Apparel brands face new tests in China

01 November 2012

BEIJING: Apparel brands are facing a variety of challenges in China, with companies like VF Corp, Nike and Giordano adopting varying strategies to drive future growth.

VF Corp, the manufacturer of Lee Jeans, The North Face, an outdoor range, and Timberland boots believes sales will rise by 23% in China this year to $460m. It still, however, frequently runs deals.

"The broader environment is promotional, so you have to join in or you lose share," Aidan O'Meara, president of the firm's Asian-Pacific operations, told the Wall Street Journal.

Nike, the US giant, also revealed that orders received in most recent reporting quarter had fallen by 6% year on year, reflecting a wider obstacle which many players are seeking to overcome.

"Our main area of focus now is China, where we continue to manage down inventories on our books and in the market," said Donald Blair, its chief financial officer. "We'll continue to leverage our brand strength, deliver product assortments more sharply focused for Chinese consumers and transform our distribution network."

On its part, Giordano, a casual wear chain with over 1,300 outlets in China, logged a 4% sales decline in the opening six months of the year, and recently waited six months before buying new stock.

In response, it is increasingly tailoring ads for regions and cities. "We're not looking at major upturn, due to economic conditions in China," said Dominic Irwin, its CFO. "Everyone's sales are down."

Further reflecting this trend, Vipshop, a discounter selling clothes from domestic and foreign firms, works with over 3,000 brands, a 58% lift on 2011, as the amount of unsold inventory multiplies.

"Last year it was just the sportswear companies that had too much," said Yang Donghao, Vipshop's chief financial officer. "This year it is much broader."

Elsewhere, Metersbonwe, a fashion and accessories group, also stated that inventory accounted for around 50% of its net assets during 2011. Moreover, its share price has fallen by roughly 25% in 2012. 

"The reality is that many brands will have to deal with too much inventory, having overproduced and now risking their brands," Ben Cavender, a senior analyst at the China Market Research Group, said.

While H&M, the fast-fashion chain, saw sales from its 109 stores surge by 59%, to $569m, from January to September compared with the previous year, this may no longer be the norm.

"The hypergrowth era for the apparel industry in China is over, period," Han Weiwen, a partner at Bain & Co, the consultancy, said. "The Chinese economy is not going to go back to double-digit growth."

Data sourced from Wall Street Journal; additional content by Warc staff