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This century’s “baby boomers” are in China

China’s rising consumer middle class, driven by urbanization and rising per capita consumption levels will drive global growth and analysts estimate that the effect could be greater than that of the post-war baby boomers of the west. China’s working class, aged 15-59, is expected to swell by an additional 100 million people in the next 15 years and will bring domestic consumption from $2.5 trillion to 6.7 trillion, according to McKinsey research. These consumers are increasingly optimistic about their upward mobility compared to their western peers and are consuming for lifestyle and premium experiences.

These themes will continue to play well for Chinese consumption in the near and long-term.  We are also seeing positive momentum drivers in babywear and kidswear, as we enter a “third baby boom” in China. Fertility rates are expected to remain high, average childbearing age remains between 25 and 30, and China’s one-child policy has effectively dissolved following the government’s 5th National Plenum. Couples are now evaluating having – and paying for – a second child and in the next few years, the number of additional newborn babies is expected to range from 1.5 to 4 million per year. This will have a profound impact on China’s economy, by boosting consumption and also gradually improving demographic disparities. More newborns supported by increasingly wealthy mothers and fathers will mean strong sales opportunities for our leading babywear and kidswear brands, Yeehoo, Peekaboo and I Pinco Pallino.

The rising demand potential from China’s increasingly large number of newborns has attracted foreign brands, such as Disney, which have established market share across clothing, toys, books, and educational supplies. Domestic brands are simultaneously strengthening their own product offerings, acquiring knowledge and capabilities to provide key products for the growing children’s marketplace, such as strollers and car seats. The space has also drawn attention from capital market participants, with investment capital targeting the full value chain, from tech investors investing in online maternal and infant retailers, to media investors focusing on animated children’s films.

Children’s wear is a central and investable theme and along with toys, diapers, and food, account for nearly 50% of the total children’s consumer goods industry, which according to the China Research Center for Children’s Industry is expected to grow at a CAGR of 15%. Children’s wear specifically is expected to nearly double from RMB 116 bullion in 2013 to approximately RMB 200 billion in 2018.

Brands must focus on design, quality and safety to attract consumers and capture these rising trends. Consumers in China prioritize functionality, brand recognition and safety of products over pricing and are willing to pay a premium for safe and reliable products. Additionally, companies must provide convenient online and offline distribution channels for parents looking to shower their kids with products and clothing. For brands like Yeehoo and I Pinco Pallino, that can execute on high product quality and strong distribution channels, China’s new wave of children represents a massive and sustainable growth opportunity for years to come.

Lunar | August 31, 2016