Overview

The Chinese economy continues its dynamic performance, with an average growth of around 10% during the last 5 years. As barriers to entry are lowered, more and more companies are considering entering China. This is in an effort to capture some percentage of the returns generated by China’s 1.3 billion consumers.

This series of reports aims to provide fashion retailers, who are planning to enter China for the first time, an overview of the Chinese fashion industry. Also, the reports act as a quick update for companies that have already entered China as they refer to the industry, trends, available brands, wholesale and retail prices, clothing cut type. preferred, consumer behavior and updated regulations. A key challenge when entering China is the different regions of China. Consumer behavior and preferences for food, fashion, and lifestyle vary dramatically in these regions. For example, retailers should not assume that fashionable products or styles sold in Shanghai will also be popular in Xiamen, which is located in southern China.

The report series includes:

Report 1 China Fashion Industry Overview

Report 2 Regulations: An Overview of the Regulatory Environment in China

Report 3 Regional Analysis: Analysis of China’s Key Regions from a Retail Perspective

Report 4 Women’s fashion and consumer behavior

Report 5 Teen Fashion and Consumer Behavior

Report 6 Children’s fashion and consumer behavior

Report 7 Menswear and consumer behavior

Recommendations from Report 8

Economic conditions in China

China’s economy grew by 10.2% in 2005 and 10.7% in 2006, making it the fastest growing major economy in the world. Banks forecast (Quarterly Bank reports) that GDP would decline to 8% in China in 2007. (Goldman Sachs), although in our opinion the rate of GDP could be higher due to increased production and consumption. In 2006, China’s urban life spending increased at a rate higher than GDP, both at the national and provincial levels. Despite strong growth, inflation remains subdued with average monthly inflation of 1.3% year-on-year from January to September 2006. Annual consumer price growth is forecast to reach 1.8% in early 2007 This is because higher land prices would affect production costs. More investment, in turn, would fuel inflationary pressures.

The government’s tolerance for higher yuan volatility and higher GDP has raised expectations of further exchange rate reform, which would result in faster currency appreciation. The potential impact would be that foreign clothing brands would find that their prices could be more easily accepted in the Chinese market.

Retail industry in China

Rising incomes in China and the government’s efforts to encourage consumer spending have led to an increase in domestic consumption. Statistics show that total retail sales of consumer goods increased by 12.5% ​​to 6.718 billion yuan in 2005. However, they fell slightly to about 6.4 billion yuan (770 billion US dollars) in 2006 One of the factors is the import quota imposed by the US and the European Union in 2006 (O&L). However, with rising revenues and domestic consumption, the retail sales growth rate is expected to remain at around 10% over the next 5 years (O&L & Goldman Sachs Global Investment Report projection)

China’s clothing market has grown 7% and is now a $ 40 billion industry. Department stores represent approximately 40% of the market. This includes stores like Parkson, Shanghai Bailian, and foreign brands like Wal-Mart. The clothing brands sold in these department stores include both international brands such as Hugo Boss as well as local brands such as Li Ning, Borne, Joe One. Local franchise chains and individual clothing outlets in China account for the remaining 60% .

Profit margins for retail chains in China are high. Due to lower manufacturing costs in China, the profit margins of these clothing brands can reach 50.5% for brands such as Giordano (2005) and Ports (70.4% in 2005). The cities of influence of fashion in China are Shanghai, Beijing and Guangzhou. Also, locals and tourists travel to Guangzhou, Shanghai, Shenzhen for top fashion brands at cheaper prices. For manufacturing, there are different specialized regions. For example, Ningbo is more famous for making handbags, while Guangdong, especially Guangzhou, is more famous for clothing.

The different regions of China

Due to the geographic enormity of China and the huge variation in economic development between cities, the market potential differs from city to city. The following table shows the disparity in GDP per capita, where wealth is found in coastal cities. Cities are ranked according to population and GDP per capita, Shanghai, Beijing and Guangzhou are Tier 1 cities. Report 3 explores regional differences in the Chinese fashion industry in detail.

Fashion industry in China

Market segments

Initially, there were two markets for clothing in China:
Low-priced staple clothing sold under local brands and offered in Chinese department stores, foreign hypermarkets, or small family specialty chains.

2. luxury brands sold in franchised boutiques or luxury department stores.
Due to the rapid growth of China’s middle class, a new category has emerged, involving quality brands, both Chinese and foreign, that are sold in department stores and specialty stores. China’s middle-class consumers are increasingly sophisticated, demanding greater quality, variety, and innovation from their retailers. The new category is highly fragmented and dominated by specialist informal Hong Kong brands such as Esprit (514 outlets), Giordano (644) outlets, Baleno (980 outlets) and Glorious Sun (1,076 outlets) . The new segment has significant growth potential, as it is affordable for the middle class, but is priced slightly higher than local brands. Clothing prices have fallen slightly in 2006. This is due to increased competition in the fashion industry in China (O&L, 2006).

In recent years there has not only been an increase in Hong Kong, Chinese local clothing brands and international brands, but also an increase in foreign brands. These brands may be medium-sized chains that are well established in their home countries but not outside of their countries. Example of Singapore chains like Samuel and Kevin. Also, there are brands that are created due to the popularity of other brands. For example, the clothing brand, Fish, in China has generated other similar brands such as 3 Fishes, Fishes, etc.

Expansion to second-tier cities

The retail market is beginning to mature in top-tier cities like Shanghai. Therefore, the need to precisely target specific consumer groups is much more significant in these areas. As a result, retailers are increasingly expanding to second and third tier cities such as Chengdu, Nanping, Tianjin. Big brands like Jean West have now also gone to secondary and third tier cities. The attractiveness of these secondary regions is reinforced by migration from the countryside to regional cities, increasing the size of the second- and third-tier urban retail market. This would be developed in later reports.

Consumer attitudes towards brands

Consumers are very brand conscious and the fact that one can afford these products is considered a status symbol. Therefore, luxury brands such as LV, Christian Dior, are often sought after when buying clothes and cosmetics. For many segments, particularly younger consumers, well-known foreign brands are still considered superior and considered a status symbol. Brands that are made in the US and Europe are more highly valued than those from Australia or other Asian countries like Singapore, Taiwan. Due to the high prices, there are also many high-end counterfeit clothing and shoe brands in China.

Attitudes towards national brands have changed as self-owned companies have been privatized and produce better quality products. Brands like Borne, Li Ning, Hong guo are very popular locally. Hong Kong brands like Giordano are also popular, although the market share has recently declined. Pride in the nation’s accomplishments has led many consumers to prefer local brands, all things being equal. These would be further detailed in later reports.

Consumer attitudes towards price

Although Chinese consumers are price sensitive, a recent survey shows that consumers are increasingly concerned about product quality and customer service, particularly with regard to clothing. Consequently, these elements should be emphasized in advertising and promotional material.