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Mainland Now World's Second Largest Market for Children's Products

Beaten only by the US, the mainland mother-and-child market is set to be worth Rmb2 trillion this year. This has triggered massive growth in the number of domestic producers targetting the sector, while also boosting e-commerce.

Photo: Baby steps: The mainland’s children sector continues to grow.
Baby steps: The mainland's children sector continues to grow.
Photo: Baby steps: The mainland’s children sector continues to grow.
Baby steps: The mainland's children sector continues to grow.

China is now world's second largest consumer of maternity-child products, according to the CBME China Children Baby Maternity Products Industry Report (2014 edition). Trailing only the US, its mother-and-child market is expected to be worth Rmb2 trillion this year.

According to the report, some 67% of businesses related to the mother-and-child sector have recorded sales growth of 20% or more, with some 64% indicating a high degree of confidence in their future prospects. At the same time, the new parents that have ushered in this current baby boom continue to enjoy higher levels of disposable income and a greater propensity to spend.

Milk Powder, Baby Clothing and Toys

The mother-and-child industry embraces a wide range of related consumer products. These include milk powder, nutritional supplements, nappies and wet wipes, feeding apparatus, toiletries, baby carts, beds and bedding, safety seats, toys and books, as well as children's clothing and shoes. For 2015, the signs are that three particular product categories are benefitting from an increased level of consumer spend – milk powder, baby clothing and toys.

Baby formula has long been the mainstay of the sector. Over recent years, sales of imported baby milk powder products have expanded rapidly across the mainland. Commenting on this increased uptake, one industry insider said: "Typically, European and US products emphasise their brand qualities, milk source and superior processing technology. In terms of more local brands, Korea's Lotte and Japan's Snow Brand both emphasise that they source their milk from Europe and Australia, while promoting their Asian-friendly formulas as a means of building their share of the China market."

Photo: A sector staple: Imported milk powder.
A sector staple: Imported milk powder.
Photo: A sector staple: Imported milk powder.
A sector staple: Imported milk powder.
Photo: A rash of nappies.
A rash of nappies.
Photo: A rash of nappies.
A rash of nappies.

In light of the current massive market demand, something likely only to grow, China's dairy businesses have much cause for optimism. Even though, for many years, the domestic sector has fared poorly compared to overseas producers, there are signs that this may be changing. The mainland government has recently raised the import quality control threshold on pasteurised milk, opening the door to greater opportunities for the domestic sector. In future, China's own pasteurised milk businesses are likely to be better placed to compete with importers.

At present, mainland consumers tend to have limited trust in domestic mother-and-child brands across a number of sectors. Zhang Lianglun, the Chief Executive of beibei.com, a popular mother-and-child e-commerce site, believes a change is now afoot. He said: "While consumers may prefer imported milk products at present, from a long-term perspective, domestic mother-and-child products will enjoy greater demand. This is largely down to the lower logistics costs involved and their higher price-performance ratio."

Even though baby clothing is the largest product category in the mother-and-child sector in terms of volume, its market concentration rate is comparatively low. While the overall market is worth some Rmb100 billion, the retail store sales volume of the largest children's fashion brand – Balabala – was recorded at just over Rmb2.5 billion in 2013, a market share of less than 5%. Other sizable children's fashion brands, including Disney, Bobdog and several sports brands that crossover into the children's clothing sector, also all lack true national dominance. By contrast, a number of domestic children's clothing brands have developed robust chain businesses, with their considerable production capacity seeing them well positioned for future growth.

Photo: Balabala: Leading the kids clothing market.
Balabala: Leading the kids clothing market.
Photo: Balabala: Leading the kids clothing market.
Balabala: Leading the kids clothing market.
Photo: Early education tools: Popular in the toys market.
Early education tools: Popular in the toys market.
Photo: Early education tools: Popular in the toys market.
Early education tools: Popular in the toys market.

Toys are another sector that enjoys huge production volume, but lacks branding in the mainland mother-and-child market. China's toys and games exports are valued at more than US$35 billion a year, underlining the country's massive production resources. Over recent years, however, mainland toy exports have been the subject of a number of anti-dumping investigations.

Overall, the toys sector is a very broad one and one which can be usefully divided into a number of sub-categories, including plush and cloth toys, building blocks and puzzles, figure toys and intelligent games. The supply chain of each sub-category varies significantly, rendering it difficult for a single brand to achieve overall market dominance.

It is also believed that mainland consumers' current demand for low-to-mid-range toys is not likely to fluctuate significantly. Other categories, however, are seen as having greater scope for growth – notably electronic and interactive toys. These are produced in ever greater numbers, resulting in greater levels of affordability. At the same time, customers are putting more concern as to the safety of such toys, as well as the levels of innovation they display.

Commenting on these changes, Wei Wei, Chief Executive of Tinman Arts, a Chengdu-based digital content developer, said: "Branding is a definite trend for the mainland toy industry. With the greater integration of technology, improved IP creation, the mainland's unrivalled production capacity and the opportunities opened up by the internet, more high quality domestic brands are emerging. Within five years, I believe a number of domestic brands will be on a par with the current global giants."

Online Retail Diversity

In light of the sector's undoubted prospects, many retail stores and online-only operators are looking to expand. Haier, for instance, one of the mainland's leading home appliances companies, has branched out into producing a number of specialist baby/child products, including air purifiers, milk warmers, milk heating thermostats, sterilisers and cookers. According to its sales team, the market for most of these products was previously dominated by overseas brands, notably Philips. Prices for these imported items tended to be relatively high (above Rmb1,000), while the sales volume was relatively small. As a result, Haier has set out to compete with these items on cost terms.

Photo: Seats of learning: A child chair.
Seats of learning: A child chair.
Photo: Seats of learning: A child chair.
Seats of learning: A child chair.

A similar situation has also played out within the toys industry. A number of China's leading internet companies, notably Baidu, Tencent and Qihoo 360, have all set out to capitalise on their individual strengths by branching out into the toys sector.

Baidu, for instance, has leveraged on its BaiduInside platform to reinvent its parent-child hardware as focussed standalone products. Tencent, meanwhile, is testing the market with its intelligent webcam and its Qrobot range. For its own part, Qihoo 360 is looking to leverage on its success in web safety with the launch of a kids' GPS tracker bracelet, with more toys said to be in the pipeline.

Overall, online channels focussing on the mother-and-child sector have become increasingly prominent across the mainland. According to the CBME report, families are now buying such items through three primary conduits – mother-and-child retail stores (43%), supermarkets or hypermarkets (24%) and online shopping (15%). With increased investment this year, the e-commerce sector of the market is believed to be poised for dramatic growth.

Amid such huge demand, a variety of new mother-and-child specialist e-commerce sites have emerged. Following beibei.com's announcement that it had secured US$100 million of Series C funding earlier this year, lamabang.com, the country's largest mobile mother-and-child vertical community, also announced a similar deal. The value of lamabang.com is now put at around US$1 billion, again reflecting the huge development potential of China's mother-and-child industry.

Photo: Can domestic children’s products fend off foreign brands?
Can domestic children's products fend off foreign brands?
Photo: Can domestic children’s products fend off foreign brands?
Can domestic children's products fend off foreign brands?

According to Cao Lei, a Director of the China e-Business Research Centre, there are three key reasons for the likely growth of the mother-and-child sector. First – and most obviously – there is the huge size of China's population. Secondly, there is the loosening of the one-child policy and, thirdly, there is the demonstrated willingness of many new parents to spend online.

Typically, the mainland's mother-and-child websites can be divided into two categories – regular and discounter. Muyingzhijia.com and gou.com, for example, are both regular e-commerce platforms offering standard-priced items, while beibei.com, miyabaobei.com and VE.cn are all discounters. A number of dedicated e-commerce apps are also now available for the sector.

Another significant development is the growing partnership between e-commerce operators with overseas companies. According to beibei.com's Zhang, the domestic market is still characterised by high levels of demand for low-to-medium-range products, even though the level of demand for mid-to-high-end overseas purchases is also significant. To cater for this, beibei.com has now rolled out a specialist overseas shopping channel.

Launched in January this year, miyabaobei.com focusses on imported mother-and-child products, with Series C funding for the project having been secured late last year. In its first four months of trading, the site recorded sales of Rmb35.41 million, making it one of the most successful cross-border trading businesses in the Ningbo Free Trade Zone.

Gu Yuehua, Special Correspondent, Beijing

Content provided by Picture: HKTDC Research
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