overview
The Chinese economy continues to develop dynamically, averaging about 10% growth over the past 5 years. As barriers to entry are declining, more and more enterprises are considering the possibility of entering China. This is done in order to fix a certain share of profits from 1.3 billion consumers in China.
This series of reports is designed to provide retailers with models that are planning to enter China for the first time, with an overview of the Chinese fashion industry. In addition, reports are a quick update for companies that have already entered China when it comes to industry, trends, brands available, wholesale and retail prices, preferred clothing, consumer behavior and updated rules. A key problem when entering China are various regions of China. Consumer behavior and preferences for food, fashion and lifestyle in these regions vary greatly. For example, retailers should not assume that products or fashion styles that are sold in Shanghai will also be popular in Xiamen, which is located in southern China.
The report series includes:
Report 1 Review of the fashion industry in China
Statement 2: Review of the regulatory framework in China
Report 3 Regional Analysis: An Analysis of China's Key Regions from a Retail Perspective
Report 4 Women's fashion and consumer behavior
Report 5 Fashion and Consumer Behavior
Report 6 Children's fashion and consumer behavior
Report 7 Men's Fashion and Consumer Behavior
Report 8 recommendations
Economic conditions in China
The Chinese economy grew by 10.2% in 2005 and 10.7% in 2006 made it the fastest growing mainstream economy in the world. According to banks' forecasts (quarterly report of the bank), GDP in 2007 will drop to 8% in China (Goldman Sachs), although, in our opinion, GDP growth rates may be higher due to increased production and consumption. In 2006, living expenses in Chinese cities grew at a higher rate than GDP, both on a national and a provincial basis. Despite strong growth, inflation remains moderate, and monthly inflation is 1.3% year on year from January to September 2006. It is predicted that the annual increase in consumer prices at the beginning of the year will reach 1.8%. This is due to the fact that higher land prices will affect production costs, an increase in investment, in turn, will lead to inflationary pressures.
The government's tolerance for greater volatility of the Yuan and higher GDPs have triggered expectations for further exchange rate reform, which will accelerate the growth of the exchange rate. The potential impact will be that foreign clothing brands will find that their prices can be more easily accepted in the Chinese market.
Retail in China
The increase in income 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, in 2006 it fell slightly to about 6.4 billion Yuan ($ 770 billion). One factor is the import quota imposed by the United States and the European Union in 2006 (O & L). However, with rising incomes and domestic consumption, it is expected that retail sales will grow at around 10% over the next 5 years (O & L and Goldman Sachs Global Investment Report forecast)
China's apparel market grew by 7% and now stands at $ 40 billion. USA. The share of department stores accounts for about 40% of the market. This includes stores such as Parkson, Shanghai Bailian and foreign brands such as Wal-Mart. These department stores include both international brands, such as Hugo Boss, and local brands, such as Li Ning, Borne, Joe One. The remaining 60% share belongs to franchise networks and local branches of personal clothing in China.
Revenue margins for retail chains in China are high. Due to lower production costs in China, the margin of these clothing brands can be up to 50.5% for brands like Giordano (2005) and Ports (70.4% in 2005). Cities of fashion influence in China - Shanghai, Beijing and Guangzhou. In addition, locals and tourists travel to Guangzhou, Shanghai, Shenzhen for large fashion brands at lower prices. For the production there are different special regions. For example, Ningbo is better known for making bags, while Guangdong, especially Guangzhou, is better known for its clothing.
Different regions in China
Due to the geographic monstrosity of China and the huge changes in economic development between cities, the market potential differs from city to city. The table below shows the disparity of GDP per capita, where wealth is located in coastal cities. Cities are classified into population-based levels, and GDP per capita, Shanghai, Beijing, and Guangzhou are cities of the 1st level. Report 3 details the regional differences in the Chinese fashion industry.
China Fashion Industry
Market segments
Initially, there were two clothing markets in China:
1. inexpensive basic clothing sold under local trademarks and offered in Chinese department stores, foreign hypermarkets or small family-owned specialized networks
2. luxury brands are sold either in franchised boutiques or in prestigious department stores.
Due to the rapid growth of the middle class in China, a new category has emerged, including high-quality brands, both Chinese and foreign, which are sold in department stores and specialty stores. Middle-class consumers in China are increasingly sophisticated, demanding higher quality, diversity and innovation from their retailers. The new category is highly fragmented and dominated by specialized casual brands from Hong Kong, such as Esprit (514 outlets), Giordano stores (644), Baleno (980 points) and Glorious Sun (1,076 outlets). The new segment has significant growth potential, as it is available for the middle class, but is positioned at a price slightly higher than that of local brands. In 2006, clothing prices 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 in not only Hong Kong, local Chinese clothing brands and international brands, but also an increase in foreign brands. These brands may be medium-sized networks that have worked well in their countries, but not from their own countries. An example of Singapore networks such as Samuel and Kevin. In addition, there are brands created due to the popularity of other brands. For example, a clothing brand, Fish, in China spawned other similar brands, such as 3 fish, fish, and so on.
Expansion to second-tier cities
The retail market is starting to reach maturity in cities like Shanghai. Thus, the need for precise orientation of specific groups of consumers is much more important in these areas. As a result, retailers are increasingly expanding into second and third tier cities, such as Chengdu, Nanping, and Tianjin. Major brands, such as Jean-West, have now moved to secondary and third high-rise cities. The attractiveness of these secondary regions is enhanced by migration from rural areas to regional cities, which increases the size of the urban retail market of the second and third echelons. This will be clarified in subsequent reports.
Consumer attitudes to brands
Consumers are very knowledgeable about the brand, and the fact that you can afford these products is considered a status symbol. 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 excellent and considered a status symbol. Brands that are made in the USA and Europe are more valuable than those that were in Australia or other Asian countries, such as Singapore, Taiwan. Due to high prices in China, there are also many high-end counterfeit goods for clothes and shoes.
Attitudes toward domestic brands have changed, since the claimed owned 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 Giordano are also popular, although market share has declined recently. Pride for the country's achievements has led many consumers to prefer local brands, all other things being equal. They will be further refined in subsequent reports.
Consumer attitude to price
Although Chinese consumers are price sensitive, a recent study shows that consumers are increasingly concerned about product quality and customer service, especially with regard to clothing. Accordingly, these elements should be underlined in advertising and promotional materials.
