Apparel retailers face China challenge

26 August 2011

BEIJING: Apparel retailers must make several key decisions regarding their rollout plans, management models and online strategy to succeed in China, a study has argued.

Writing in the Harvard Business Review, Max Magni, head of McKinsey's Greater China consumer practice, and Yuval Atsmon, a partner at its Shanghai office, suggest competition for Chinese apparel consumers is intensifying rapidly.

A primary reason for this is that the proportion of Chinese shoppers earning between 10,000 yuan ($1,564) and 24,000 per year has increased from 11% in 2004 to 28% in 2010.

Some 28% of consumers also consciously keep up with the latest fashion trends, up from 12% three years ago, and 45% "build their wardrobe" around different occasions and needs, rising from 36% in 2010.

Casual apparel currently delivers 58% of clothing sales in the country, and McKinsey has predicted total apparel revenues in China could hit $200bn in 2014, versus $114bn in 2009.

However, there are marked differences in how far retailers have been able to rollout stores across China's huge market.

For instance, Zara, part of Spain's Inditex group, is only present in 30 cities, whereas Bestseller, the Danish retail chain, has over 3,000 outlets in more than 300 cities.

Semir, an indigenous chain, has announced plans to add 800 branches to its network in the coming two years, while Uniqlo, the Japanese group, intends to create 1,000 new sites by 2020.

Another decision firms face concerns the ownership structure they should employ in China. 

Retaining full control over the ownership of their Chinese operations gives companies a high degree of certainty. However, working with local partners or franchisees may enable them to tap into better knowledge of local markets when it comes to identifing store locations and tailoring store layouts across hundreds of Chinese cities.

Bestseller, for instance, runs a mixed model incorporating both franchise stores and shops over which it has 100% control.

The web also presents a considerable opportunity, as apparel delivers 36% of all ecommerce spending.

Uniqlo, for instance, generates 10% of all its Chinese sales from a store on internet hub Taobao Mall which only launches six months ago. Some 60% of Uniqlo's ecommerce sales in China come from customers in areas where there are no bricks and mortar Uniqlo stores.

Data sourced from Harvard Business Review; additional cotnent by Warc staff