Market Research & Environmental scan
Growth in the China Market
During the past several years, there has been ongoing robust growth in China’s economy, even during the credit crunch led global recession of 2008 – 2009. China’s GDP per capita increased from RMB23,708 in 2008 to RMB38,449 in 2012, with an average of 8.7% real growth during the period 2008 – 2012. This vigorous economic growth resulted in an ongoing rise in disposable income levels amongst Chinese consumers, and with the controlled interest rate in the Chinese market, the purchasing power of the Chinese consumers improved as a result. Purchasing Power Parity (PPP) increased from $6,201 in 2008 to $8,407 in 2011 (2012 figure not available).
China’s ongoing economic development has led consumers to become comfortable and confident in spending, including on apparel products, which has contributed positively to the increase seen in consumer expenditure on clothing and footwear products. Overall, apparel sales benefited from this positive factor and continued to see healthy retail volume and value sales growth over the years. Consequently, China’s high-speed urbanisation has resulted in a growing group of fashion-conscious consumers, particularly amongst the young and female populations. First-tier cities such as Shanghai, Beijing, Guangzhou and Shenzhen saw most growth of the aforementioned group of consumers, hence luxury brands and labels are establishing themselves strongly in these cities. Whereas second-tier cities such as Dalian, Wuhan and Chongqing etc. are said to be the rising stars, given that these cities have been the growth engines of the Chinese economy, boosted by huge amounts of investment, new infrastructure and an influx of new talent. Similar pattern of demographic and economic growth would be expected in these second tier cities mirroring the growth of the first tier cities in their earlier years (Euromonitor International, 2012).
While there has been an increase in the number of wealthy people in China resulting from the economic development, there has also been an expansion of the upper middle class, which is made up of the professionals, managers, salesmen, and small and medium business owners etc, all of which contribute to fueling the growth of the high-end apparel market. According to research by the China Market Research Group, members of China’s middle class shop quite differently from their American counterparts. Instead of favoring middle brands like the Gap, they typically save up for higher end luxury brands such as Louis Vuitton and Gucci, and otherwise shop for downmarket bargains. Nielsen research shows that nearly a quarter of shoppers think brands matter more than the price of a product or getting good value for the money (Euromonitor International, 2012). While wealthy consumers (with income level above RMB300,000) will continue to account for a majority of high-end apparel market consumption, McKinsey’s research shows that the 13 million households in China’s upper middle class (income level between RMB100,000 and RMB200,000) offer the biggest new growth opportunity. They already account for about 12% of the market, and their numbers are growing rapidly, and the projection of McKinsey is expecting 76 million households in this income range by 2015, accounting for 22% of luxury-goods purchases (ExpoLifeStyle, 2011).
Apparel is expected to register ongoing healthy growth in the forecasted market outlook, both in retail volume and value sales terms. This will be driven by the country’s ongoing economic development, rising disposable income levels and a desire for a higher standard of living amongst consumers. Increasing choice through various channels, as well as the wide availability of fashion brands, will likewise contribute to Chinese consumers spending more on apparel in the future.
Due to the ongoing financial downturn in developed markets over the world in 2011, many international players continued to eye apparel in China, which remained lucrative. Leading international fast-fashion apparel players, such as H&M, Gap, Uniqlo and Zara, all opened more new outlets in the country, not only in first tier cities, but also further penetrated into lower tier cities across the country. With the advent of international brands, domestic companies are likely to adjust their operational strategies, such as launching their high-end brands, like Me&City by Metersbonwe.
Multinational fast fashion players are also seeking a change to capture the underdeveloped market niches. H&M will open more COS (Collection of Style) outlets in China to target the niche consumers caught between high street and high end. It is going to launch its high-end brand & Other Stories in 2013. Multinational fast fashion brands tend to occupy a large space in department stores and shopping malls, which helps them to build up a superior brand image among consumers. Their expansion is almost certain to hinder the development of domestic brands. Chinese consumers tend to trade up to foreign brands as their disposable income increases. As multinational players accelerate their penetration into lower tier areas and launch lower priced products and sub-brands tailored for consumers in lower tier cities, domestic brands are likely to face a tremendous challenge.
All Rights Reserved, 2013.
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