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There is a long-established economic relationship that as consumers become increasingly affluent, they tend to allocate a smaller share of total spending to basic goods.
This link is certainly valid with regard to food spending. The chart below also largely proves this association in the case of clothing and footwear. Considered as an aggregate consumer item, disregarding quality and status variations, it will receive smaller spending allocations share-wise by 2020 in the majority of the world’s largest metropolises on the backdrop of rising per capita incomes.
Source: Euromonitor International
Note: Graph features 126 world’s most important metropolises (capital cities, economic and political centres) from 80 major countries, 59 of which are developed cities and 67 developing cities.
Over 2015-2020 101 of the world’s 126 largest cities are forecast to record falls in the proportions captured by clothing and footwear in total consumer expenditure, by on average 0.2 percentage points. This is not to say that absolute spending by urban consumers on clothing and footwear will undergo a major contraction. In fact, 116 major world cities will see their total apparel spending rise in absolute terms over 2015-2020, from 0.1% in Moscow to 61% in Delhi (in constant value terms). However, the rising affluence (proxied by disposable income per capita) of urban consumers will instigate a shift in consumer spending towards goods and services that are truly discretionary in nature. For example, over 2010-2015 over half of cities (69 out of 126) will see combined shares of expenditure on leisure and recreation as well as hotels and catering rise as a proportion of total spending.
The economic effect that rising income has on such basic consumer goods as clothing and footwear is reflected in research on consumer preferences. The high level of prosperity that is enjoyed at present times in different parts of the world but especially in the West is seeing consumers valuing unique, even personalised experiences in well-being, entertainment, eating-out and travel over having more “stuff”.
Flagship cities in India and China, despite recording some of the most rapidly rising per capita incomes over 2015-2020, are due to witness growing shares of clothing and footwear in total consumer expenditure over the same period. Although growing rapidly, per capita incomes in the cities of China and particularly India are still a far cry from those in the developed cities. For example, the average figure among the largest Indian cities of US$3,600 in 2015 is only 12% of the developed cities’ average (US$29,100 in 2015) and even just over a third of Chinese cities’ average (US$9,700 in 2015). This means that urban consumers in India still tend to allocate growing incomes to basic goods and services.
The case of Chinese cities cannot be solely explained by an income effect: per capita incomes in the country’s metropolises are higher and rising more rapidly than in many other emerging cities, yet the share that clothing and footwear occupies as a proportion of total expenditure is not in decline. The reasons for this phenomenon in China lie in consumer preferences and the unique population policy of the country. A sizeable young and increasingly fashion-conscious demographic is strongly driving demand for apparel, particularly Western brands, in Chinese metropolises. In addition, the further relaxation of the 1-child policy in November 2013, allowing couples to have two children if one of them is an only child, acts as a major boost to the children’s wear and footwear categories. In fact, baby and toddler wear is expected to record the most dynamic CAGR of 11% in constant value terms over 2015-2020 among apparel and footwear categories in China.