Impact of Changes in China's Population Structure on the Retail Industry

It is a great honor to participate in the 10th China Retailers Conference. I have attended seven sessions of the Retailers Conference. A core issue discussed at the 9th session was the transformation of China's retail industry. Everyone here is well aware that since 2012, China's entire retail market has been slowing down sharply. Yesterday, I heard Professor Huang Guoxiong's acceptance speech for his award. Professor Huang even pointed out that China's retail industry is now at its most critical crisis. I personally believe that there are three main driving forces behind this round of retail transformation. One is the overall slowdown of the Chinese economy; the second is information technology, especially the development of mobile internet; the third key issue driving retail transformation is the dramatic changes in China's population and consumer behavior.

I. Characteristics of the New Normal in Chinese Consumption

General Secretary Xi Jinping mentioned that China's economic development will enter a new normal in the future. I personally believe that along with China's new economic normal, the entire Chinese consumption is also entering a new normal phase, or we can call it the new normal of consumption. Looking ahead, the main characteristics of China's new normal consumption are as follows:

1. Rapid Aging of China's Population

In 2014, the population aged 60 and above in China reached 212 million, accounting for 15.5% of the total population, with those aged 65 and above accounting for 10.1%. After 2015, China may enter an unprecedented aging process. According to various statistics and forecasts, such as the authoritative predictions from the China National Committee on Aging, by 2020, the population aged 60 and above will reach 218 million. By 2030, it will exceed 300 million, and by 2050, it will exceed 400 million. This refers to the stage when the post-60s generation enters aging, and China may enter an unprecedented aging phase.

For example, just considering those born in 1963, the Year of the Rabbit, by 2023 there will be more than 29 million people entering the stage of receiving pensions. At that time, whether in terms of economy, employment, or finance, the overall burden of elderly care in China will reach a very serious level.

2. Future Decline in Birthrate in China

Beyond reaching one of the world's most severe aging stages, a more serious problem is that China’s future birthrate decline may enter a very severe phase. To measure a country's future child development, for example, the proportion of the population aged 0-14, according to the United Nations, a general statistic shows that in 1982, China had 340 million children aged 0-14, which sharply dropped to 220 million by 2012. In other words, over 30 years, the 0-14 population decreased by 100 million, an unprecedented decline in birthrate and aging. This will definitely have a profound impact on the retail market in the future.

Looking at China's population under 14, after 2020, it decreases by 3 million people annually. On the other hand, the number of people receiving pensions in China will increase by nearly 10 million annually after 2020.

3. Smaller Family Structures

Besides population aging and the sharp decrease in children, China's family structure is also facing significant changes. From a future perspective, the trend of small families composed of a couple and one child will not fundamentally change. Regardless of whether the two-child policy is relaxed, the trend of declining birthrate in China is almost impossible to reverse.

On the other hand, the large increase in single-person and single-parent families further reduces family size. Currently, the average family size in Tianjin is only 2.7 people per household, and it is expected to decrease further. China's empty-nest families are rapidly increasing. According to statistics, by 2030, when the post-60s generation fully enters the aging society, the number of empty-nest elderly in China will increase to more than 200 million, meaning that over 90% of the elderly population will live in empty-nest families. Empty-nest families, consisting of one or two people, will become a major characteristic of family structure in our society.

4. The Rise of the New Generation Consumer Class

Besides changes in family structure, another important factor affecting Chinese consumption in the next decade is the rise of the new generation consumer class. This new generation mainly consists of those born after 1965 and after 2000. The rise of this group is directly related to the survival and sustainable development of the retail industry. According to various research surveys, new generation consumers have several characteristics: greater attention to health—concepts like slimming and dieting are very popular even among elementary school students; a sharp increase in demand for services and experiences; preference for luxury brands; low-price orientation—according to Alibaba statistics, online shopping is mainly concentrated in two groups: middle-aged and elderly over 50, and teenagers, so the low-price orientation is very prominent; desire to save more shopping time; and a very obvious trend is the arrival of a consumption era dominated by cute culture and femininity, which brings profound impacts to the retail industry.

We see that the new normal of consumption in the future mainly manifests as aging, declining birthrate, smaller family structures, the emergence of empty-nest families, and the rise of the new generation consumer class. From this perspective, the only comparable country is Japan. Japan's post-war economic development also went through three stages. In the past 20 years, Japan's economy has fallen into a serious recession, with average GDP growth of only a fraction of a percent. Japan's problem mainly occurred during economic recession coinciding with the arrival of the aging wave. According to Japan's experience, by 2013, the population aged 65 and above reached 24%. If aging is defined as 60 and above, this proportion would rise to about 33%. This means that nearly one in two people on the street is close to 50 years old.

Beyond this, comparing the population structure between China and Japan, we find that the proportion of people aged 40-60 is much larger in China. Therefore, in the next 10 years, China's aging problem will definitely be more prominent than what Japan currently faces. Under Japan's aging over the past 20 years, the retail industry has undergone significant changes: department stores declined by 36.5%, large supermarkets declined by 28.2%, while convenience stores, drugstores, and online shopping have seen considerable growth. Of course, economic recession may have contributed, but more importantly, population structure changes caused major problems for department stores and comprehensive supermarkets. Looking at Japan's top ten retail companies in 2012, four of them were convenience store groups, showing a clear trend of retail moving towards smaller formats.

For example, the customer structure of Japan's 7-11 convenience stores changed significantly. In 1994, customers aged 50 and above accounted for only 12% of all customers, but by 2011, this proportion had risen to 31%. Here we see the impact of population structure and consumer behavior on the entire retail industry.

II. The Future Development of China's Retail Industry

Let's discuss the future development of China's retail industry. First of all, I personally believe that slow growth in the consumer market will be a long-term trend. After 2015, with the serious aging and declining birthrate faced by China's retail industry, the retail market in China will gradually shrink. I even predict that after 2015, when China's retail market reaches its peak, it will gradually decline like Japan. Japan's post-war retail market peaked in 1997, and for nearly 20 years since then, it has been in a gradual decline, with population issues and market contraction playing a significant role.

On another note, in the next 10 to 20 years, China's regional retail markets will definitely enter a period of decline. Due to the aging population in regional markets, especially as the younger generation begins to concentrate in major cities like Beijing, Shanghai, Guangzhou, and Shenzhen, the retail markets in third- and fourth-tier cities face very serious challenges. Many of you here may know that every year, more than 2 million people move from the three northeastern provinces to inland areas, almost all of whom are young people. If a region continuously loses a large number of young people, it means that the future development of the retail market in that region is hopeless. This raises a very sharp question for us: what will the retail industry in third- and fourth-tier markets look like in the future? Now, with the opening of high-speed rail, the concentration of young people in major metropolitan areas has accelerated. Will we see a scenario like Japan, where the retail industry in major cities like Beijing, Shanghai, Guangzhou, and Shenzhen thrives while the retail markets in third- and fourth-tier cities decline? Will such a scenario occur? In the future, with aging and declining birthrates, retail formats will sharply divide. Under aging and declining birthrates, one type will be convenience store formats dominated by single-person consumption, which will develop significantly. On the other hand, shopping centers catering mainly to two- or three-person families will develop. The decline of department stores and hypermarkets may enter a long-term process. Small stores and small supermarkets will likely experience rapid development. Since China's aging population is aging before becoming wealthy, discount supermarkets and budget supermarkets will have significant growth. All these present us with a discussion about the future retail market.

With the development of aging and declining birthrates, community commerce will achieve unprecedented growth. China's commerce is aging before becoming wealthy, and our elderly care model mainly relies on home care and community care. Without community commerce, home care and community care in China cannot be established. Therefore, this is a major issue.

Another characteristic is the arrival of the female-led consumption era, which will have a profound impact on the retail industry. I personally believe that Chinese women have never enjoyed such good education as they do now in Chinese history. In universities, 70% of students in liberal arts colleges are female. They enjoy the best education, and the inheritance relationships in single-child families make them economically independent. So now we have entered an era dominated by strong female-led consumption. In this era, the future retail industry and product development will be more feminine and oriented towards women. This may also be a trend in retail development. If you have been to South Korea or Japan, you will find that the feminization trend in their retail markets is very prominent. I believe we will also enter such an era in the future.

In short, as China's economy enters a new normal, we must also see that China's consumption has entered a new normal development process. This requires the retail industry to adapt to environmental changes in its future development, especially to adapt to changes in China's population structure and consumer behavior. In the transformation process of the retail industry, there will be no glamorous turnaround without relatively more pain. Therefore, innovation and format innovation are the main issues facing the future development of the retail industry.

That concludes my speech. Thank you all!

(This article is selected from "Economic and Trade Reference")