Tag Archives: fashion

Stay-At-Home Chinese Consumers Recast Global Luxury Goods Industry

Chart of share of global luxury good market by region, 2019, 2020E and 2025E. Source: Bain & Co

RESTRICTIONS ON INTERNATIONAL travel and China’s place in the vanguard of global economic recovery is accelerating the recasting of the luxury goods industry. Unable to travel freely to the world’s shopping malls, where most Chinese spending on luxury brands occurred, Chinese consumers are buying their favoured luxury brands at home. The industry is expanding its sales channels in the country in response.

An early sign of this was a decision by the Paris fashion house Louis Vuitton to eschew a virtual fashion show in Paris to present its men’s spring/summer 2021 collection for a physical event in Shanghai. Since then, several fashion events and runway shows previously held in Europe and the United States have been staged in China. New stores, pop-ups physical and digital, and other e-commerce channels for Chinese consumers have followed.

Marketing campaigns are being built around events like the Qixi Festival. Those, though, can put foreign luxury brands on cultural thin ice. Balenciaga and Dolce & Gabbana were two who felt it cracking under them this year.

Doubling the challenge, the market’s growth is being driven by Millennial and, particularly in digital, Gen Z consumers, two demographic cohorts with distinct characteristics.

Unlike elsewhere, most high-end stores in China have been open in the second half of the year as the country bought its Covid-19 outbreak under control. Brands like Tiffany and Burberry have reported significant recoveries in their sales in China even while their other markets shrink.

Luxury goods sales in China will rise by 48% this year to 346 billion yuan ($52.9 billion), according to a joint estimate by the consultancy Bain & Co. and Alibaba’s TMall shopping platform, a leading conduit for foreign luxury retailers entering the Chinese market. That would near double China’s share of the global luxury goods market to 20%. (The chart above is reproduced from the Bain/TMall report.)

However, luxury good purchases by Chinese overall are forecast to fall by 35% this year compared to 2019, according to the Bain/TMall report, contributing to a 23% contraction in the global luxury market and emphasising the impact of Covid-19 induced closings of international borders.

The question is how permanent the changes will prove. Luxury groups’ focus on the world’s second-largest economy and the accelerated shift to more digital retailing will likely prove lasting. The luxury brands also probably have at least a year before their other main markets are operating with a semblance of pre-pandemic normality and international travel and tourism are reestablished.

The wild card is what opportunities the recast China luxury market will create for domestic producers and whether those will help them go in the opposite direction and achieve that elusive status of a global luxury brand.

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China’s Exceptionally Dressed First Lady

The glamourous first lady is nothing new, even for China. Jiang Qing, when she was still Lan Ping, comes to mind. But new president Xi Jinping’s wife, Peng Liyuan, comes as an established celebrity in her own right. Not only does she look the part, but is dressing it, too, giving rise to thoughts about how China could use its emerging fashion industry to project soft power, as well as propelling some of its emerging domestic fashion brands onto the global stage.

Peng, as the Internet has been abuzz, has been dressed to accompany her husband on his first foreign tour as president by Exception de Mixmind, the designer ready-to-wear fashion brand of Mao Jihong and his partner and ex-wife Ma Ke. Ma is of China’s leading independent fashion designers. Now in her early 40s, she has been gaining international recognition since the mid-2000s. Their couture line is Wuyong (“Useless”). Peng may shine just as much of a spotlight on Ma as the U.S.’s first lady, Michelle Obama, has on the New York-based Taiwanese-Canadian designer Jason Wu.

Exception, we understand, is now is a 900 million yuan ($144 million) a year retail business. It is on many lists of Chinese designer brands that could make it internationally. It made its name for using natural materials, and for its use of texture and pattern rooted in Chinese tradition—elegant rather than edgy. That all makes it a politically safe choice for Peng, as well as one in a fashion sense for a 50-year old woman, even one who is a celebrity.

As we have noted before, China’s rag trade, like many of its other industries, is moving up the value chain, from sweatshop to catwalk in its case. China has the potential to reshape the global couture and designer ready-to-wear markets, as it does all luxury markets, because its domestic market is likely to grow so fast and so far. No harm to any brand to get a little helping hand from the top—or for China potentially to be talked of by fashionistas in the same breath as Paris, Milan, London, Tokyo or New York.

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From Sweatshops To Catwalks

Models present fashion creations at the DUNNU Collection Autumn/Winter 2012-2013 show during the ongoing China Fashion Week in Beijing, capital of China, March 26, 2012. (Xinhua/Li Mingfang)
With China fashion week in Beijing in full swing (above), and a recent report that international fashion houses are starting to shifting production out of China, this Bystander thought it worthwhile to republish our piece from last month about the challenges facing China’s textile and apparel industry, and its need to move up market:

 China’s rag trade is the world’s largest. It consumes 45% of the world’s fiber, accounts for a third of world textile exports and now has a huge and fast-growing domestic market for textiles and apparel into which to sell. As best we can guess, the industry has half a trillion dollars in annual sales and employs more than 20 million people. A further 140 million are involved in cotton farming, and millions more in the chemicals industries producing man-made fibers. Our numbers, though based on commerce ministry data, are a guess. Many of the businesses operating in the industry are too small to get counted in the official figures.

One thing we do know is that the textile and garment industry is both privately and foreign owned to an uncommon extent for such a significant Chinese industry. Another is that it faces the challenge of breaking away from its low-cost, high-volume model, like other industries that have thrived in the export-driven phase of China’s growth over the past three decades. The slump in demand in its export markets in the developed world may be temporary, but rising labor costs will be permanent, and the more painful as industry wages are generally lower than in other parts of manufacturing. The high value added parts of its supply chain lie in the hands of others, notably specialist logistics companies.

The rag trade globally has always been a hybrid of  the high-quality fashion market, characterized by modern technology, relatively well-paid workers and designers and a high degree of flexibility, and the low-end, mass production of cheap and standard clothing, such as t-shirts and uniforms by semi-skilled and unskilled, usually female, labour, in which international retailers have the dominant market power. The potentially highest value added part of the business, internationally recognizable fashion brands, are almost completely outside the Chinese industry’s orbit. The country, and Shanghai in particular, does have an emerging cadre of world-class couture designers, some of those work has been making an increasing splash at the biannual Shanghai Fashion Weeks. A collection from Zhang Zhifeng’s Ne Tiger line opened the most recent show, seen above. Yet Shanghai’s best labels are still far from challenging the likes of Louis Vuitton, Chanel, Gucci, Dior and Armani, even inside China where those European labels are the ones that dominate the domestic fashion market.

Every fashion industry cascades down from couture through ready-to-wear to the cheap knock-offs sold on market stalls and needs a textiles industry underpinning it. Redressing China’s textile and garment industry’s structural shortcomings will require a level of innovation beyond anything the domestic textile industry has known. Inevitably, there is a plan. It has been devised by the China Textile Industry Association, a trade body, and officials in Songjiang, one of the satellite towns on the western outskirts of Shanghai and better known for Thames Town, the surreal facsimile of an English home counties market town that has been built there. They plan to build a 2,000 acre industrial zone for the textiles and fashion industries that will be part business park, part R&D center, part fashion expo and shopping mall, and part brand incubator. Two years in the making, a small corner of this project opened a few months back. The full vision will take six or seven years to realise.

The notion of clustering firms, in the hope that the cross-pollination of people, ideas and capital, will foster innovation, is taken from high-tech industries. Fashion Valley, as the zone is being called in an echo of Silicon Valley, will sit alongside Songjiang’s existing industrial zone, already home to biotech, semiconductor and pharma firms.

It will also be close to another essential component of a high-tech industrial cluster, a leading university. Songjiang has several. In particular, the fashion and fabrics-centric Donghua University, whose roots go back to the Shanghai Textile Engineering Institute and which absorbed the textile sections of a number of regional institutions in East China after the Communist Party took power in 1951, maintains a campus in Songjiang. Over the road is the Shanghai University of Engineering Sciences’ new home for its Institute of Clothing Technology, arguably China’s leading fashion design college thanks to its partnership with Paris’s IFA. Neither campus is far from the proposed fashion incubator.

Songjiang is not an illogical spot for such a project. The district has been associated with the textile industry ever since the Mongols replaced rice with cotton as the area’s main crop in the 14th century, leading to spinning and weaving becoming prominent local industries.

The question, asked a thousand times by economic development planners everywhere, and yet to be convincingly answered, is can innovation be systemized? This Bystander doesn’t doubt local bureaucrats’ natural affinity for expensive, large-scale real estate and infrastructure development. And up to a point, in China, if you build it, they will come. Some are told to; others just know to hear the call. Several local firms are already signed up. Developing creative industries and expanding China’s soft, cultural power are all now national priorities.

No doubt, too, that if China’s textile and apparel industry is to escape being stuck in the low-value end of the business it will have to become vertically integrated. To do that it will need to develop both management skills and quality standards along the value chain, as well as dealing with the sustainability and labor issues surrounding the fashion industry internationally. One point in its favor is that the textile and garment industry is suitable for the sort of incremental and process innovation that Chinese firms are starting to become adept at, rather than needing to search for breakthrough products and technologies. Another is that if the textile industry diversifies into technical textiles, for use in the medical, aerospace, automotive and green-technologies industries, for example, it can ride the development arc of those industries, all of which are being championed as strategic national interests.

Best business practice can always be taught, but industrial clusters tend to emerge despite the best intentions of planners. In the U.K. it took more than three decades of economic planning to develop a high-tech company incubator around Cambridge University, known as Silicon Fen. Yet, over the past couple of years, London’s Silicon Roundabout had emerged organically as the place for web start-ups. Closer to home, as well as a thriving fashion industry, Shanghai has an vibrant modern art scene that has grown up around 50 Moganshan Road to the north east, organically and unplanned.

The challenge for the textile and garment industry is give the creativity of designers and fashion entrepreneurs enough free rein to develop world-class brands and labels while providing them with both the technical advances and the business and production disciplines to compete with the established fashion multinationals. In the world’s fashion capitals it is the design and fashion schools rather than industrial parks that play a crucial part in that, places like London’s Central St. Martin’s, New York’s Parsons and FIT, Paris’s Ecole de la Chambre Syndicale and Esmod, Milan’s Instituto Marangoni and Tokyo’s Bunka Fashion College, all of which would fall into the top 10 of most lists of the world’s top fashion schools. SUES and Donghua, which woldn’t rank in many top 50s, will have to break into those ranks.

China has the potential to reshape the global couture market, as it does all luxury markets, because its domestic market is likely to grow so fast and so far. In white goods, Haier is a harbinger of what is possible. It turned a high-end consumer good, wine-cooler refrigerators, into a much cheaper middle-market product, and grabbed a 60% global market share in the process. Unlike as it seems now, it is perfectly conceivable that Shanghai, perhaps even Songjiang, will one day be spoken of in the same breath by fashionistas as Milan, Paris, New York and London.

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The Catwalks Of Songjiang

Models present creations for the NE TIGER Couture 2012 collection with the theme "Tang Dynasty" on catwalk during China Fashion Week for Spring/ Summer 2012 in Beijing. Source: Shanghai Daily

China’s rag trade is the world’s largest. It consumes 45% of the world’s fiber, accounts for a third of world textile exports and now has a huge and fast-growing domestic market for textiles and apparel into which to sell. As best we can guess, the industry has half a trillion dollars in annual sales and employs more than 20 million people. A further 140 million are involved in cotton farming, and millions more in the chemicals industries producing man-made fibers. Our numbers, though based on commerce ministry data, are a guess. Many of the businesses operating in the industry are too small to get counted in the official figures.

One thing we do know is that the textile and garment industry is both privately and foreign owned to an uncommon extent for such a significant Chinese industry. Another is that it faces the challenge of breaking away from its low-cost, high-volume model, like other industries that have thrived in the export-driven phase of China’s growth over the past three decades. The slump in demand in its export markets in the developed world may be temporary, but rising labor costs will be permanent, and the more painful as industry wages are generally lower than in other parts of manufacturing. The high value added parts of its supply chain lie in the hands of others, notably specialist logistics companies.

The rag trade globally has always been a hybrid of  the high-quality fashion market, characterized by modern technology, relatively well-paid workers and designers and a high degree of flexibility, and the low-end, mass production of cheap and standard clothing, such as t-shirts and uniforms by semi-skilled and unskilled, usually female, labour, in which international retailers have the dominant market power. The potentially highest value added part of the business, internationally recognizable fashion brands, are almost completely outside the Chinese industry’s orbit. The country, and Shanghai in particular, does have an emerging cadre of world-class couture designers, some of those work has been making an increasing splash at the biannual Shanghai Fashion Weeks. A collection from Zhang Zhifeng’s Ne Tiger line opened the most recent show, seen above. Yet Shanghai’s best labels are still far from challenging the likes of Louis Vuitton, Chanel, Gucci, Dior and Armani, even inside China where those European labels are the ones that dominate the domestic fashion market.

Every fashion industry cascades down from couture through ready-to-wear to the cheap knock-offs sold on market stalls and needs a textiles industry underpinning it. Redressing China’s textile and garment industry’s structural shortcomings will require a level of innovation beyond anything the domestic textile industry has known. Inevitably, there is a plan. It has been devised by the China Textile Industry Association, a trade body, and officials in Songjiang, one of the satellite towns on the western outskirts of Shanghai and better known for Thames Town, the surreal facsimile of an English home counties market town that has been built there. They plan to build a 2,000 acre industrial zone for the textiles and fashion industries that will be part business park, part R&D center, part fashion expo and shopping mall, and part brand incubator. Two years in the making, a small corner of this project opened a few months back. The full vision will take six or seven years to realise.

The notion of clustering firms, in the hope that the cross-pollination of people, ideas and capital, will foster innovation, is taken from high-tech industries. Fashion Valley, as the zone is being called in an echo of Silicon Valley, will sit alongside Songjiang’s existing industrial zone, already home to biotech, semiconductor and pharma firms.

It will also be close to another essential component of a high-tech industrial cluster, a leading university. Songjiang has several. In particular, the fashion and fabrics-centric Donghua University, whose roots go back to the Shanghai Textile Engineering Institute and which absorbed the textile sections of a number of regional institutions in East China after the Communist Party took power in 1951, maintains a campus in Songjiang. Over the road is the Shanghai University of Engineering Sciences’ new home for its Institute of Clothing Technology, arguably China’s leading fashion design college thanks to its partnership with Paris’s IFA. Neither campus is far from the proposed fashion incubator.

Songjiang is not an illogical spot for such a project. The district has been associated with the textile industry ever since the Mongols replaced rice with cotton as the area’s main crop in the 14th century, leading to spinning and weaving becoming prominent local industries.

The question, asked a thousand times by economic development planners everywhere, and yet to be convincingly answered, is can innovation be systemized? This Bystander doesn’t doubt local bureaucrats’ natural affinity for expensive, large-scale real estate and infrastructure development. And up to a point, in China, if you build it, they will come. Some are told to; others just know to hear the call. Several local firms are already signed up. Developing creative industries and expanding China’s soft, cultural power are all now national priorities.

No doubt, too, that if China’s textile and apparel industry is to escape being stuck in the low-value end of the business it will have to become vertically integrated. To do that it will need to develop both management skills and quality standards along the value chain, as well as dealing with the sustainability and labor issues surrounding the fashion industry internationally. One point in its favor is that the textile and garment industry is suitable for the sort of incremental and process innovation that Chinese firms are starting to become adept at, rather than needing to search for breakthrough products and technologies. Another is that if the textile industry diversifies into technical textiles, for use in the medical, aerospace, automotive and green-technologies industries, for example, it can ride the development arc of those industries, all of which are being championed as strategic national interests.

Best business practice can always be taught, but industrial clusters tend to emerge despite the best intentions of planners. In the U.K. it took more than three decades of economic planning to develop a high-tech company incubator around Cambridge University, known as Silicon Fen. Yet, over the past couple of years, London’s Silicon Roundabout had emerged organically as the place for web start-ups. Closer to home, as well as a thriving fashion industry, Shanghai has an vibrant modern art scene that has grown up around 50 Moganshan Road to the north east, organically and unplanned.

The challenge for the textile and garment industry is give the creativity of designers and fashion entrepreneurs enough free rein to develop world-class brands and labels while providing them with both the technical advances and the business and production disciplines to compete with the established fashion multinationals. In the world’s fashion capitals it is the design and fashion schools rather than industrial parks that play a crucial part in that, places like London’s Central St. Martin’s, New York’s Parsons and FIT, Paris’s Ecole de la Chambre Syndicale and Esmod, Milan’s Instituto Marangoni and Tokyo’s Bunka Fashion College, all of which would fall into the top 10 of most lists of the world’s top fashion schools. SUES and Donghua, which woldn’t rank in many top 50s, will have to break into those ranks.

China has the potential to reshape the global couture market, as it does all luxury markets, because its domestic market is likely to grow so fast and so far. In white goods, Haier is a harbinger of what is possible. It turned a high-end consumer good, wine-cooler refrigerators, into a much cheaper middle-market product, and grabbed a 60% global market share in the process. Unlike as it seems now, it is perfectly conceivable that Shanghai, perhaps even Songjiang, will one day be spoken of in the same breath by fashionistas as Milan, Paris, New York and London.

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Putting A Price On Luxury

Can you put a price on the cachet of a luxury logo? Seems you can and, in Chanel’s case, it is as much as 200 yuan ($31). The Shandong Business News (here, in Chinese) reports that the largest of the luxe-goods maker’s paper carrier bags are selling for that much on the online shopping site Taobao. Shopping bags from Louis Vuitton, Gucci, Hermes, Ferragamo are also in demand from aspirational consumers who can’t afford the haute couture that goes inside the bags but still want to look as if they are shopping at those brands’ stores.

True, this is a phenomenon seen the world over, and as the Shandong Business News notes, the same thing is happening in South Korea with Burberry’s carrier bags. The local twist is that when Prada and Channel introduced transparent bags this summer (so you could see what was inside), what also popped up on Taobao but cheap yellow protective dust bags being promoted as looking like rough silk and an ideal liner for see-through bags. Others then can’t see that you’ve just got a pair of old trainers in your Prada bag–and not a pair of the brand’s expensive, high-fashion shoes.

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