Chinese culture places great emphasis on the much talked about concept of “face” – it is a cultural desire to behave and look appropriate in front of others. This is why brands are so popular in China’s fashion industry.
If we have a closer look at brands in the apparel market, this market can be subdivided into three parts: the non-brands, the luxury brands and private label clothing brands. Non-brands’ costumers care about practical aspects of clothes: they are searching for the lowest price and therefore do not place value on brand identity or quality. Normally these consumers are low-income individuals.
On the other hand, due to the fear of losing face in China, luxury brands play a crucial role in China. These clothes represent a social status and high living standard. The customers of luxury brands in China are perceived to be stars or come mainly from the upper class. Only a part of the upper middle class can afford luxury brands (though middle income individuals are also known to save up for months for a handbag). The consumer group for luxury brands is a relatively small group compared to the whole market. Only 1.11 million out of 1.4 billion people are counted to be part of the upper class who can afford to regularly purchase luxury brands.
The third category of brands on the apparel market is the private label brand. Its customers are mainly from the middle class. These individuals care about their image but cannot or are not willing to pay the high prices for luxury brand clothes. They do care about quality and the price and are therefore about cost-effectiveness. However, the clothes also have to be individualized or personalized in some way to appeal to their desire to present a unique face to the world. It is not easy for the manufacturer to find this balance but the middle-class in China represents a huge potential: In the year 2000, only 4% of the urban population was classified as middle-class. In 2012, this ratio moved to 66% and is expected to rise to a level of 75% by 2022. As a consequence, there is a huge demand for private label clothing brands in China.
But what are private label clothing brands in China exactly?
A private label brand is not owned by the producer but by the retailer or supplier. The retailer or supplier normally gets its products by creating a contract with the manufacturer under its own label. The most important advantage about private label clothing brands in China is the greater margin. Another positive effect is the exclusivity of the brand as it is supplied only by one retailer. However, if they are not managed in a good way the retailer can generate huge losses.
The giant Chinese global supply chain manager Li & Fung, for example is forming a joint venture with two very big department retailers in China in order to develop their own private label clothing brands. In the first three years of new cooperation they aim to develop three private labels and six licensed brands in the field of fashion and home design.
E-Commerce, O2O and other opportunities for private label clothing brands in China
The economic situation is one of the big opportunities for private label clothing brands in China. For the past 10 years, China’s GDP increased rapidly and the people’s purchasing power grew with it. With increased spending power, expectations were also raised: a lot of Chinese consumers are no longer satisfied with basic needs, they expect higher quality, better service and a reasonable price. As the consumers of private label clothing brands in China are the middle class that is growing, this sector has huge business potential. O2O commerce (Online to Offline) is a new and popular trend and often applied to private label clothing brands in China. The O2O business model encourages customers online to buy in the offline world, in-store, for example with the help of e-coupons, or vice-versa. Because of an ongoing internet boom in China, this business model is very popular. Merters/bonwe, China’s leading casualwear apparel company, used a QR-Code that was printed on each product in their store. With a smartphone, customers could read the QR-code and be directed to the official website of Merters/bonwe to get additional information about the product they bought.
Another opportunity is the booming market for e-Commerce in China, widely perceived to be dominating the Chinese economy since 2008. Some customers prefer to try clothes on in stores and then buy it online later, finding it cheaper online as clothes in stores are more expensive than online due to rent, labor costs, costs for maintenance, management fees etc.
The whole e-commerce trend was a shock at first for traditional department retailers. But at the same time, e-commerce offered serious advantages for other market players to grow. Private label clothing brands in China have experienced an upward trend as some of customers suffer from aesthetic fatigue for the top luxury brands and prefer new, customized, personalized brands that appeal to their desire for something exciting and unique.
However, selling private label clothing brands in China can also be a challenge for the management of the retailer: it requires higher labor quality to deal with complex situations, including sales analysis, brand promotion, commodity display etc.
The transition from retailer to designer is not easy and maintaining the quality of the product is a challenge. However, this is a crucial point to doing business in China as quality is increasingly important to the Chinese consumer. However, as the quality in China’s garment industry varies greatly, private label clothing brands in China may be the perfect solution for addressing a huge and growing consumer segment in the market.