Notorious for keeping traditional values close to heart, the Orient has been a wellspring of fashion influence for both the East and West since ancient times.
But now, the eyes of the world are travelling beyond the cutesy styles of Korea and further from the edgier, brazen faces of the Japanese, who for some time held the spotlight with its youth fashion of Harajuku, gothic Lolita, hip-hop and punk outfits. For the second year running, China is the world’s leading exporter of clothing.
No doubt China is rapidly becoming the workshop of the world, renowned for its cheap labour and low-cost products. “Made in China” has become a label familiar to those who purchase high street fashion in UK, as well as the majority of consumers worldwide, although there is an apparent absence of “Made in China” labels at the high-end of the market. Still, it does not suggest that people in China do not buy luxury goods. In fact, findings in this year’s McKinsey & Company’s Insights China report that China is shooting towards the top of the list of the world’s biggest luxury markets.
By the end of 2008, China’s urban population surged to 607 million with an urbanization rate of 45.7% while its GDP continued to expand at a yearly rate of at least 10%. Amongst this new wealth grew the ‘petite bourgeoisie’, a middle class that is keen to show off how far it has come from the rice fields. And how better to do this than with a Louis Vuitton bag, Cartier wrist watches and a bottle of Dom Perignon champagne? Recent statistics from the China Brand Strategy Association show that about 175 million Chinese people (13% of the entire population) can now afford high-end market goods. Based on the yearly 20% growth rate for the coming five years, the figure is estimated to reach 250 million by 2010. Thus, we see an incredible boom in big luxury brands in China.
This is the prime era of globalization. Imagine a lazy weekend; a clique of American teenage girls leaf through the glossy pages of fashion magazines as they sip their caramel frappes. Shopping bags bursting with new purchases sit at their feet while they talk excitedly about what’s in, what’s not, and what to wear this summer. Far away in Thailand, or even Luxembourg or Greece, similar scenarios prevail. Perhaps this time it is a young man wearing a T-shirt imprinted with the logo of his favourite football team, shopping at the local market for trousers to fit his built figure. Although seemingly unrelated, globalization, along with consumerism and recycling, converge to connect these scenes. Globalization has made it possible to produce and sell clothing at increasingly lower costs that ultimately, many consumers may consider the clothing to be disposable.
This is the prime era of globalization. Imagine a lazy weekend; a clique of American teenage girls leaf through the glossy pages of fashion magazines as they sip their caramel frappes. Shopping bags bursting with new purchases sit at their feet while they talk excitedly about what’s in, what’s not, and what to wear this summer. Far away in Thailand, or even Luxembourg or Greece, similar scenarios prevail. Perhaps this time it is a young man wearing a T-shirt imprinted with the logo of his favourite football team, shopping at the local market for trousers to fit his built figure. Although seemingly unrelated, globalization, along with consumerism and recycling, converge to connect these scenes. Globalization has made it possible to produce and sell clothing at increasingly lower costs that ultimately, many consumers may consider the clothing to be disposable.
With intentions of shedding its sweatshop labour reputation, China has been making efforts to re-brand its cultural identity through Shanghai’s development as a new world. A dreamy modern city; Shanghai takes after Paris and is where the new yuppie generation resides. Years ago, one couldn’t buy a Louis Vuitton wallet in China. Wealthy Chinese would have to voyage to Paris for their LV status symbol fix. Today, Shanghai houses every luxury fashion brand imaginable. From Prada to Giorgio Armani, these foreign luxury brands have made known their presence and further plans for its development have allegedly been set.An incredible party metropolis with towering skyscrapers and bars open all night, Hong Kong manages hundreds of clothes suppliers and is the new destination for ethical fashion, inevitably making it a lively hub for fashion commerce. Proudly the largest fashion event in Asia, Hong Kong Fashion Week (HKTDC) is targeted at importers, volume buyers and purchasing directors who want to source directly from competitive suppliers. Ideal for buyers and sellers who can interact with one another, HKTDC attracted around 1500 exhibitors from 20 countries worldwide last year. The upcoming fall/winter collection is set to launch from 18-21 January 2010.
(Hong Kong Fashion Week 2009)
There is a saying that in Shenzhen, a skyscraper is opened every day, and in every three days, a boulevard. It is a baroque city, which in a very short time has been filled with so many different elements; it seems almost inevitable that Shenzhen would fall into the clutches of multinationals, such as American Apparel, who are launching stores in some unique areas of the industrial city.
The initiative to open American Apparel shops in China itself is quite an interesting concept. Since China is the world’s low-cost producer of clothing, it means they are not likely to compete on price. Thus, American Apparel seems to be relying on their alternative style and image, though it remains to be seen if these two factors have the same relevance that they would in Europe or elsewhere in the world. Will these cities in China succumb to American Apparel fashion? There are plenty of street vendors that sell simple American Apparel-style clothing for a fraction of the usual American Apparel prices, and if anything, most Chinese youths love logos and especially obvious designs and embellishments. If people were to spend a lot of money on something, they would want to show off how expensive it was. A basic unmarked jersey, however, does not scream “I paid a lot for this!”
Reports from China’s National Bureau of Statistics show that, adjusted for inflation, the annual per capita disposable income of city dwellers rose by an average of 7.2% a year between 1978 and 2007. With the swift emergence of globalization entering many of China’s cities, is China set to drive inflation even higher? China has been more capitalist than communist for most of their lives. It is widely acknowledged that Chinese teenagers today have a lot more money to spend than their parents ever did. According to Valentino chief executive Michele Norsa, “the younger generation [in China] is fast developing a taste for luxury goods.” Even in a down economy, this generation remains eager to spend.
With inflation on a global rise, the varying prices of goods in different countries have been gaining much attention. In the past few years, low global inflation has been accredited to the low-cost products from China, yet the increasing expenses for labour and materials in China are also blamed for the current rise in prices. Paris-based OECD (Organization for the Economic Cooperation and Development) economist Luke Willard doubts that the changes made in China’s consumer prices have pushed prices up – or down – elsewhere in the world, and argues that the countries that consume Chinese goods are not merely “passive recipients off cost pressures from abroad”.
In the latest issue of China & World Economy, he writes: “Imports constitute around 15% of U.S. GDP and around 13% of that comes from China.” This essentially means that a 1 percentage point increase in China’s inflation rate should bring an increase of 0.02 to 0.03 percentage points in U.S. inflation. “It is estimated that something like half of total imports would need to come from China for a 1% price increase to translate into a very moderate 0.1% price increase in Japanese and U.S. prices,” writes Luke Willard. “For any noticeable effect on inflation, China would need to dominate international trade on a large scale.”
As Chinese consumers have opened up to global brands, the market in China has also made attempts at opening its doors to domestic luxury brands. These luxury brands, which follow the likes of Shanghai Tang and designers like Swire, incorporate aspects of traditional Chinese culture with a globalized luxury style. But Chinese luxury consumers often favour multinationals and tend to look down on domestic brands and products. So even if Chinese luxury brands eventually diffuse into overseas markets, they’ll still need to figure out domestic marketing and growth strategies, in order to draw level with their French or Italian counterparts.
As Chinese consumers have opened up to global brands, the market in China has also made attempts at opening its doors to domestic luxury brands. These luxury brands, which follow the likes of Shanghai Tang and designers like Swire, incorporate aspects of traditional Chinese culture with a globalized luxury style. But Chinese luxury consumers often favour multinationals and tend to look down on domestic brands and products. So even if Chinese luxury brands eventually diffuse into overseas markets, they’ll still need to figure out domestic marketing and growth strategies, in order to draw level with their French or Italian counterparts.
The extraordinary thing about China is its ability to be so versatile. The fashion industry is drastically developing, but in a very tolerable manner. You can find the tackiest yet also the most splendid designs in the city. For some luxury brands, accessing the Chinese market and placing a foot in the door depends almost entirely on the infiltration of media and advertising. Although this method attracts few paying customers, it is an essential means for many brands, and rent or tax subsidies also help compensate the low revenue these stores draw in.
For other brands, the method they use to establish a strong foundation of loyal customers is by catering to the notion of exclusivity and brand loyalty. While high-priced luxury products are made available in fashion capitals, such as Tokyo, Paris and New York, through traditional branding and outreach, less exclusive and more affordable sub-brands are made accessible to potential (mostly middle class) buyers. Examples include Jil Sander’s collection for Uniqlo called +J, and Reiss’ first sub-brand that was “aimed at a younger, edgier customer” – both of which debuted in autumn 2009.
Although this exclusive/accessible approach has dangers of lessening the prestige of some brands, major luxury brands have started to introduce products that are available only in certain countries or cities, such as Hermes’ “China-only” sub-brands. Shiseido, a Japanese cosmetic brand that has been operating in mainland China since 1981, is taking the same approach and has announced the launch of its sub-brand “DQ”, which will be available in drugstores throughout China from early March 2010.
The majority of Shiseido’s sales in China are currently from department stores and specialty cosmetic shops, so a new sub-brand would be a new way of reaching customers in emerging urban areas. Though details have not been fully released, the DQ line is said to be available in Shanghai, Beijing and Guangzhou, as well as other “major cities in coastal and inland areas”, such as Hangzhou, Tianjin, and possibly Ningbo.
Companies like Shiseido do not actively promote a “Shiseido lifestyle” (except in some of their advertisements perhaps) so launching a cheaper and more convenient sub-brand will probably not harm its popularity. However, as a luxury fashion brand, Hermes is particularly distinctive. When you’ve spent thousands on a handbag, you want others to notice it and – in China – know it’s authentic. So, for Hermes, there are greater risks in instigating a sub-brand, in comparison to Shiseido.
Despite optimism among market analysts looking into China’s upper and middle class sector, there is still an uncertainty about the future of luxury retail in China. China remains one of the few bright spots in the world that is throbbing in luxury retailing at the moment, but foreign luxury brands still encounter difficulties convincing many of the country’s highest-potential customers (the extremely wealthy in top-tier cities) to buy their products, especially within the mainland, because of the heavy tax that China imposes on imported luxury goods.
An excellent article from Luxury Society investigates the two outlying concerns that many luxury executives have about the future of the Chinese market: consumer taste and prohibitive pricing (tax included). There are no easy routes for sustainable revenue in the market; even the most exclusive big brands will have trouble enticing customers – especially those who pop over the border to Hong Kong or Macau for a quick day trip – to shop locally.
"Despite the allure of these glamorous and expansive retail establishments, many anecdotal reports suggest that a significant proportion of Chinese shoppers don’t use local malls as the primary outlet to buy luxury goods. " Simon Lock, managing director of IMG’s Fashion Asia Pacific division explains: “At the moment, it’s all about the land grab for the brands, trying to establish spots in as many retail luxury shopping centres. These retail centres are acting more as showcases for the brand, which are distinct from actual retail sales. So you’ll find a lot of Chinese consumers will go into the Dior shop in Plaza 66 in Shanghai [for example] and they’ll look at the merchandise that’s in there. But because of the 30% luxury tax at the moment, their first luxury experience with the brand will actually be when they come to Hong Kong or Macau.”
As Lock suggests, the high price of luxury goods in China is the foremost hurdle. Between tariffs and value-added taxes, prices in China can be up to a third higher than in Hong Kong. Hence, a quick and cheap flight to Hong Kong can deliver more bangs for their buck since travel visas are relatively easy to acquire for wealthy Chinese customers. For the hardcore luxury addict, Tokyo offers more luxury options than anywhere else in Asia, becoming an increasingly popular destination with visa restrictions now also reduced. McKinsey found in its “Coming of Age” survey that the Chinese rarely justify their foreign purchases on price differential alone, as they also want access to the more expansive product selection in Hong Kong and Tokyo retail branches.But even if Hong Kong is driving away some sales from the mainland, boutiques in China do perform an important function within promotion and brand awareness, equally providing a critical communications channel for fostering sales abroad."
The fashion industry in China is drastically developing and more talented Chinese designers are gaining recognition worldwide, such as Du Yang, Qiu Hao and Ma Ke. Still, there is a long way to go before China can overtake New York, Paris, Milan, or even London – who only recently gained its notoriety – as a worldly fashion hub. Nowadays, fashion is business not craftsmanship and China still has no recognizable brand yet. In the following years to come, the Chinese fashion industry will surely face more challenges from mass-produced brands like Uniqlo, H&M and Zara, which are at present already getting a big share of the market. So perhaps designers should learn to work closely with entrepreneurs, media and celebrities if they are to succeed in selling the new generation of petite bourgeoisie their goods.
Panruetai Chitrakorn is the contributing International Features Editor for the Nolcha in the Asian Pacific
