Review

The Chinese economy continues to perform dynamically, averaging about 10% over the past 5 years. As barriers to entry are lowered, more and more businesses are considering their entry into China. This is an attempt to capture some percentage of the revenue generated by China’s 1.3 billion consumers.

This series of reports aims to give fashion retailers planning to enter China for the first time an overview of the Chinese fashion industry. In addition, the reports act as a quick update for companies that have already entered China, affecting the industry, trends, existing brands, wholesale and retail prices, the preferred type of clothing cut, consumer behavior and updated rules. The key problem when entering China is the different regions of China. In these regions, consumer behavior and preferences in food, fashion and lifestyle vary greatly. For example, retailers should not assume that goods or fashion styles sold in Shanghai will also be popular in Xiamen, in southern China.

The series of reports includes:

Report 1 Review of the Chinese Fashion Industry

Report 2 Rules: Review of the regulatory framework in China

Report 3 Regional Analysis: An analysis of China’s key regions in terms of retail

Report 4 Women’s Fashion and Consumer Behavior

Report 5 Fashion and consumer behavior of adolescents

Report 6 Children’s Fashion and Consumer Behavior

Report 7 Men’s Fashion and Consumer Behavior

Report 8 Recommendations

Economic conditions in China

China’s economy grew by 10.2% in 2005 and by 10.7% in 2006, making it the world’s fastest-growing major economy. Banks predict (quarterly bank reports) that China’s GDP in 2007 will decline to 8% (Goldman Sachs), although, in our view, GDP levels may be higher due to increased production and consumption. In 2006, the cost of living in China in cities increased at a faster rate than GDP, both nationally and provincially. Despite strong growth, inflation remains moderate, with monthly inflation averaging 1.3% year-on-year from January to September 2006. Annual consumer price growth is projected to reach 1.8% in early 2007. This is because that higher land prices will affect production costs. Increased investment in turn will push up inflationary pressures.

The government’s tolerance for more yuan volatility and GDP growth has raised expectations of further exchange rate reform, which will lead to faster currency appreciation. The potential impact will be that foreign clothing brands will find that their prices can 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 6718 billion yuan in 2005. However, it declined slightly to about 6.4 trillion yuan ($ 770 billion) in 2006. One factor is the import quota introduced by the US and the European Union in 2006 (O&L). However, as revenues and domestic consumption increase, retail sales growth is expected to remain around 10% over the next 5 years (O&L forecast and Goldman Sachs global investment report)

The clothing market in China is growing by 7% and now stands at $ 40 billion. Department stores account for about 40% of the market. This includes stores such as Parkson, Shanghai Bailian and foreign brands such as Wal-Mart. The clothing items sold in these department stores include both international brands such as Hugo Boss and local brands such as Li Ning, Borne, Joe One. The remaining 60% of the share belongs to franchise chains and local clothing outlets in China.

The profitability of retail chains in China is high. Due to lower production costs in China, the profitability of these clothing brands can reach 50.5% for brands such as Giordano (2005) and Ports (70.4% in 2005). The cities of fashion influence in China are Shanghai, Beijing and Guangzhou. In addition, locals and tourists travel to Guangzhou, Shanghai, Shenzhen for major fashion brands at lower prices. There are various specialized regions for production. For example, Ningbo is better known for making bags, and Guangdong, especially Guangzhou, is better known for clothing.

Different regions in China

Due to the geographical vastness of China and the huge difference in economic development between cities, the market potential varies from city to city. The table below shows the discrepancy in GDP per capita, where wealth is found in coastal cities. Cities are classified at the level of population and GDP per capita, Shanghai, Beijing and Guangzhou are first-tier cities. Report 3 examines in detail the regional differences in the Chinese fashion industry.

Fashion industry in China

Market segments

Originally, there were two clothing markets in China:
1. Low price basic clothing sold under local brands and offered in Chinese department stores, foreign hypermarkets or small family specialty chains

2. luxury brands sold either in franchised boutiques or in high-quality department stores.
Due to the rapid growth of China’s middle class, a new category has emerged that includes quality brands, both Chinese and foreign, sold in department stores and specialty stores. China’s middle-class consumers are becoming more sophisticated, demanding from retailers higher quality, variety and innovation. The new category is highly fragmented and is dominated by special brands from Hong Kong such as Esprit (514 outlets), Giordano (644), Baleno (980 outlets) and Glorious Sun (1076 outlets). The new segment has significant growth potential as it is available to the middle class but is priced slightly higher than that of local brands. Clothing prices in 2006 fell slightly. This is due to increased competition in the fashion industry in China (O&L, 2006).

In recent years, there has been an increase not only in Hong Kong, local Chinese clothing brands and international brands, but also foreign ones. These brands can be medium-sized networks that have proven themselves well in their own countries, but not outside their own countries. An example of Singaporean chains such as Samuel and Kevin. In addition, there are brands that are created due to the popularity of other brands. An example of a clothing brand, Fish, in China has spawned other similar brands such as 3 Fishes, Fishes and so on.

Expansion into second-tier cities

The retail market is beginning to reach maturity in first-tier cities such as Shanghai. Thus, the need to clearly target specific consumer groups in these areas is much more significant. As a result, retailers are increasingly expanding to second- and third-tier cities such as Chengdu, Nanping, Tianjin. The biggest brands, such as Jean West, have also gone to secondary and third tier cities. The attractiveness of these secondary regions is enhanced by migration from rural areas to regional cities, increasing the size of the urban tier two and third tier markets. This will be described in detail in the following reports.

Consumer attitudes towards brands

Consumers are well aware of the brand, and the fact that you can afford these products is seen as a symbol of status. Therefore, luxury brands such as LV, Christian Dior, are often in demand when buying clothes and cosmetics. For many segments, especially for young consumers, foreign brands that are well known are still considered the best and are seen as a symbol of status. Brands produced in the US and Europe are more valued than in Australia or other Asian countries such as Singapore, Taiwan. Due to the high prices in China, there are also many brands of counterfeit clothes and shoes.

Attitudes towards domestic brands have changed as the declared companies have been privatized and produce higher quality products. Brands such as Borne, Li Ning, Hong guo, are very popular locally. Hong Kong brands such as Jordan are also popular, although market share has declined recently. Pride for the country’s achievements has led many consumers to prefer local brands other things being equal. These will be described in more detail in the following reports

Consumer attitudes towards prices

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

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