China’s fashion market is unlike any other in the world. For any serious contenders in the coming decade, it is important to take a step back and understand the forces that have shaped the market.
The first decade of the twenty-first century did more than witness a tripling in growth—it ushered in the very birth of fashion as we know it in modern China. It was only in the late 1990s that the expression of individuality through fashion became possible in China, as consumer wealth began to rise and society opened up—and brands, both foreign and local, began to appear. Consumers’ fascination with “big names” was rekindled; prior to that time, fashion simply meant a big brand logo across the chest, and brands were not distinguished to a great degree.
It was into an unsophisticated, yet eager, environment that early movers like Nike and adidas debuted in the 1980s. Consumers were hungry for highly recognizable brands, and sports brands not only filled the bill, but were also a perfect fit for the low-key wardrobe needs of consumers at a time when there were very few occasions that required more fashionable apparel. Local brands like Li Ning and Anta were established and gained scale during this period, too. Li Ning, founded in 1989, grew quickly through its association with China’s star gymnast, lending the company instant brand awareness; its deep understanding of local market dynamics; and its clever focus on tier 2 and tier 3 cities, away from the most competitive markets and the challenges of international brands.
These circumstances, combined with the sports brands’ early start, led to the utterly unique dominance of sportswear in China. By 2008, the year of the Beijing Olympics, 20 to 25 percent of a typical Chinese consumer’s wardrobe (in value) was composed of sportswear. Thirty percent of consumers who bought sportswear wore it three times or more a week, even though most Chinese are not avid fans of exercise—average participation in sports is less than once a week. By comparison, in countries like the U.S. or Germany, which have more serious athletes, sportswear comprises just 10 to 15 percent of a typical wardrobe.
The “first-mover” brands—which in addition to sports brands included casual clothing brands such as Metersbonwe and Bestseller—also benefited from the adoption of franchising, specifically single-brand franchises, as their primary business model for growth. Franchising represented a standardized, easy-to-operate retail format that enabled rapid expansion and wide market access without the need for significant upfront capital. Nike, for example, grew its store network from about 1,400 stores to roughly 6,000 stores between 2003 and 2009, a scant six years. And, given that consumers were not demanding in terms of seeking the latest styles and that sportswear, in particular, does not go out of fashion as quickly as casualwear, franchisees could invest with a lower inventory risk.
Single-brand franchises predominated because, at this early point in the development of the retail landscape, there were very few multibrand retailers. Single-brand stores also had the benefit of assuaging consumers’ fears about counterfeiting, because these stores made shoppers feel that they were buying directly from the brand company.
Until recently, the fashion market has also been defined by department stores. Through the early 1990s, department stores were the only available trade format for fashion retailing, giving brands access to millions of potential customers while offering consumers “retailtainment”—a place for families to hang out on weekends. Department stores defined consumers’ conceptions of what it is to go shopping, and they will remain important going forward, especially in low-tier cities. Even though more innovative retail formats have cropped up in recent years, department stores still accounted for 35 to 40 percent of fashion retail sales in 2010.
All of these factors—the relatively crude early conception of fashion as big brands, the dominance of sportswear, the proliferation of the franchise model, and the entrenchment of the department store format—made China’s fashion market different from any other market in the world.