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China’s apparel market, 2011           November 2011     Li & Fung Research Centre
In this issue:      I.    Market overview                     p. 3      II.   Competitive landscape               p.10    ...
I. Market overview                     3
Apparel sales grew by 24.8% yoy in 2010, reaching 587.4billion yuan • According to the National Bureau of Statistics of Ch...
Urban and rural households on average spent 10.7% and6.8% of their annual expenditure on clothing respectively • The annua...
Chinese consumers aged 26-35 spend the most on clothing;women spend more than men on clothing in general • Consumers aged ...
Department stores and specialty stores are the majordistribution channels for branded apparel • Department stores and spec...
High-end department stores posted the fastest growth of31.2% yoy in 2010• Chinese consumes are generally trading up. Accor...
Climbing costs pose challenges to apparel enterprises• Rising costs of raw materials, labor and rental are posing an incre...
II. Competitive landscape                            10
Domestic apparel enterprises dominate in the mass market• In China, domestic brands dominate in the mass market, especiall...
Established domestic players spend more resources onbrand-buildingExhibit 9: Most Valuable Apparel Brands in China, 2011Ra...
Some well-established foreign players accelerate expansionplans in China’s apparel market• In recent years, many foreign a...
Foreign brands still dominate luxury apparel market in China•   Foreign players still dominate China’s luxury apparel mark...
Some domestic players embark on overseas expansion•   Recently, more and more domestic apparel enterprises are eager to   ...
III. Latest developments                           16
(1) Integration of distribution channels is commonly      adopted to enhance operation efficiency• After years of rapid ex...
(2) More brands are looking for direct ownership of their    brands• Some enterprises, especially luxury companies, prefer...
(3) Online apparel retailing becomes an important sales        channel of apparel    • Online retailing* is an increasingl...
(3) Online apparel retailing becomes an important sales     channel of apparel (cont’d)• Developing online retail channels...
(4) Department store operators launch their own private     apparel labels or proprietary brands• To improve differentiati...
(5) Apparel enterprises seek to diversify their portfolio; category    expansion and adoption of multi-brand strategy are ...
(6) Lower-tier cities are the major battlefields for apparel    enterprises   • Competition in the first-tier cities has b...
(7) Apparel enterprises were active in IPO activities • Riding the wave of growing investors’ interests in China’s consump...
(8) Enhancing competitiveness – strategies to cope with    climbing costs • As mentioned before, cost pressure for apparel...
(9) Enhancing competitiveness – investing in R&D and    focusing on product excellence  • In order to win consumers and st...
(10) Enhancing competitiveness – offering personal   tailoring services • Personal tailoring service is getting more popul...
(11) Enhancing competitiveness – spending resources on     marketing and branding • To enhance competitiveness and to win ...
(11) Enhancing competitiveness – spending resources on     marketing and branding (cont’d) • Organizing social events to c...
(12) Product safely is still a major concern• Product safety is still a major issue in China. In August 2011, Guangzhou In...
(13) Going green is also gaining more attention• As consumers’ awareness on environment protection climbs, “going green” i...
IV. Snapshots of sub-sectorperformance                              32
Background•   The China National Commercial Information Centre (CNCIC)    conducts monthly survey to around 200 major depa...
Growth in apparel sales volume in major department storesin 2010 outpaced 2009 •     As shown in Exhibit 11, growth in app...
Ladies’ wear was the major contributor to total apparel sales • Ladies’ wear was the major contributor to total apparel sa...
Market concentration of most sub-sectors is generally low • Most of the sub-sectors are highly fragmented, the top 10 play...
Performance of selective product sectors• Exhibits 14-15 show the performance of the top 5 players in selected sub-sectors...
Performance of selective product sectors (cont’d)Exhibit 16: Ladies’ wear - share of total sales                         E...
Performance of selective product sectors (cont’d)  Exhibit 18: T-shirt - share of total sales value, 2009              Exh...
Performance of selective product sectors (cont’d) Exhibit 20: Jackets - share of total sales value,                       ...
Performance of selective product sectors (cont’d) Exhibit 22: Ladies’ underwear - share of total sales                    ...
For more informationLi & Fung Research Centre10/F, LiFung Tower,888 Cheung Sha Wan Road,Kowloon, Hong KongTel: 2300 2470  ...
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  1. 1. China’s apparel market, 2011 November 2011 Li & Fung Research Centre
  2. 2. In this issue: I. Market overview p. 3 II. Competitive landscape p.10 III. Latest developments p.16 IV. Snapshots of sub-sector performance p.32 2
  3. 3. I. Market overview 3
  4. 4. Apparel sales grew by 24.8% yoy in 2010, reaching 587.4billion yuan • According to the National Bureau of Statistics of China (NBS), the total retail sales of clothing, shoes, hats and textiles* by enterprises above designated size** in 2010 rose nominally by 24.8% year-on-year (yoy) to reach 587.4 billion yuan (Exhibit 1). • The growth in 1-3Q11 was 24.8% yoy, reaching 545.0 billion yuan. Exhibit 1: Growth in total retail sales of clothing, shoes, hats and textiles by enterprises above designated size*, 2006 – 1-3Q 2011 Year 2006 2007 2008 2009 2010 1-3Q 2011 yoy % change 19.2 28.7 25.9 18.8 24.8 24.8 Source: National Bureau of Statistics of China (NBS) *“Clothing, shoes, hats and textiles” replaced the previous “clothing” category in the NBS announcement in 1-3Q09 Source: National Bureau of Statistics of China (NBS) ** Enterprises above designated size refer to enterprises with annual sales of 5 million yuan or above and with an employment of or over 60. 4
  5. 5. Urban and rural households on average spent 10.7% and6.8% of their annual expenditure on clothing respectively • The annual per capita disposable income of urban households grew by 7.8% yoy to 19,109 yuan in real terms in 2010. The annual net income per capita of rural residents reached 5,919 yuan in 2010, posting double digit yoy growth of 10.9% (Exhibit 2). • Urban households on average spent 1,444.3 yuan on clothing, accounting for 10.7% of their total annual expenditure in 2010; while rural households spent 263.4 yuan, which was 6.8% of the total annual expenditure on clothing in the same year. Exhibit 2: Per capita annual expenditure on clothing* of urban and rural households, 2006-2010 1600 12.0 1400 10.7 10.4 10.4 10.4 10.5 10.0 1200 1000 8.0 6.6 6.8 Yuan 800 5.9 6.0 % 6.0 6.7 600 4.0 400 200 2.0 0 0.0 2006 2007 2008 2009 2010 *“Clothing” here includes garments, clothing materials, Per capita urban annual expenditure on clothing Per capita rural annual expenditure on clothing footwear, hats, and other clothing, tailoring and Share of clothing in per capita urban annual expenditure laundering service fees. Source: National Bureau of Statistics of China (NBS) 5 Share of clothing in per capita rural annual expenditure
  6. 6. Chinese consumers aged 26-35 spend the most on clothing;women spend more than men on clothing in general • Consumers aged 26-35 spend more on clothing compared with other age groups. Boston Consulting Group’s survey results show that urban residents aged 31-35 spent the most on clothing, followed by consumers aged 26-30. • The survey also indicates that urban women consumers aged 14-45 accounted for 54% of the total consumption on clothing in China. Exhibit 3: Annual spending on clothing by age and gender, 2010 yuan 4,500 4,000 3,500 3,000 2,500 46% Female 2,000 54% Male 1,500 1,000 500 - <20 21-25 26-30 31-35 36-40 >40 Age Note: The data comes from the Boston Consulting Group China Fashion Research Survey 2010; the respondents are urban consumers aged 14-45. The analysis does not include sleepwear, hosiery, accessories, and children’s wear. 6 Source: Boston Consulting Group
  7. 7. Department stores and specialty stores are the majordistribution channels for branded apparel • Department stores and specialty stores are major distribution channels for branded apparel in China. Meanwhile, wholesale markets and hypermarkets are popular retailing channels for lower-priced apparel; many of which are with poor brand recognition or unbranded. • Around 37% of the total apparel sales were realized in the department stores; while clothing & footwear and leisure & personal goods specialist retailers accounted for 38% of the total in 2010 (Exhibit 4). Exhibit 4: Sales of Apparel by Distribution Format: %, 2006-2010 % retail value rsp 2005 2006 2007 2008 2009 2010 Grocery retailers 13.7 14.8 15.9 17 17 17.2 Department stores 32.5 33 34 36 36.2 36.9 Clothing & footwear specialist retailers 23.8 22.9 23.4 25.1 25.7 26.3 Leisure & personal goods specialist retailers 11.3 11.4 11.5 11.6 11.7 11.7 Other non-grocery retailers 18.5 17.9 15.1 10.1 9.2 7.3 Non-store retailing 0.1 0.1 0.2 0.2 0.2 0.6 Total 100 100 100 100 100 100 7 Source: Euromonitor
  8. 8. High-end department stores posted the fastest growth of31.2% yoy in 2010• Chinese consumes are generally trading up. According to the China National Commercial Information Centre (CNCIC), growth of sales of apparel category in high-end retailing locations such as department stores and shopping malls was 31.2% yoy, higher than the national average of 21.2% yoy (Exhibit 5). Exhibit 5: Growth of sales of apparel category in department stores of different levels, 2010 35 31.2 30 yoy growth (%) 25 18.4 19.2 20 15 10 5 0 Low-end Middle High-end Source: China National Commercial Information Centre (CNCIC) 8
  9. 9. Climbing costs pose challenges to apparel enterprises• Rising costs of raw materials, labor and rental are posing an increasing challenge to apparel enterprises. − China’s cotton price indices were in a downward trend during mid-March to mid-May of 2011, yet the indices rebounded in mid-August of 2011 and has kept a rising trend since then. − According to China National Garment Association, labour cost increased for over 20% yoy in 2010. − Local governments in 18 provinces/municipalities such as Beijing, Shanghai, Guangdong, Zhejiang, etc. and one special economic zone (i.e. Shenzhen) raised minimum wage levels in their jurisdictions in 1-3Q11.• According to the NBS, the clothing price index has been declined for five consecutive years since 2006. Yet it increased by 1.6% in 1-3Q11 (Exhibit 6). While some branded apparel companies are able to raise their price tags, many smaller companies continue to face squeezing margins. Exhibit 6: Clothing price index, 2006 – 1-3Q 2011 (Same month of preceding year=100) 2006 2007 2008 2009 2010 1-3Q 2011 yoy % change of clothing prices -0.6 -0.6 -1.5 -2.0 -1.0 1.6 Source: National Bureau of Statistics of China (NBS) 9
  10. 10. II. Competitive landscape 10
  11. 11. Domestic apparel enterprises dominate in the mass market• In China, domestic brands dominate in the mass market, especially in the lower-tier cities and rural market. They generally have more extensive sales channels than their foreign counterparts.• Exhibits 7 and 8 show the top 10 domestic apparel enterprises by sales revenue and profits in 2010. Most of these enterprises are from Zhejiang, Jiangsu, Shandong and Shanghai.Exhibit 7: Top 10 domestic apparel enterprises by sales Exhibit 8: Top 10 domestic apparel enterprises by profits,revenue, 2010 2010 Ranking Company Headquarter/ Ranking Company Headquarter/ Base Base 1 Youngor Group Co., Ltd 雅戈爾集團股份有 Ningbo 1 Youngor Group Co., Ltd 雅戈爾集團股份 Ningbo 限公司 (Zhejiang) 有限公司 (Zhejiang) 2 Hongdou Group Co., Ltd 紅豆集團有限公 Wuxi 2 Bosideng Co., Ltd 波司登股份有限公司 Suzhou 司 (Jiangsu) (Jiangsu) 3 Heilan Group 海瀾集團有限公司 Wuxi 3 Heilan Group 海瀾集團有限公司 Wuxi (Jiangsu) (Jiangsu) 4 Bosideng Co., Ltd 波司登股份有限公司 Suzhou 4 Semir Group Co., Ltd. 浙江森馬集團有限 Shanghai (Jiangsu) 公司 5 ShanShan Enterprise 杉杉投資控股有限公 Shanghai 5 Hongdou Industrial Co., Ltd. 紅豆集團有 Wuxi (Jiangsu) 司 限公司 6 Metersbonwe Group 上海美斯特邦威服飾 Shanghai 6 Metersbonwe Group 上海美斯特邦威服 Shanghai 股份有限公司 飾股份有限公司 7 Qingdao Jifa Group 青島即發集團 Qingdao 7 Luthai Textile Co., Ltd. 魯泰紡織股份有限 Zibo (Shandong) 公司 (Shandong) 8 Shandong Sinoer Group Co., Ltd. 新郎希 Weifang 8 ShanShan Enterprise 杉杉投資控股有限 Shanghai 努爾集團股份有限公司 (Shandong) 公司 9 Shandong Ruyi Science & Technology Jining 9 Shandong Sinoer Group Co., Ltd. 新郎希 Weifang Group 山東如意科技集團有限公司 (Shandong) 努爾集團股份有限公司 (Shandong) 10 Semir Group Co., Ltd. 浙江森馬集團有限 Shanghai 10 Shandong Nanshan Textile Garment Co., Longkou 公司 Ltd.山東南山紡織服飾有限公司 (Shandong)Source: China National Garment Association (CNGA), Li & Fung Research Centre 11
  12. 12. Established domestic players spend more resources onbrand-buildingExhibit 9: Most Valuable Apparel Brands in China, 2011Rank Rank Brand Brand Value % of Product catogory Headquarter in (billion yuan) Market • Nowadays, more and more domestic 2010 Value players are eager to build brand equity; 1 3 Metersbonwe 11.5 36% Casual wear Shanghai 美特斯邦威 they are willing to put more resources on 2 7 Semir 森馬 11.0 28% Casual Shanghai brand-building. wear/Children wear • Metersbonwe (美特斯邦威) became the 3 2 Anta 安踏 8.8 35% Sportswear Xiamen most valuable Chinese apparel brand in (Fujian) 4 1 Lining 李寧 4.2 37% Sportswear Beijing 2011; its brand value amounted to 11.5 5 5 Bosideng 波司登 3.7 25% Down wear Suzhou billion yuan in 2011. (Jiangsu) 6 4 Heilan 海瀾之家 3.4 25% Menswear Wuxi • Youngor, Rcollar, Shanshan, etc. are new (Jiangsu) entrants in the 2011 ranking. 7 8 Xtep 特步 2.7 28% Sportswear Quanzhou • Most of the brands in the list are (Fujian) 7 10 Septwolves 2.7 30% Menswear Xiamen specialized in the sportswear and 七匹狼 (Fujian) menswear sector. 9 N/A Youngor 雅戈爾 2.2 30% Menswear Ningbo (Zhejiang) • Apparel companies in Fujian and Zhejiang 10 9 Peak 匹克 2.1 22% Sportswear Quanzhou are very strong in branding; 6 out of top (Fujian) 11 N/A Rcollar 红领 1.9 15% Sportswear Qingdao 18 most valuable apparel brands are (Shandong) based in Fujian while 4 are from Zhejiang. 12 6 361degrees 1.8 22% Sportswear Xiamen 361度 (Fujian) • Exhibit 9 shows China’s most valuable 12 11 Lilang 利郎 1.8 17% Menswear Quanzhou apparel brands in the Hurun Most (Fujian) Valuable Chinese Brands 2011 list. The 12 N/A Shanshan 杉杉 1.8 20% Menswear Shanghai 15 N/A Red Dragonfly 1.4 28% Shoes Wenzhou number of apparel brands increased from 红蜻蜓 (Zhejiang) 10 in 2010 to 18 in 2011. 16 N/A Baoxiniao 报喜鸟 1.2 16% Menswear Wenzhou (Zhejiang) 16 N/A Erdos 鄂尔多斯 1.2 26% Cashmere Inner Mongolia 16 N/A Aokang 奧康 1.2 18% Leather shoes Wenzhou Source: Hurun Research Institute, 12 (Zhejiang) Li & Fung Research Centre
  13. 13. Some well-established foreign players accelerate expansionplans in China’s apparel market• In recent years, many foreign apparel brands are keen to have a stronger presence in China. While some well-established players are seeking to expand in the lower-tier cities, those which are not yet present in China are working hard to enter the lucrative China market. • Established players accelerate their expansion in China − Zara planned to expand to 42 cities in China in 2011. − Uniqlo targets to open 100 stores in China each year starting from 2011. − H&M added 12 new stores in China during 1 December 2010 and 31 May 2011, with a total of 59 stores in the country. It expects China to be one of largest expansion markets in 2011. − In August 2011, International fast fashion brand C&A entered Wuhan of Central China. • New entrants in China − Cross Company (可洛絲) from Japan has signed a deal with leading Hong Kong-based fashion distributor, I.T. Limited to enter the Chinese market. The first store has opened in Shanghai in September 2011 and the company planned to open 120 stores with sales of 10 billion yuan within three years. The joint venture will operate the business via franchises, wholesaling as well as direct stores. − In 2011, WE from Holland had opened stores in Shanghai, Chongqing, Ningbo, Shenyang. It also planned to open a flagship store in Shanghai Longemont (上海龍之夢) in 2011. • Some apparel enterprises see Hong Kong as the springboard for China’s entry − FOREVER 21 planned to open flagship stores in the prime locations of Hong Kong in 2011; Abercrombie & Fitch’s sub-brand “Hollister” opened its first Asian flagship store in Hong Kong in August 2011. 13
  14. 14. Foreign brands still dominate luxury apparel market in China• Foreign players still dominate China’s luxury apparel market. Luxury brands such as Giorgio Armani, Burberry, Cerruiti 1881 have a stronghold.• Meanwhile, domestic brands are virtually absent in China’s luxury apparel scene. However, some domestic players have strived to move up the value ladder and hope to get a place in the premium market. − NE·TIGER (東北虎), which claimed itself to be China’s first luxury apparel brand, has set up studios in the U.S., France, Italy and Russia in the past few years. − Trands (創世) is another domestic brand that has gained recognition overseas.• Though, we should admit that these domestic brands have only minimal presence in the luxury segment. There is still a long way to go for domestic players to rival their foreign counterparts.• Pseudo brands is another issue in the luxury apparel sector in China. Some domestic players have presented themselves as foreign luxury brands, e.g. having brand names in foreign languages and using foreign models, in order to lure the unsophisticated Chinese consumers.• For more information on Luxury apparel market in China, please see our China Distribution and Trading Newsletter Issue 81 Luxury market in China, 2010: http://www.lifunggroup.com/eng/knowledge/research/china_dis_issue81.pdf 14
  15. 15. Some domestic players embark on overseas expansion• Recently, more and more domestic apparel enterprises are eager to expand overseas.• Some apparel retailers have been making use of the online retailing channel to enter the overseas markets. − Metersbonwe launched online stores on eBay US, UK, Germany and Australia in October 2010. − In January 2011, some apparel brands such as Moonbasa (夢芭莎), Bossini, Giordano, etc. cooperated with eBay to explore the overseas online market.• Besides online channels, some apparel retailers have opened offline stores in overseas markets. − JNBY (江南布衣) has expanded overseas since 2005 with the opening of 10 shops in various overseas markets such as Moscow, Tokyo, Singapore, etc. It opened a new store in New York in 2010. 15
  16. 16. III. Latest developments 16
  17. 17. (1) Integration of distribution channels is commonly adopted to enhance operation efficiency• After years of rapid expansion, distribution channel rationalization is gaining attention. Retailers begin to focus on boosting store productivity and enhancing distribution efficiency. − Li Ning ( 李 寧 ) implemented distribution channel reforms to enhance overall efficiency. It consolidated a large number of low efficient sub-distributors and lessen the proportion of sub-distributors operating single stores. A total of 400 low-efficient sub-distributors are expected to be consolidated by the end of 2011. − Moreover, Li Ning has opened more factory outlets to clear its excessive inventories. 17
  18. 18. (2) More brands are looking for direct ownership of their brands• Some enterprises, especially luxury companies, prefer to retain full control over the ownership of Chinese operations from franchisors or distributors. − Bestseller, which owns ONLY, VERO MODA, Jack & Jones, etc., retained control of shops in Xi’an and Jinan; it also opened more direct-owned stores. − Burberry bought 50 of its Chinese franchised stores in a deal worth 70 million pounds in 2010. − Coach acquired the retail business in Greater China from a Hong Kong-based distributor ImagineX Group in 2009.• More brands seek to obtain direct control over the stores in the first-tier cities while keeping the franchising and distribution models in the lower-tier cities. This is mainly due to unfamiliarity with the markets of lower-tier cities, where their local partners may have more expertise to help distribute efficiently. 18
  19. 19. (3) Online apparel retailing becomes an important sales channel of apparel • Online retailing* is an increasingly important sales channel in China, especially among young consumers. According to iResearch estimates, the number of online shoppers rose from 108 million in end-2009 to 148 million in end-2010, accounting for 32.4% of China’s Internet population. The transaction value of China’s online retailing market was up by 75.3% year-on-year (yoy) to reach 461.0 billion yuan in 2010, accounting for 2.98% of the country’s total retail sales. • According to the iResearch as shown in Exhibit 10, apparel was the most popular categories sold online in 2010. Exhibit 10: Most popular categories sold online, 2009-2010 Apparel, footwear and bags Books/music/movies and videos Prepaid cards (e.g., top-up cards, etc) Cosmetics and personal care IT/digital/communication Home products Healthcare food Maternity and baby care products 2009 Electronic appliances 2010 Toys and gifts Jewellery Others Source: iResearch 0 5 10 15 20 25 30 35 40 45 50 %* According to iResearch, scale of online retailing market refers to the total transaction value of consumer-to-consumer (C2C) andbusiness-to-consumer (B2C) online businesses. Scale of C2C online retailing market is calculated by the total value of purchases,excluding that on the B2C arm of C2C platforms. Scale of B2C online retailing market has excluded payments of travel expense, airtickets and online bill payment services. 19
  20. 20. (3) Online apparel retailing becomes an important sales channel of apparel (cont’d)• Developing online retail channels is becoming popular among traditional apparel retailers; B2C online platforms can be categorized into three major types: − Pure-clicks apparel retailers (e.g. Vancl 凡客誠品, Mecox Lane 麥考林) − Multi-channel B2C apparel retailers (e.g. Li Ning, Uniqlo) − Apparel retailers selling on B2C platforms (e.g. Taobao Mall 淘寶商城, Paipai 拍拍網)• On the other hand, many C2C individual sellers are expanding fast on Taobao Marketplace, the largest player in the C2C market. Some of them developed their own brands and later shifted to sell in B2C Taobao Mall as “Tao-brands” (淘品牌). − Examples of “Tao-brands” include Ringnor (言若), Milachic (樂米拉), Qiustyle (斯黛歐), etc.• Venture capital firms are keen to invest in the “Tao-brands”. With sufficient financial support, the Tao-brands are able to launch shopping websites in other B2C platforms such as 360 Buy, V+ etc, or build offline storefronts. − Selected Tao-brands that attracted investments from venture capital firms in 2010 and 2011 include mbaobao (麦包包), Green Box (绿盒子), 7GeGe (七格格), Justyle, Sportica (斯波帝卡).• That said, many traditional retailers are not very familiar with selling online, posing extra challenges for them to reach breakeven for their online businesses − Metersbonwe announced in October 2011 that it will stop operating its own e-commerce platform. Instead, it will entrust Shanghai Banggo Information Technology (Banggo) to sell its products online under the domain name Banggo.com. 20
  21. 21. (4) Department store operators launch their own private apparel labels or proprietary brands• To improve differentiation, some department store operators in China has begun to develop their own private apparel labels and proprietary brands, etc.• Private labels or proprietary brands may also increase profit margins and strengthen customers’ loyalty.• Examples of private labels or proprietary brands launched by selected department store operators include: − Wangfujing Department Store (王府井百貨) unveiled a new store brand Fashion Headquarters, or HQ, in Beijing in September 2010 positioned to attract fashion consumers aged 18-35. − Guangzhou Grandbuy (廣百) launched a new store brand Grandbuy Fashion (GBF) in G.T. Land Plaza in Guangzhou in December 2010. − New World Department Store (新世界百貨) launched its menswear private label of XII in December 2010. It also launched the brand “N Only” in 2010. − Intime Department Store(銀泰) launched its brand “Justin Intime” in 2009. 21
  22. 22. (5) Apparel enterprises seek to diversify their portfolio; category expansion and adoption of multi-brand strategy are common • Some brands seek to diversify their portfolio by category expansion: − Bosideng, China’s biggest manufacturer of down wear, announced that it has acquired a 70% stake in a mid-to-high end women’s apparel brand “Jessie” to diversify and reduce its dependence on winter clothes. − JNBY, ME&CITY, Yishion (以純), Fairy fair (淑女屋), Xtep (特步), etc expanded their product category by launching children’s wear. − Baoxiniao Group, one of the leading menswear companies in China, has engaged also in the causal and sports businesses. In 2010 and 2011, it invested in three domestic casual and sports menswear companies, namely Franistion (名歐服飾), Bilute (比路特) and Yale (雅樂時裝). • Multi-brands strategy is also commonly adopted by many players to further expand their product category. − SWJEANS by Septwolves, FUN by JOE/ONE ( 九 牧 王 ), Five Plus by Ochirly, Lilanz by Lilang (利郎) etc. 22 Source: ME & CITY, JNBY, Yishion, Fairy Fair Company websites
  23. 23. (6) Lower-tier cities are the major battlefields for apparel enterprises • Competition in the first-tier cities has become more fierce; to avoid toe-to-toe competition in big cities, many domestic and foreign enterprises are now targeting the lower-tier cities. Moreover, nowadays, people in the lower-tier cities are getting wealthier and having stronger buyer power. • Hence, for many apparel players, the lower-tier cities are their major battlefields. − For example, XTEP sees Hunan, Sichuan, Shandong and Anhui provinces as its main growth engine. − Adidas plans to expand sales channel coverage to 1,400 cities by opening 2,500 retail shops in middle and small cities in the next few years. 23
  24. 24. (7) Apparel enterprises were active in IPO activities • Riding the wave of growing investors’ interests in China’s consumption- related themes, many apparel enterprises in China have sought public listings in recent years. • Examples of domestic apparel enterprises sought public listings include: − ZuoAn (左岸服飾) was listed on New York Stock Exchange in February 2011. − Semir (森馬服飾) was listed on the SME board of Shenzhen Stock Exchange in March 2011. − Lancy (朗姿股份) was listed on Shenzhen Stock Exchange in August 2011. 24
  25. 25. (8) Enhancing competitiveness – strategies to cope with climbing costs • As mentioned before, cost pressure for apparel enterprises is high and many enterprises are adopting various measures to control their costs. For example: • Source from various bases outside of China − Due to the surging production costs in China, more companies tend to adopt the “China-plus-one” strategy and adjust the proportion of sourcing among different sourcing bases. Metersbonwe, for instance, stated that around 10% of its products in Spring/Summer 2012 collection would be sourced outside of China. • Pass escalating costs to consumers by raising product price − Li Ning would raise price tags of apparel and footwear by 17.9% and 7.8% respectively in 4Q 2011. − Anta, Xtep, Peak and 361 Degrees intend to increase product prices in order to retain profit margins. 25
  26. 26. (9) Enhancing competitiveness – investing in R&D and focusing on product excellence • In order to win consumers and stand out in the competitive apparel industry in China, companies are investing more in product development. • For example: • Bosideng introduced the new “Autumn Down Apparel” series in September 2011 to satisfy market demands towards light- weighted and slim down apparel products. 26
  27. 27. (10) Enhancing competitiveness – offering personal tailoring services • Personal tailoring service is getting more popular in high-end menswear sector. Foreign brands which have a long history providing tailoring service in the overseas market such as Zegna, Gieves & Hawkes and Hugo Boss, are also providing tailoring service in the China market. • In recent years, domestic apparel companies has gradually tapped into the tailoring market. For example, Baoxiniao Group launched its high-end brand “CARL BONO” with tailoring service; the price range of the products is between 6,800 to 180,000 yuan. • Recently, personal tailoring service is extended to areas such as ladies’ wear and inner wear. For example, Lancy (朗姿) and Aimer (愛慕) have also introduced made- to-measure tailoring series for their customers. 27 Source: Gieves & Hawkes
  28. 28. (11) Enhancing competitiveness – spending resources on marketing and branding • To enhance competitiveness and to win consumers, apparel companies are now spending more resources on marketing and branding. • Event sponsorship is a popular marketing strategy adopted by apparel companies to extend media coverage − 361 Degrees became the global partner of the 26th Summer Universiade 2011 held in Shenzhen. − Li Ning has become the sponsor for the Singapore Open in June 2011 Source:361 Degrees Source: Singapore Open 2011 website • Digital marketing is also widely used by marketers to promote/market their products. Nowadays, it is common for enterprises to make use of SNS websites and microblogs to spread their promotion message. − Metersbonwe used its microblog (Sina’s weibo, http://weibo.com/mtsbw) to launch its marketing campaigns and communicate with consumers. 28
  29. 29. (11) Enhancing competitiveness – spending resources on marketing and branding (cont’d) • Organizing social events to celebrate special occasions is another way to enhance the communication of brand image with consumers. − In April 2011, JNBY (江南布衣) held a special event - “Naturally Creating The Future”- to celebrate its first anniversary of JNBY shop in Hangzhou MIXC. Consumers can participate in the event and get souvenirs. • Companies build flagship stores to enhance brand image − ME&CITY, part of Metersbonwe Group, opened a flagship store in Wuhan of Central China in January 2011. − Fast fashion retailers, including ZARA, H&M, UR, C&A and Uniqlo build up brand image by establishing flagship stores in China’s fashion hub, Shanghai. Source: The Fashion Shop 29 Source: The Fashion Shop
  30. 30. (12) Product safely is still a major concern• Product safety is still a major issue in China. In August 2011, Guangzhou Industrial and Commercial Bureau conducted random sample checks of casual wear and found that 32% of the samples failed the checks.• As Chinese consumers become more discerning, product safety is expected to gain more attention in the near future. Source: China Quality News, www.cqn.com.cn 30
  31. 31. (13) Going green is also gaining more attention• As consumers’ awareness on environment protection climbs, “going green” is grasping the attention of apparel companies. − ZuoAn has put a great deal of effort in carrying out R&D for environmental- friendly fabrics; it has also been very proactive in launching green initiatives. For example, the company has launched a number of energy-efficient stores which save around 65% of its energy consumption; it has also participated in many events to promote the message of “protecting the environment”. Source: Apparel brands, www.fzpp.com 31
  32. 32. IV. Snapshots of sub-sectorperformance 32
  33. 33. Background• The China National Commercial Information Centre (CNCIC) conducts monthly survey to around 200 major department stores* in China to study the performance of different cosmetics sub-sectors.• In this newsletter, performance of the following product sectors is examined: • Menswear (men’s suits and men’s shirts), • Ladies’ wear • Children’s wear • Casual wear (jackets, T-shirts, denim wear) • Sportswear • Ladies’ underwear *Note: It is noteworthy that the CNCIC data covers sales in major department stores only. Retailers of other formats such as specialty stores are growing in popularity. The actual overall market share of apparel brands may deviate from the CNCIC data. 33
  34. 34. Growth in apparel sales volume in major department storesin 2010 outpaced 2009 • As shown in Exhibit 11, growth in apparel sales volume in major department stores in 2010 was 10.2% yoy, increased from 7.4% in 2009. • Market share of ladies wear was still the largest in 2010 and 1H11. • Growth of men’s suit was the fastest in 2010, achieving 13.1% yoy; it was followed by ladies’ wear, which posted a growth rate of 12.1% yoy. Exhibit 11: Retail sales volume of various apparel categories in major department stores, 2009-1H 2010 1H11 2010 2009 Million pieces yoy % growth Million pieces yoy % growth Million pieces yoy % growth Overall 236.5 5.3 455.1 10.2 432.3 7.4 Ladies’ wear 69.2 9.2 131.0 12.1 121.3 8.2 Knitted underwear 29.6 2.6 57.1 6.5 58.8 4.6 Children’s wear 17.4 3.7 32.3 7.3 31.4 9.6 Woolen wear 12.7 -4.6 23.5 -4.1 25.8 5.6 T-shirts 7.1 2.1 14.1 -2.4 14.7 5.4 Thermal clothing 4.7 0.5 9.7 -3.6 10.3 -8.4 Trousers 5.7 -3.0 11.1 1.4 11.1 -2.6 Men’s suit 6.1 9.1 11.8 13.1 10.7 11.4 Men’s shirt 5.5 7.1 9.8 1.5 10.3 1.5 Jackets 3.6 3.6 7.1 8.4 6.5 2.9 Denim wear 2.9 17.0 5.0 4.8 4.8 3.8 Leather wear 0.6 -13.6 1.0 2.1 0.9 6.4 Source: China National Commercial Information Centre (CNCIC) 34
  35. 35. Ladies’ wear was the major contributor to total apparel sales • Ladies’ wear was the major contributor to total apparel sales, accounting for 28.8% of the total sales volume in 2010, following by knitted underwear of 12.5% and children’s wear of 7.1%. In 1H11, volume sales share of ladies’ wear reached 29.3%, followed by knitted underwear of 12.5% and children’s wear of 7.4%. Exhibit 12 demonstrates the share of sales volume of different sub-sectors. Exhibit 12: Share of sales volume of different product sectors, 2003-1H 2011 (%) 1H11 2010 2009 2008 2007 2006 2005 2004 2003 Ladies’ wear 29.3 28.8 28.1 28.5 28.3 28.9 28.6 26.6 25.9 Knitted underwear 12.5 12.5 13.6 15.4 16.8 16.3 16.6 18.6 20.5 Children’s wear 7.4 7.1 7.3 7.5 7.6 7.7 8.0 8.1 8.0 Casual wear 5.7 5.8 6.0 6.5 7.3 7.5 7.4 8.4 7.8 of which: T-shirts 3.0 3.1 3.4 3.6 4.2 4.2 3.7 4.1 3.8 Jackets 1.5 1.6 1.5 1.7 1.9 1.9 2.0 2.2 2.1 Denim wear 1.2 1.1 1.1 1.2 1.2 1.5 1.7 2.1 1.9 Woolen wear 5.4 5.2 6.0 5.8 6.6 7.1 6.9 7.2 7.9 Menswear 4.9 4.8 4.9 5.2 5.6 5.2 5.8 6.6 7.0 of which: Men’s shirt 2.3 2.2 2.4 2.7 3.1 2.9 3.1 3.5 4.0 Men’s suit 2.6 2.6 2.5 2.5 2.6 2.3 2.7 3.1 3.0 Thermal clothing 2.0 2.1 2.4 3.3 3.9 4.2 4.3 3.6 3.8 Trousers 2.4 2.4 2.6 3.0 3.4 3.6 3.5 3.6 4.1 Leather wear 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 Others 30.2 31.1 29.1 24.7 20.2 19.3 18.7 17.1 14.8 Total 100 100 100 100 100 .0 100 100 100 100 Source: China National Commercial Information Centre (CNCIC) 35
  36. 36. Market concentration of most sub-sectors is generally low • Most of the sub-sectors are highly fragmented, the top 10 players in the sub- sectors such as jackets and T-shirts accounted for less than half of the total market share in 2010. Exhibit 13 shows the market share of the top brands of selected sub-sectors. • However, the maternity wear and sportswear market are very concentrated; the top 10 players in the maternity wear sub-sector accounted for more than 95% of the market share in 2010, while the sportswear sub-sector accounted for 85% of the market share. Exhibit 13: Market share of top 10 brands of selected sectors, 2009 & 2010 120.0 100.0 80.0 % 60.0 40.0 20.0 2009 0.0 2010 Source: China National Commercial Information Centre (CNCIC) 36
  37. 37. Performance of selective product sectors• Exhibits 14-15 show the performance of the top 5 players in selected sub-sectors, including menswear (men’s suit, men’s shirt), ladies’ wear, children’s wear, casual wear (jackets, T-shirts, denim wear), sportswear, ladies’ underwear and maternity wear. Exhibit 14: Men’s suits - share of total sales value, Exhibit 15: Men’s shirts - share of total sales 2009 & 2010 value, 2009 & 2010 15.0 14.1 14.0 13.2 12.5 12.0 10.0 8.2 8.0 10.0 7.2 8.0 6.4 % 4.7 5.3 6.0 4.3 4.2 4.0 % 4.0 5.0 3.5 3.1 3.6 3.1 3.1 2.9 2.5 2.6 2.0 0.0 0.0 Youngor 雅 Qinman 琴 Rouse 洛茲 Pierre Goldlion 金 Youngor 雅 Firs 杉杉 Romon 羅 Goldlion 金 Playboy 花 戈爾 曼 Cardin 皮 利來 戈爾 蒙 利來 花公子 爾卡丹 2009 2010 2009 2010 Source: China National Commercial Information Centre (CNCIC) Source: China National Commercial Information Centre (CNCIC) 37
  38. 38. Performance of selective product sectors (cont’d)Exhibit 16: Ladies’ wear - share of total sales Exhibit 17: Children’s wear - share of total salesvalue, 2009 & 2010 value, 2009 & 2010 7.0 6.5 6.110.0 9.1 9.3 8.2 8.2 5.9 5.5 5.5 5.5 8.0 6.0 5.0 5.3 5.1 5.0 4.6 5.5 6.0 4.6 4.0% % 4.0 2.8 2.8 2.6 2.4 3.0 2.0 2.0 0.0 1.0 0.0 ONLY VERO MODA Girdear 哥弟 Ochirly 歐時 Shengyuzhu 力 聲雨竹 adidas 阿迪 Paclantic 派 NIKE 耐克 Dadida 嗒 Yaduo 雅多 達斯 克蘭帝 嘀嗒 2009 2010 2009 2010Source: China National Commercial Information Centre (CNCIC) Source: China National Commercial Information Centre (CNCIC) 38
  39. 39. Performance of selective product sectors (cont’d) Exhibit 18: T-shirt - share of total sales value, 2009 Exhibit 19: Denim wear - Men’s suits: share of total & 2010 sales value, 2009 & 2010 6.0 14.0 4.7 5.0 15.0 11.8 5.0 4.1 3.8 11.4 4.0 9.6 10.1 3.1 2.8 2.9 10.0 7.6 7.5 7.3 % 3.0 2.4 % 5.8 4.9 2.0 1.5 5.0 1.0 N/A 0.0 0.0 Montagut Goldlion 金 LACOSTE 鱷 Jeanswest JOE|ONE 九 Levis LEE Kipone 旗 Boton 波 Braxton 夢特嬌 利來 魚 真維斯 牧王 牌王 頓 霸獅騰 2009 2010 2009 2010Source: China National Commercial Information Centre (CNCIC) Source: China National Commercial Information Centre (CNCIC) 39
  40. 40. Performance of selective product sectors (cont’d) Exhibit 20: Jackets - share of total sales value, Exhibit 21: Sportswear - share of total sales 2009 & 2010 value, 2009 & 2010 3.3 40.0 3.5 3.1 3.0 33.4 2.7 2.8 35.0 30.7 3.0 2.6 2.3 27.2 27.3 2.5 2.3 2.3 2.1 30.0 2.0 25.0 % % 20.0 1.5 1.0 15.0 10.6 8.8 9.1 8.1 0.5 10.0 3.9 0.0 5.0 N/A JOE|ONE Septwolves Jack & "Jin Ba" 勁 Montagut 0.0 九牧王 七匹狼 Jones 傑克 霸 夢特嬌 Nike 耐克 adidas 阿 Li Ning 李 Kappa 背靠 NIKE360 耐 瓊斯 迪達斯 寧 背 克360度 2009 2010 2009 2010Source: China National Commercial Information Centre (CNCIC) Source: China National Commercial Information Centre (CNCIC) 40
  41. 41. Performance of selective product sectors (cont’d) Exhibit 22: Ladies’ underwear - share of total sales Exhibit 23: Maternity wear - share of total sales value, 2009 & 2010 value, 2009 & 2010 35.0 32.7 16.0 15.1 13.7 30.0 27.5 14.0 12.6 12.2 25.3 10.9 10.7 25.0 20.9 12.0 10.3 10.2 9.5 20.0 16.7 10.0 % 15.0 % 8.0 9.0 8.8 9.9 6.0 5.0 10.0 6.2 3.5 4.0 5.0 2.0 0.0 0.0 O.C.T. Hui bao 惠 Tianxiang Sunlight Amery 孕 mami 十 葆 添香 Baby 今生 美 Aimer 愛慕 Gujin 古今 Embryform Triumph 黛 Maniform 月媽咪 寶貝 安莉芳 安芬 曼妮芬 2009 2010 2009 2010 Source: China National Commercial Information Centre (CNCIC) Source: China National Commercial Information Centre (CNCIC) 41
  42. 42. For more informationLi & Fung Research Centre10/F, LiFung Tower,888 Cheung Sha Wan Road,Kowloon, Hong KongTel: 2300 2470 Fax: 2635 1598Email: lfdc@lf1937.comhttp://www.lifunggroup.com/© Copyright 2011 Li & Fung Research Centre. All rights reserved.Though Li & Fung Research Centre endeavours to have information presented in this document as accurate and updated aspossible, it accepts no responsibility for any error, omission or misrepresentation. Li & Fung Research Centre and/or itsassociates accept no responsibility for any direct, indirect or consequential loss that may arise from the use of informationcontained in this document.
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