Overview of the Fashion industry in China
China surpassed the US as the world’s biggest fashion market in 2019, according to McKinsey. The fashion industry in China has been flourishing and evolving over the past decade. Currently it is continuing to expand at an exponential rate. With the rapid urbanization and the increasing spending power of the population, markets for both high-tier and low-tier clothing are rapidly growing.
The fluctuation of Overseas Brands in Chinese Markets
Because of the improving living conditions of the middle-class in China, Chinese consumers have become highly brand conscious. In 2010, China’s fashion market was a $17.7 billion market where Louis Vuitton, Chanel, and Gucci remain the most desired luxury brands.
However, in recent years, traditional luxury brands are losing favor among Chinese consumers. Instead, the so-called “light luxury” brands have begun to gain favor. In 2014, luxury consumption in the mainland market by Chinese consumers dropped to 11% percent year-on-year to $25 billion. The government’s anti-graft campaign has formed a more economical and rational climate among the people. Yet, luxury purchases made by Chinese consumers in the global market remain powerful. Chinese people bought 76% of luxury products outside the country in places like duty free shops. Asides from luxury goods, fast fashion companies such as Zara and Uniqlo have maintained a good momentum and are still popular among the young population in China.
Mass fashion and luxury goods are the most promising areas
In terms of market segmentation, the fashion industry in China is most likely to achieve good development in the mass fashion and luxury goods. The mass fashion is mainly driven by competitors who stand out from the mid-market and have strong value propositions. Rapidly growing Chinese economy and the prosperity of the global tourism industry drove the growth of the luxury market.
Of the top 20 global fashion companies, 18 have presence in China, which includes all the fast fashion and luxury brands. The only two players which do not have a China presence are the off-price stores, T.J. Maxx and Ross Stores, which rely on the business model of bulk purchasing name-band and luxury products and sell them at a high discount.
As we can see, mass market and such sportswear and activewear brands as Adidas and Nike lead in terms of number of stores in China. These brands have bigger target group in China, unlike the luxury brands (like Gucci and Hermes).
The top foreign off-price stores have not entered China
The challenges that off-price stores like TJ Maxx or Ross Stores would face in China are that as of 2020 Chinese luxury consumption habits are status-drive. Hence, luxury brands can get away at selling at a very high price in China. Additionally, Chinese can buy cheap products online, and have access to counterfeit luxury products for cheaper than discounted authentic luxury goods.
TJX, which operates TJMaxx, Marshalls, and Homegoods, makes 76% of its revenue in the United States, according to the company’s 2018 annual report. The remaining percentage is made primarily in Europe and Canada. As for Ross, it operates its more than 1,700 stores – Ross and dd’s DISCOUNTS – in the United States and the U.S. territory of Guam. These retailers buy unsold or excess inventory from brands and other retailers, meaning most of their supply chains start and end in the U.S.
However, a Chinese equivalent to TJ Maxx is being nurtured locally. Dadacang is quietly blooming in domestic third, fourth and fifth tier cities. This retail form covers clothing, beauty, home and other categories, which can simultaneously carry offline experience and online warehousing functions. Unlike TJ Maxx and Ross “Dadacang” has formed an online/offline model, which is easy to incentive distributors to participate.
On a similar note, the second-hand clothing market in China is growing a bit behind Japan and the west, but is starting to make-waves.
Domestic sales maintained rapid growth
In 2019, despite the impact of Sino-US trade frictions, fashion industry in China has generally maintained a steady development trend. The industry chain, value chain and ecology of the fashion industry have gradually improved.
According to data from the National Bureau of Statistics, in 2018, fashion clothes industry completed a total of 23 billion pieces. Since 2018, China’s domestic fashion clothes market has maintained steady and rapid growth. According to estimates by the China Apparel Association, total fashion clothes sales in China reached 3.08 trillion yuan in 2018, an increase of 7.32% year-on-year. In 2018 exports of fashion clothes and accessories reached US$157 billion, an increase of 0.3% year-on-year.
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