Chinese brands are booming and experts say Western brands should be worried

Labubu dolls are hard to come by. Even at the giant flagship store of their maker, Pop Mart, in Shanghai, throngs of customers are told they need to wait a week or longer. The grimacing elvish creatures, which come in “blind boxes” that keep buyers in suspense over which one they might get, sell for as little as $US20 (about $31). But a rare variety sold for $US150,000 (about $231,000) at an auction on June 10. It is not just Chinese children trying to get their hands on the dolls; celebrities including David Beckham, a British football player, and Rihanna, an American pop star, have recently gone public with their appreciation.

The Labubu craze has sent Pop Mart’s shares up by 170 per cent since the start of the year. It is one of a growing cohort of Chinese consumer brands whose popularity is surging. For decades, Chinese shoppers tended to look overseas for the latest trends in cosmetics, fashion, hospitality and more. Now they are flocking to local luxury firms, high-end make-up brands and milk-tea shops. What is more, many of these brands are gaining a devoted following abroad. Western brands should be worried.

It is an odd time for a boom among Chinese consumer products. Sputtering economic growth has caused household spending to weaken. Yet, the strain on Chinese shoppers’ wallets is one of the factors propelling local brands. As consumers have become more price-sensitive, cheap but decent quality homegrown brands have thrived.

Many urban Chinese coffee drinkers, for example, have found local chains such as Cotti or Luckin just as good as Starbucks, an American company, but often half as expensive. Laopu Gold, a Chinese maker of luxury jewellery, has found success selling elegant bracelets and earrings that tend to be cheaper than those offered by Tiffany & Co, another American stalwart. Songmont, a local handbag brand, has launched a costly advertising campaign in airports across the country pitting itself against foreign competitors that are often twice as expensive, or more. Part of Pop Mart’s success with Labubu dolls has come from targeting frugal spenders with high-quality, “emotive” products, says Lina Yan of HSBC, a bank.

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Yet consumer downgrading is only part of the explanation for the buzz around Chinese brands. In many cases, shoppers are paying just as much or more for local equivalents. For instance, the best-selling products at Chagee, a tea chain that went public in New York in April, are tea lattes that sell for 15–20 yuan (about $3 to $5), on par with Starbucks’s top products in China. The group has marketed itself as a premium brand, not a budget one, notes Han Zhang of Deutsche Bank, another lender.

The fastest-growing segment of electric vehicles in China is not the cheapest, but those priced at between 200,000–400,000 yuan (about $43,000 to $86,000), considered “entry-level luxury”. Foreign carmakers have long dominated this market segment, but many popular new models in this range are from local rivals such as NIO and Li Auto.

Chinese consumers are also now far less enamoured with foreign goods simply because they are foreign. Laopu’s rapid rise is proof of that. The firm, which sells intricate gold jewellery with a distinct Chinese flair, has managed to keep its sales per store above 300 million yuan (about $64.5 million), at least 50 per cent higher than most of its foreign rivals. Its share price is up by more than 2000 per cent since it listed in Hong Kong about a year ago. It is one of only a small number of homegrown luxury brands in China. The industry has long been dominated by foreign firms. But most of them are now doing poorly in the country.