'Debut economy' new engine driving consumption

China has been shifting its economic gears in recent years, and one of the most intriguing and commercially profitable trends of this shift is the "first store plus debut" model — a strategy that is fast becoming the catalyst for an unprecedented surge in consumption. At the third plenary session of the 20th Central Committee of the Communist Party of China in July 2024, the blueprint introduced for boosting consumption highlighted the "debut economy" as an initiative aimed at reducing restrictive measures, increasing public consumption and fueling economic growth.

In line with this vision, the Central Economic Work Conference in December reaffirmed the importance of fostering this model as one of the main initiatives to boost consumption in 2025. What makes this approach so captivating is its remarkable ability to tap into China's "submerged markets", turning them into powerful engines of consumption. With first-tier cities such as Beijing and Shanghai leading the charge, the "first store plus debut" model has facilitated the debut of products by hundreds of new stores, stimulating consumption in ways that are both fresh and vibrant. In 2024 alone, such cities saw the opening of more than 900 first stores, which has somewhat reshaped the retail and consumer landscape.

With competition intensifying in first- and second-tier cities, brands are increasingly turning to third- and fourth-tier cities, especially the so-called submerged markets in search of new growth opportunities. This shift is fueled by a change in consumer spending habits.

Management consultancy firm McKinsey has forecast that by 2030, China's personal consumption will reach a staggering 65.3 trillion yuan ($8.9 trillion), with more than 66 percent of the growth coming from lower-tier cities and towns.

The submerged markets — often overlooked by businesses in favor of more established, wealthier urban centers — are now seen as the next frontier of rising consumption, and the "first store plus debut" model has become the best way of harnessing the latent potential of these markets, delivering products and experiences that once could only be found in metropolises. Brands are no longer simply opening stores; they're opening doors to innovative consumption experiences.

To understand why the "first store plus debut" model works so well in these markets, we must look at the evolving consumer demand. Rising disposable incomes, coupled with increasingly sophisticated tastes, have created a fertile ground for brands willing to offer something new. The first stores appeal to consumers in smaller cities, as they offer trendy goods, high-end home appliances and personalized dining experiences.

Take Starbucks for example. In a strategic move, it ensured that smaller cities and rural areas accounted for about 33 percent of its stores by 2023 in China. As Liu Wenjuan, Starbucks China chief operating officer, said, consumers in county-level markets show strong brand loyalty, making them ideal for business expansion. Similarly, other major brands are opening their first stores in such areas to make profits by meeting local demands and filling the market gaps.

Debut products — the launch of limited-edition products or new offerings — cater to a growing demand for novelty and uniqueness. A limited-edition product may not just fulfill a need; it could also give consumers reason to feel ahead of the consumption curve.

From the supply-side perspective, the "first store plus debut" model is revolutionizing the retail ecosystem in submerged markets. Traditionally, such places were dominated by small local retailers without the scale or innovation capacity needed to create a modern, consumer-driven retail market. It is in such an environment that the first stores of companies introduced advanced store management practices, digital marketing and a sophisticated supply chain, impressing consumers and drawing them in larger numbers.

An apt example of such a store is Super Ming. The company, adopting a bulk retail model in submerged markets, shows how innovation can boost sales even in lower-tier cities. Its first stores introduced innovative merchandising strategies, such as shelving products not in demand. By integrating online and offline platforms, Super Ming offers a seamless shopping experience while leveraging big data to optimize inventory and product selection. During product launch, the company collaborates with local media, influencers and businesses to generate a buzz, creating a holistic retail ecosystem that benefits everyone.

"Submerged markets" used to be plagued by information asymmetry, with consumers having limited access to the latest products, and brands struggling to reach potential consumers. The internet has broken that barrier, enabling the "first store plus debut" model to gain traction.

Today, brands can use social media platforms and targeted online advertising to bring news of their first store's opening and product launch directly to consumers in smaller cities. This digital-first approach has been driving the online buzz and discussions, while offline stores become experiential hubs. When consumers engage with these brands, they don't just shop; they experience, discuss and share their encounters, creating an organic word-of-mouth promotion for the store and its products.

The most remarkable aspect of the "first store plus debut" model is its ability to catalyze entire ecosystems, as the opening of bricks-and-mortar stores generate high footfall, enhancing the profile of shopping districts and encouraging others to invest in real estate. A product launch creates more synergy, as it involves a complex supply chain. Consumer excitement generated by the first release boosts the demand for after-sales services, repairs and complementary products, forming a complete economic loop, helping revitalize the submerged markets.

Looking ahead, the potential of the "first store plus debut" model in submerged markets is huge. With continued growth and rising incomes, consumer spending in these markets, too, will grow. And the digital transformation will further streamline access to information, empowering consumers to make more informed decisions and engage with the latest products and trends.

With the "first store plus debut" model continuing to help upgrade consumption, submerged markets are likely to become a driver of economic recovery. By giving consumers in smaller cities the tools, experiences and opportunities to participate in the consumption economy, the model has the potential to reshape China's economic landscape.

The author is a professor of Nankai University College of Economic and Social Development.

The views don't necessarily reflect those of China Daily.

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