In 2015, sales of the fast fashion industry in China reached CNY 534.7 billion, up 7.4% from 2014 and with a 14.5% CAGR growth from 2010-2015. Fast fashion accounted for most of that growth, as international brands continued their aggressive expansion and gained more share of the market. Unlike luxury brands, Fast fashion houses do not follow traditional seasons timeline for design. Instead, they design, manufacture, and release new products whenever a trend appears. The cheap prices, new fashionable designs, and perceived quality keep customers coming back more frequently than traditional brands. This article will provide an overview of the industry and the expansion strategies in China of multiple international brands.
Emerging and Trending Industry in the Fast Fashion Industry in China
The fast fashion industry in China is in great growth. The three major fast fashion brands in China are Zara, Uniqlo, and H&M. Uniqlo opened its first store in Shanghai in 2002, followed by Zara and H&M which entered China fast fashion market in 2006, 2007 respectively. Despite a deceleration of the economy, the fast fashion industry in China is still flourishing as young Chinese are increasingly willing to spend more on apparel. Betting on the world’s largest market, Gap followed suit in 2010 with other American clothing retailers. Other companies with ambitious expansion plans include European company C&A Mode, which has more than 40 stores and plans to have 150 in 2016. The Japanese brand Uniqlo, one of the first entrants into the scene of the fast fashion industry in China, plans to open 100 new stores in China and already holds 2.4% of all apparel and footwear retail values. For European fashion brands, it is also a precious opportunity, especially for French and Italian groups that have already a strong brand identity.
Growth of Retail Space and Decline of Luxury
Western luxury retail declined 1% in 2014 as shoppers flocked outside China to purchase luxury items, rendering the luxury retail space as mere showrooms. Now retail space owners are looking to fast fashion to fill the space that luxury brands left. They hope that trendy brands like Zara, Uniqlo, and H&M, all who have been rapidly increasing their stores in China, will lure customers back to the mall. There were 496,600 outlets for specialist apparel and footwear retailers in 2015. Retail space is rapidly growing, with a 6.8% increase in 2015 with a CAGR of 11.0% from 2010 to 2015. This boom was mostly fueled by fast fashion brands as they aggressively opened new stores and refined marketing strategies. The apparel and footwear market is projected to grow 22.5% by 2020 to reach CNY654.9 billion and have 653.9 billion outlets. The rapid growth rate of the fast fashion industry in China provides a great opportunity for affordable fast fashion brands. Brands are looking to increase individual store productivities, promote their e-commerce platforms, and boosting social media campaigns to attract the younger populations with increasing incomes.
Expanding Beyond Fashion
Recently apparel specialist retailers have also begun offering a wider range of products beyond fashion, to take advantage of their existing large customer base. Stores like Zara also offer costume jewelry, footwear, and bags. Others such as Forever 21 have also expanded into beauty and personal care to offer their customers a one-stop shopping experience, where they can complete an entire outfit with bags, jewelry, and shoes in one store. In addition, some brands have established kids wear sections such Gap and Uniqlo, tapping into China’s nascent child clothing market.
Crowding out Domestic Brands
While international fast fashion brands have high brand awareness and fast changing collections, domestic brands have been losing the appeal and market share.
Belle International and Daphne International have two of the highest amount of stores in China, with 4,432 and 3,989 in 2015, respectively. However, Belle has shut down 122 stores in 2014, and fell from holding 8.8% of retail value in 2011 to 7.8% in 2015. Meanwhile, Daphne has shut down 247 stores, and dropped from representing 1.9% of retail value in 2011 to 1.2% in 2015.
Some domestic brands such as Meterbonwe, Nuoqi, and Peacebird have tried fast fashion, but still, need much more improvement in their business models and supply chain management. Fast fashion requires high quality, trendy designs, quick delivery, and inexpensive prices. Zara’s refined model has satisfied those requirements, with a strong design team and efficient global supply chain, but is not easily replicated by Chinese brands that have always sourced domestically.
Foreign Brands Adaptation in China
As international fast fashion brands continue their strong growth in China, they are changing the landscape of the country’s commercial real estate sector.
Zara, owned by Inditex, entered China in 2006 and has quickly risen to become the fourth highest selling brands in apparel and footwear. Inditex has 514 stores in China and makes 7% of its sales here. The company represented 2.2% of all retail values, up from 1.7% in 2011. Realizing the importance of e-commerce, Zara opened a flagship store on Tmall.com in 2014 and operates its own Zara.cn website.
Topshop is a British high-street brand with prices comparable to that of Zara’s. It first opened a flagship store in Hong Kong in June 2013. Unlike Zara and H&M, however, Topshop chose to forgo opening a physical store first in China. It first launched an online shop on Shangping.com, a leading Internet retailer, to test the increasingly competitive market. It later opened up its first physical store in Beijing in August 2015.
H&M entered China in 2007 is now the third largest brand in terms sales in the fast fashion industry in China. Its parent company represented 1.7% of all retail values, up from 0.9% in 2011. H&M has saturated the first-tier cities, and CEO Tadashi Yanhai wants to expand into second and third tier cities in China and eventually reach 3000 stores. The company already has 299 stores and opened 91 stores in fiscal 2015. It plans to open up 70 new stores in 2016. Competition in large cities is fierce, but H&M is ahead of the competition in expanding to cities where similar fast fashion brands are not yet.
- New Look
New Look is still a minor player but the British brand has grand ambitions to expand in China. It currently has over 30 stores but plans to open up 70 more in 2016. The CEO Anders Kristiansen is optimistic about the competitive Chinese market, stating, “This is a great story of a British brand which has been successful in China. There is an appetite for British fashion there.
Gap has over 80 stores in China but is suffering from the same identity and branding issues it has in Western markets. It recently ran an advertising campaign featuring the Chinese idol Luhan to give the brand a more youthful feel to attract Chinese women. Gap’s share of retail values has increased from 0.2% in 2011 to 0.5% in 2015.
Despite the rise of the international fast fashion market, the fast fashion industry in China and footwear retail market is still very fragmented. Consum
ers can purchase from a variety of specialty stores, department stores, and e-commerce sites, thus making it hard for a few brands to gain a dominant market share. Especially in second and third tier cities where many international brands have not established a remarkable foothold, there is still plenty of opportunities for new brands to meet the growing demand for trendy fast fashion.
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