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Global Report: China

All eyes are on China right now. Over the past 10 years, the world’s most populous country, with more than 1.3 billion people, has transformed into a powerhouse.

Its economic boom has led to an explosion of wealth, with a significant rise in the average income giving Chinese consumers a larger disposable income. And it’s set to continue - the number of middle-class consumer households is estimated to rise almost threefold to 140 million by 2020.

This increased prosperity for many of China’s consumers has led to an insatiable appetite for fashion, with China expected to become the second-biggest fashion market in the world by 2020.

A mammoth country of more than 650 cities, it hosts a fragmented fashion market with thousands of players.

Half of all clothing is sold through department stores such as Lane Crawford, while supermarkets, branded stores, discount stores, boutiques and markets also compete for the shopper’s yuan. Still, figures show the market is dominated by four companies and their brands - Shanghai Metersbonwe Fashion & Accessories, Bestseller Fashion, Baleno and Esprit - which accounted for 18.7% of fashion sales in 2012, according to China Retail Group.

However, Chinese fashion tastes are changing. According to Matthew Crabbe, research director for global market research firm Mintel Asia Pacific, consumers are increasingly hankering after niche brands. “They don’t want to be identical to everyone else,” he says. Thomson Cheng, managing director of Chinese brand operator and distributor ImagineX, echoes this. “Global brands with a unique point of view, heritage and provenance are in demand, appealing particularly to China’s fast-growing upper middle class,” he says.

As a result, a growing number of international clothing retailers have invested heavily in China. Zara owner Inditex has more than 300 stores in the country, while rival H&M has about 50. On the more premium side, the luxury market is strong, with most global luxury brands having a significant footprint in China’s cities - Louis Vuitton has more than 41 stores across 29 cities, Gucci has 39, while Burberry operates 66.

So how should UK retailers kick off their China retail strategy? First, by registering their trademarks, including the Chinese version, recommends Mark Schaub, senior partner at the Shanghai office of lawyers King & Wood Mallesons. In order to trade in China, retailers must register as a Wholly Foreign Owned Enterprise (WFOE) or Foreign Investment Commercial Enterprise (FICE) - licences that can take up to a year to obtain.

Like Topshop - which will launch its first store in Hong Kong with Lane Crawford’s retail subsidiary, LAB Concept - many international retailers enter China through partnerships. However, in recent years there’s been a move towards operating wholly owned stores. Burberry bought out its Chinese franchises for £70m in 2010 to create a more consistent brand experience. When it comes to location, international retailers often start with a flagship store in Hong Kong, Beijing or Shanghai before rolling out to other first-tier cities such as Guangzhou and Shenzhen.

Designer label House of Holland took a cautious approach when it entered China three years ago.

“We registered all the trademarks before attempting to penetrate the market,” says owner Henry Holland. “We started slowly sales wise, originally only selling to buyers who travelled internationally to our Paris showroom.

After gaining some momentum we appointed a sales and press agency based in the region.” The label is now sold in Lane Crawford and Beijing boutiques including OOAK Concept Boutique.

Retailers should be aware of China’s cultural differences. Many people shop as an activity but do not necessarily make a purchase, leading to much lower retail conversion rates than in other markets, says Rick Keller, partner at consultancy Kurt Salmon. And retailers need to tailor their offer. “In China our customer is 10 years younger than average, so we have pushed our more fashion-forward brands,” says Marks & Spencer director of international Jan Heere. Remember to adjust product sizing too: “The Chinese are more petite so we have focused on offering more size six to 10 [clothes].”

Challenges persist, such as China’s highly fragmented transport system and unsophisticated customer service, but it is steps ahead when it comes to ecommerce - the most popular way to shop for clothes. In a land where consumers lap up the use of virtual dressing rooms, snapping up clothes on a mobile and tablet has become as ubiquitous as shopping on a laptop or desktop computer. The most popular shopping site in China is TMall.com, which enables brands to sell direct to consumers. While China’s infamous Great Firewall has banned social media sites such as Facebook and Twitter, it does have Weibo, a micro-blogging platform similar to Twitter, which brands should utilise.

Retailers launching ecommerce need to secure an Internet Content Provider licence and register for a .cn website, according to Dan Mortimer, chief executive of digital agency Red Ant. Aesthetically, Chinese shoppers prefer sites with detailed product information. Heere says: “Think of a western website as more like an A4 horizontal piece of paper, while the Chinese version is vertical with long metres of text.”

As significant growth is expected to continue, China remains high on the international agenda for many UK retailers. James Hawkey, managing director of retail services for Asia Pacific at Cushman & Wakefield, says: “Anyone who has an international mindset is looking at China.

The opportunities here are endless.”

Water Stone

Water Stone

Water Stone

In the heart of the trendy 798 art district lies Beijing’s Water Stone. Founded in 2004, with the aim of bringing foreign designers to the Chinese mainland, the store has found much success with its diverse brand mix. On the hit list, the likes of Christopher Kane, Jonathan Saunders and JW Anderson sit alongside Balmain and Maison Martin Margiela. The store also includes a vintage offer, with high-end names such as Givenchy and Dior.

www.waterstone.com.cn

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