <h3><b>Local Brands Redefine Retail Tactics</b></h3> The domestic market has huge opportunities but also is fiercely competitive. The size of the market has lured sophisticated international brands who have the resources to open flagship stores and do heavy online promotions. Often overlooked, but just as much of a threat, are domestic brands. While each one might only have a micro share of the market, in aggregate they are a force to be reckoned with. In China anyone with an idea has the advantage of having a world class supply chain in their backyard. If you can dream it, there’s a factory in China that can make it. Using social media and livestreaming e-commerce, domestic companies can do marketing with small investments and directly influence customers, rather than hiring costly advertising companies to make and deliver creative advertisements. <h3><b>Why Supplies are Looking Locally</b></h3> For suppliers, despite the competition from the nation’s vast number of mills, manufacturers and accessories suppliers, there’s money to be made. “The domestic market is very fast turn. Everything is sold on COD (cash on delivery) so payment is immediate,” said Ms. Kwang. That clearly resonates with a lot of suppliers who got burned during COVID when payments were delayed up to 180 days as buyers struggled to sell the goods they ordered. Not to mention the number of export brands who declare bankruptcy. Looking ahead, China is poised to join ranks with other major consumer markets. It will have a thriving base of domestic brands, of which some will remain regional brands and others will have a nationwide customer base. And then there will be foreign brands that have developed a fan base in China. We can also expect to see some Chinese brands spotting opportunities to sell into overseas markets, where they become the ‘foreign brand’ and have all the advantages of being unique.