00:00 Speaker A
that Chinese shoppers are actually gravitating more toward local brands. A new report from TD Cowen highlighting that only 9% of those surveyed said foreign brands became more appealing over the past year. That’s down 33% compared to 2024. For more, we’re bringing in John Kernan, managing director of retail and consumer brands at TD Cowen. John, um, this report could not be better timed because this is something I’ve actually been asking a lot of folks that are coming on the show. What is the perception of US brands in China? And are we seeing any kind of this demand erosion? So, what’s your read through from this survey and the actual sort of sales effect on, on many of the, the companies that you cover?
01:24 John Kernan
Yes, see, just a level set our survey, our proprietary survey partnered with a Beijing based advisory who conducted in-person interviews of 2,000 Chinese consumers across a cohort of ages, low to high income and tier one, tier two, three cities. So we, we covered a good, good portion of the overall China consumer base and I think when you look at the survey, 28% of the respondents this year found Western brands less appealing. That’s up from 25% last year. So that’s a, that’s a meaningful uptick. Uh, the greatest increases in the less appeal response rate and that was up 450 basis points year over year was among high income consumers and it was also up about the same amount for the 18 to 34 year old demographic, which is obviously a very important demographic for the Western brands there.
03:17 Speaker A
What do you think, uh, would make this go away, John? Uh, is it going to take about two to three years from what I’ve heard to have any sort of meaningful dialogue with the Chinese and try to come to terms with, with these tariffs. I mean, is there anything we can do to escape a recession in, in your view, uh, given, you know, your recent, uh, what you’ve learned?
04:03 John Kernan
Well, yeah, the survey dealt more with, uh, you know, China and I think, you know, certainly if the trade war and the tariffs stand where they are now, China would, our strategists see their, their GDP growth getting cut in half this year to about two and a half percent. I’m not, I’m fairly optimistic for the US economy. I think there will be trade deals announced, maybe not with China, but I’m, we’re pretty optimistic on the state of the consumer, the consumer’s balance sheet. Uh, if markets stabilize, that’s a big boost to the high income consumer and 10% of the US population accounts for 50% of total PCE spend. So, I think that consumer’s in decent shape. Again, confidence has definitely been damaged, but I’m optimistic as we get into year end, there’s going to be tariff deals and, you know, the US consumer and the job market will carry us through.
05:44 Speaker A
I want to dig into some of the companies that you cover that were covered in this survey also. And by the way, I had not heard of some of these Chinese-based brands, footwear and apparel brands, Lining, for example. But you talk about Nike in the report that it’s still in the lead, but it has been decreasing in terms of sort of its brand equity in view in China. So, for a brand that’s already sort of embattled in the US as well, what does this mean for a company like Nike and, and, you know, controlling what it can control, is there anything that it can do about it?
06:58 John Kernan
Sure. But I mean, let’s start with the fact they’re still number one in every footwear and apparel category we surveyed. In most cases by a comfortable amount, but they are definitely losing preference in every single one of those categories. The big share gainers are Lining, Anta, and Fila. Fila’s actually on run by Anta Sports. Um, and those three have been gaining share. They’re obviously local brands. They’ve got localized management teams. They’re making better product. Lining even sells shoes in the United States now. So, they’re still much smaller than Nike in scale, but they are gaining share. Nike didn’t lose share to their Western peers in the survey. It was all, all the share they donated was essentially to the, the upstart China local brands.
