Your roadmap to China’s Fashion Industry
As one of the biggest fashion markets in the world, China represents
a key opportunity for foreign companies looking for global expansion.
In the last decade, China accounted for 38 per cent of global
fashion industry growth across all segments, according to a
McKinsey research study. The country has delivered big results for
some companies, while others had to take a step back from the market.
LVMH and Gucci are at the top of the luxury brands that have enjoyed success in China. However, other big names such as Asos and New Look didn’t have much luck. Dolce & Gabbana and Burberry gained unwanted press coverage for advertising campaigns that were not sensitive to Chinese consumers’ feelings.
Besides the usual challenges that make the Chinese fashion market so hard to penetrate, foreign companies had to face the latest global health crisis. The past few months have been significantly difficult for the industry due to the Covid-19 pandemic.
While most of the world is struggling to contain the corona virus, fashion enterprises big and small had to drastically adapt to soften the economic blow they are taking over this tough time.
During the peak outbreak months, approximately 40 percent of fashion consumers refrained from spending money, a time when sales normally surge thanks to China’s Spring Festival. The country’s travel shoppers, which make up 38 percent of the global fashion market, traditionally save most of their consumption for the winter months.
Since then, Chinese workers have returned slowly to their workplace but had to face reduced salaries, which has led to more conservative spending.
Consumers are not the only ones responsible for the economic downturn. Most brand stores and retail outlets have not been able to operate normally in many regions of China. A few have even closed their operations abroad. Those who kept their doors open have seen a drastic reduction of buyers.
Meanwhile, stocking new inventory has been an issue because factories critical to the global fashion supply-chain are struggling to resume normal operations due to a lack of workers.
All these factors have led to an 80-percent drop in first-quarter sales revenue for some brands as well as less drastic decreases for others. In the stock market, shares of some fashion giants have seen moderate drops, although some have remained surprisingly resilient during the crisis.
Most executives expect an average 5-percent decrease in annual sales. Product launches, promotional campaigns, and other previously planned marketing efforts have been brought to a halt.
Fashion brands that manufacture garments and accessories abroad depend heavily on the production exported from China. The bottleneck this is creating in logistics is only going to worsen over the coming months when cargo shipments (both inbound and outbound) to major markets are faced with more cancellations. And when normal shipments do resume, the fight between companies to ship out goods will create a increase in shipping rates.
The absence of Chinese consumers is leaving a massive gap in revenue, even for companies that had planned to redirect their focus to other markets.
But fashion market experts are not too worried, despite the negative figures. The COVID-19 pandemic is not the first challenge of its kind to hit the industry in the region. After the 2003 SARS outbreak, a related economic slump was followed by a steep V-shaped rebound due to pent-up consumer demand, and sales surged after the dip. Although China is quite different than it was in 2003, most analysts believe a similar trajectory will follow, and they point to many other examples around the world as proof.
Many brands recognize that Q1 and maybe Q2 sales are lost causes and are looking to readjust marketing approaches for the remainder of the year in a more creative way.
This frustrating and unpredictable market situation is forcing brands to quickly develop a better understanding of consumer expectations on pricing and products over the coming months, so they can adapt their marketing strategies accordingly.
The most important strategy is to focus on online retail, something that fashion brands like Uniqlo and cosmetic brands like L’Oréal have been doing effectively to help soften the blow to in-store sales. For these brands and many others, this sudden loss can become a major opportunity if they can boost the digitalization of their operations and increase investments in emerging retail technologies.
By shifting toward a more direct and efficient processes, such as B2C that is gaining favor thanks to platforms like Tmall, companies have been able to minimize the disruptions in the supply chain.
This shift in the e-commerce competition has presented new opportunities to emerging Chinese fashion labels that previously struggled to gain a space in the market dominated by big foreign brands but now have a better chance to establish a presence in their home playfield.
Nobody knows with certainty the impact that this situation will have in the 2020 global fashion market, but the best strategy is to adapt quickly and effectively to the new environment. Brands should evaluate and apply creative new approaches to ensure a steady sales flow via previously untested methods and modern technology.
Adopting a more digitalized sales processes, could push established brands to redefine their conventional methods and embrace a new way of doing business. This could also open new doors for smaller brands that seek a greater market presence.
An example of this newfound creativity to reach consumers is the last Shanghai Fashion Week. Last March, after postponing the event because of the corona virus, its organizers decided to partner with Tmall to move the event online. Over 150 designers and brands showcased through livestreaming over 1,000 products from their newest collections.
More than 800 million monthly active users who visit Alibaba’s e-commerce sites were able to purchase garments as well. The event’s “See Now, Buy Now” format enabled viewers to purchase catwalk items – and pre-order new looks from the fall collection – in real time via their smartphones.
The fashion event turned the health crisis into an opportunity by offering a digital platform for brands to display their work and vocalize their creative visions while also engaging with consumers and generating immediate sales in a first-of-its-kind experience.
“China’s fashion industry and market have matured through the years and entered into a new age of creative energy and boundless opportunities,” said Vice Secretary-General of Shanghai Fashion Week Xiaolei Lv, also known as Madame Lu.
Thanks to Tmall’s Flagship 2.0 format, designers can personalize their virtual stores. For example, brands can leverage augmented-reality applications or “store lofts,” which are special pages of multimedia content users can access by dragging down the screen on their phones.
Tmall plans to bring this capability and new digital technologies to future seasons of fashion weeks around the world. Last year, the platform rolled out a series of activations showcasing Chinese designers at the fashion week events in New York, Paris and Milan through its China Cool initiative. Tmall also partners with such weeks to help international brands, such as Grey Jason Wu and Robert Geller, break into China’s burgeoning fashion market.
Another major focus for Tmall has been crossovers, especially those that merge beauty with fashion. The platform teamed up with global brands to launch 360-degree marketing campaigns that cater to Chinese audiences, much like Super Brand Day, which rallies all the resources across the Alibaba ecosystem to create a smaller version of the company’s annual 11.11 mega-sale for a single brand.
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DISCLAIMER: All information in this article is verified to the best of our ability and is assumed to be correct at time of release; however, Woodburn Accountants & Advisors does not accept responsibility for any losses arising from reliance on the information provided within. The information provided is for general guidance and does not replace specialized advice.