Confessions Of Asia's Shopaholics

Tracing the Trend of Rising Aspirational Spending that Drives the Increasing Consumption in Asia

Kuala Lumpur, 19 March 2008 - Imagine this: you stop by a department store on your way home from work, and although not planning to make any purchases, you find yourself walking out of the store an hour later carrying numerous items. Compare this to spending habits 30 years ago in Asia: saving for anticipated rainy days ahead was the number one priority. A typical middle class Asian household lived quite frugally during the 1980s. Shopping was a chore to get all your necessary household goods with the lowest spending possible as jobs were scarce. People hardly ate out, bought economical locally-manufactured groceries and shopping for clothes was an indulgent monthly (for some, yearly) activity.

Today, this is hardly the case in Asia; home to the world's biggest shopping fans¹. HwangDBS Investment Management (formerly known as Hwang-DBS Investment Management) explores the "confessions" of Asia's shopaholics: the growing middle class aspiring to better their lifestyle. These are the people behind the driving force of Asia’s economic growth in 2008, amid mounting global uncertainties and impending US economic turbulence.

The common theme across Asia is rising per capita income, which is driving up affordability of big-ticket items such as a property or a car, spurring consumer spending against façade of strong Gross Domestic Product (GDP) growth. The degree and speed of this transformation can be seen in many of the conclusions in research done on Asia, and is interestingly depicting our spending culture as well – or does it? HwangDBS IM takes a look into the factors behind the trend of rising Asian consumption and explores what Asians have to "confess" about their spending habits.

Confession #1: Asia’s rising middle class with fatter wallets
The sheer size of Asia's population base with 1.3 billion in China alone represents an enormous consumer market size, valued at RMB 7.6 trillion (RM 3.4 trillion) and per capita income is set to rise in Asia with the booming economy (China's GDP growth rate of more than 10 per cent per annum)². Real per capita income has more than doubled in China and India over the past 10 years. Similarly, Malaysia and Hong Kong have the most households reporting a rise in income over the past 12 months. The emergence of a global managerial and professional class - a growing large group of Asia's young now have more disposable income and are more internationally inclined in their outlook and consumer choice. Affluent adults aged 25-64 years have a household income substantially above the average accounts for 12 million people, including executives and Business Decision Makers (BDMs)³. 
Simultaneously, the rising incomes bring a new wave of consumers, which were previously not economically active, entering the consumer market. Households in Asia become active consumers at surprisingly low income levels driven by aspirational attraction for strong and leading brands names.

Did you know?⁴ 

• 87 per cent of Malaysians have had a salary increase over the past 12 months.
• 57 per cent of households in China are enjoying income increases.
• 63 per cent of Indian households expect incomes to rise over the next 12 months.
• 44 per cent in the Philippines expect incomes to rise.
• 1.6 million households in India are estimated to earn over US$100,000 per annum and about 100,000 have more than US$1 million in assets.
• In the past 10 years, Hong Kong households earning more than HK$60,000 per month increased by 43 per cent.

Confession #2: Taking a peek in their shopping bag – Premium brand goods & big ticket items
Evidence indicates that consumption growth has been phenomenal in Asian countries where over the past ten years, adjusted for inflation, consumption spending has surged 136 per cent in China, 65 per cent in India; while for Malaysia, Singapore and the Philippines, consumption in real terms has increased by close to 60 per cent over 1996 - 2006. Furthermore, Asians are striving to trade-in and trade-up to improve their lifestyle and want to be perceived as early product and trend adopters rather than followers. Studies also show that image is more important in Asia than in the West, thus brands with credibility and influence are highly respected and paying a premium for the quality is deemed worthwhile⁵.

Thanks to Asia’s economic prosperity, consumption patterns are moving up the ladder from basics to premium, where premium branded grocery is preferred over generic grocery⁶. According to ACNielsen's survey, on a scale of 5, the world's booming economy of China (4.2) and India (4.23) prefer a supermarket that offers a better selection of high quality brands and grocery products. On the same ground, certain brands have very high acceptance level in Asia. Nokia for example, is the top mobile phone brand in eight of the 10 markets surveyed, Sony is the brand choice for televisions and digital cameras, Toyota is the top car brand in Asia (except for India, Malaysia and Taiwan), where Toyota's biggest vehicle sales gain came from Asia (a 15 per cent increase), outside of Japan⁷.  Nike is regarded as one of the top apparel brands in Hong Kong, Korea, Malaysia and Taiwan. Asians are also spending significant amounts on children's education as university education remains a top priority for most Asian parents.

Properties, cars, gadgets with global brand equity continue to lead Asia's shopping list…
In South Korea, a typical household spends 22 per cent of total expenditure on children's education, thus demand for education services is expected to stay strong on the back of rising affluence⁸. Transportation cost is the next largest item of expenditure, accounting for 10-15 per cent of the total. 20 per cent of households in Malaysia and 10-15 per cent of Japanese, South Korean and Thai households have purchased a car in the past 12 months. In Asia Pacific, households have consistently been indulging in holidays as their most preferred spending option, with Thailand leading this front⁹.

Asian household's aspirations to access the means necessary to “reward” themselves, drive a better car, buy a bigger home in “classier” neighborhoods, travel abroad, educate their kids and save enough money for comfortable retirement are expected to drive consumption in Asia for decades.

Did you know?⁴

• 43 per cent in India want their children to get a Masters; 29 per cent want kids to get a doctorate.
• In most countries, being a doctor was one of the top-three occupations parents aspire for their kids.
• 40 per cent in China indicate an interest in buying properties, with 42 per cent in Malaysia intend to buy a property in the next 18 months.
• 58 per cent of Indian households plan to buy a car and 22 per cent of Malaysians plan to buy a car in the next 18 months.
• 12 per cent of total expenditure is spent on clothing in Hong Kong.
• 37 per cent of Singaporean households want to buy AV equipment, 21 per cent want to buy computers.
• Only 13 per cent of India's current population are fixed-line and mobile phone subscribers, indicating further room for growth in this sector.
• The iPod is the top MP3 player in Japan, Taiwan and Hong Kong with Sony leading in most other markets.
• According to the MasterCard Worldwide Index of Travel 1H 2008, the huge driver behind the growth of Chinese outbound travel is the expanding middle class. Their numbers are growing exponentially in urban cities such as Beijing, Shanghai and Guangzhou, from an estimated 35 million middle class households in 2006 to a projected 100 million households in 2016.
• A typical Indian household devotes 8 per cent of total expenditure to entertainment.

In conclusion…
As the region's middle class expands and lifestyle expectations increasingly drive spending patterns, aspirational spending in Asia will be a continuing trend. The millions of aspiring consumers in Asia represent the dream generation for manufacturers and retailers - the low penetration in the sectors such as consumer durables, mobile subscription and so on indicates that there is much room for growth in sectors benefiting from this booming culture. It would be no wonder that international brands will be clamouring to capture a share of the booming consumer markets in Asia and will invest aggressively to build their brand in these new markets.

In a nutshell, the vibrant and exciting story on Asia looks set to dominate the next decade as the region is clearly shifting from being an economy led by secular developments in the global scene to domestically driven shifts in consumption and investment. HwangDBS IM is confident Asian consumption will drive economic growth in the long run, shaping the vastly changing landscape for investors in Asia. From the “Confessions of Asia's shopaholics” it is evident the shift in spending attitude from the past generation's frugal living to now, where shopping is no longer just a necessity but part of the Asian lifestyle. Aspirational spending – this is the key that would drive consumption in Asia as a continued trend for decades.

^{1 Source: ACNielsen, The World's Biggest Shoppaholics? Surprise, It's Not Americans, June 2006}

^{2 Source: HwangDBS Vickers Research, Malaysia Equity Research, January 2008}

^{3 Source: Daily Research News, Asia's Affluent Earn, Spend and Borrow More, October 2005}

^{4 Source: CLSA Asia Pacific markets, July 2007}

^{5 Source: Euromonitor: East is East and West is West - Regional consumer attitude comparisons, May 2007}

^{6 Source: ACNielsen, “Good Value” Is the Top Influencer of U.S. Grocery Store Choice, December 2007}

^{7 Source: The New York Times: Toyota Says Quarterly Profit Jumps 32%, August 2007}

^{8 Source: DBS Group Research, Equity, Dec 2007}

^{9 Source: ACNielsen, Thai consumers are the world’s top savers, December 2007}