A lot has been written about the stunning performance of luxury brands in China. But what about all those other stores in the local Chinese shopping center – the ones where most people shop?
Just as there’s a huge emerging middle class in China, there’s also a huge emerging class of brands that cater to them. And it is this class that is largely responsible for China’s roaring retail growth. Retail apparel sales grew 24.8% year-on-year to reach US$89 billion in 2010, making China the world’s third-largest market behind the US and Japan.
Look out for the little guy
When people discuss China’s larger domestic apparel brands, they often mention brand names like Metersbonwe, Semir, and Bosideng. All three Chinese companies have enormous sales networks and have recently launched IPOs in Hong Kong or the mainland.
Metersbonwe has over 3,600 stores, while Semir and Bosideng each claim more than 7,000. In contrast, Gap Inc had more than 3,200 outlets worldwide in 2011; rising heavyweight H&M had fewer still, with around 2,300.
With networks like these, you would imagine that Metersbonwe, Semir and Bosideng control the Chinese market, but that is not the case. It turns out that no one apparel brand has more than a 1% market share in China, leaving the field wide open for enterprising brands.
A walk down any street of a small Chinese town reveals a familiar brand landscape. Modern retail outfits now extend down to towns as small as 40,000 people – villages really, with a few traffic lights, a handful of dealerships for three-wheeled automobiles and a hundred meters of commercial stores along the main street. Shops from Chinese apparel chains like Anta, 361 Degrees, Jordan, QQ and Yishion often line the newly developed sections of town.
Larger domestic brands typically start appearing when a town is big enough to support a department store. These towns are often around 100,000 people, which ranks them below the fifth-tier city level on the Chinese scale.
Are Chinese really buying enough clothes to merit this expansion? The numbers speak for themselves. In 2010, urban households spent on average 10.7% of their annual expenditure on clothing, while rural households spent an average 6.8%. By comparison, those numbers were just 4.2% overall in the US and 3.8% in Japan.
This growth is providing big opportunities for brands that most foreigners have never heard of. “Our sales in smaller towns are actually higher than the larger cities,” said Ma Yin, sales director for Qianqiu, a female woolen brand. “Spending has completely turned around. Waidiren [people who are not from the city they work in] make their money in the cities now, but spend it at home.”
Qianqiu is a small brand with big aspirations. Established in 1998, it now has 380 stores, with another 100 planned for 2012. At an average price of RMB480-580, a Qianqiu sweater is not cheap.
This doesn’t discourage Ma. “We’ll soon be selling products at RMB680, and we have plans to grow to 3,000 stores over the next five years,” he added.
Another emerging middle class brand is BBLLUUEE, which was started by former Changsha-area VJ and piano teacher, Lee Fei Yue. Lee knew early in his career that he wanted to be involved in fashion. At 35, with just four years of apparel experience, he launched BBLLUUEE, a brand that targets urban women between the ages of 25-35. Since 2005, BBLLUUEE has grown to 560 employees with over 300 stores across 20 provinces.
The foreign contingent
Chinese brands abound, but beyond the standard complement of anchors such as Zara, Adidas and H&M, there are not yet many small foreign brands that are taking advantage of the growth in China’s lower-tier cities. A recent survey of lower-tier cities tallied more than 4,000 different apparel brands, of which only 296 were international.
There are some exceptions. Some small foreign players, like French brand Cache-cache, have gone into lower-tier markets after deciding to ignore saturated upper-tier cities altogether. “We’re going deep inside China to the third- and fourth-tier cities now,” says Stephane Torck, the brand’s general manager. Cache-cache came to China in 2005; it now has over 500 stores and is expanding at 50% a year.
For foreign brands, the challenge is understanding how to compete with the literally thousands of the homegrown brands that are catering to Chinese consumers. But with more than 150 cities in China with a population over 1 million, there is ample room for experimentation.
Corbett Wall is managing director of +CW Associates, a consultancy focusing on retail expansion in China