Fashion

GLOBAL INVESTOR 1.16 — 35
to save on costs. These companies mostly introduced their offshore,
foreign product experience into domestic China, which worked well
for a while until their retail sales network did not expand quickly enough
for various reasons, including the challenges of a highly fragmented
supply chain, as well as the unorganized retail market in the country.
For a related article on the fashion supply chain, see p. 48 The operational
challenges quickly eroded profits for these retail chains that
were already operating with thin margins.
Competition gathers strength
As consumption growth in the country accelerated over the past
20 years, especially after China joined the World Trade Organization
in 2001, competition in the retail market has intensified and taken the
form of both domestic, manufacturer-turned retailers as well as foreign
new entrants. The sportswear brands like Anta, Dongxiang and Lining,
and menswear brands like Lilang and Septwolves, are all domestic
manufacturer-turned retailers in China. Most of these brands were
“... there still seems to be
a lack of nationwide domestic
fashion brands at the retail
end in China, especially for the
high-end market.”
not listed until after 2007–08. In addition to the retail outlets run by
the brands themselves, most of them also operate through wholesale
systems in order to capture market share within a shorter period of time.
With the lack of direct inventory management while working with a large
and unorganized wholesale system, product sales for most of these
brands were challenged in 2011–12 when retail sales growth last
peaked in China. For more on mens- and sportswear, see p. 11 and
15 respectively
Foreign new entrants in the fashion retailing market include most
global fashion brands, all the way from mass-end to high-end, i.e.
from Abercrombie & Fitch, H&M, Tommy Hilfiger, Uniqlo and Zara to
Armani, Burberry, Chanel, Hermes, Louis Vuitton, Prada and the like.
In order to build brand awareness, most of the global fashion brands
set up their retail flagship stores mainly in first-tier cities in China,
where population and the concentration of wealth have been aboveaverage.
Since all media and many entertainment companies are
based in Beijing, the most affluent fashion events are often held there.
For more on fashion marketing and advertising, see p. 26 In contrast
to Beijing, where media appeal has been the focus for fashion events,
Shanghai has been the fashion capital of China, where most global
brands host more than one store in major shopping districts and malls,
while small fashion brands and local designers fill the vintage streets.
The Shanghai Fashion Week has been held every year since 2003,
where leading designers as well as new talents present their products
and test the Chinese market.
Since the global fashion brands have mostly dominated the highend
market in China, most of the domestically-groomed fashion retailers
are focused on the mass-end in order to avoid head-on competition
with the established brands. With a lack of chain-retailing
experience, most of them do not enjoy enough brand loyalty in order
to gain critical mass in China. Therefore, none of them are able to
claim any meaningful market share in the fashion-retailing industry
in the country. The local retail chains that have grown enough to be
recognized at the mid-to-high-end markets, e.g. Esprit and Ports
1961, are mostly brands adopted from abroad – Esprit was founded
in California, USA, in 1968 and Ports was established in Toronto,
Canada in 1961. Since China is a geographically diversified country
with various cultures across different provinces and scattered wealth,
nation-wide recognition can be hard to achieve for consumer brands
where competition has been fierce. Fragmentation is one noticeable
characteristic of China’s retail market, which is almost the same for
the upstream supply chain.
Finding a niche
In addition to the commercial fashion produced for retail chains, niche
designers in China who are determined to build their own labels have
also started to emerge over the past ten years, leveraging on the
wealth effect among consumers as a result of the country’s prolonged
economic growth. These designers typically cherish the Chinese traditional
ethnic embroidery in their designs, which requires time and
skill to produce. Therefore almost none of them are producing in large
volumes. The fashion designer Ma Ke, personal designer of China’s
“In addition to the commercial
fashion produced for retail
chains, niche designers have also
started to emerge over the past
ten years ...”
first lady, Peng Liyuan, is a typical niche designer whose Wuyong
fashion label has become almost as famous as herself since the first
lady’s outfits have been shown on national prime time TV during her
overseas visits to other countries. Guo Pei is another fashion designer
known for the eastern touches in her collections, which frequently
involve extensive embroidery work.
These days, as the hunger for big global brands is declining, especially
in large major cities like Beijing and Shanghai, demand for more
innovative and authentic fashion designs is increasing, which may
support the growth of niche and affordable fashion in the future.
To compare fashion in India, see p. 14
Selina Sia
Head of Greater China Equity Research
+852 2841 4036
selina.sia@credit-suisse.com