Discussions among people in the fashion business reveal that change is in the wind as consumer tastes shift. Analysts who insisted on separating sportswear from fashion may find themselves in trouble as China’s shoppers refuse to make the same distinction. Sportswear has always been fashion in China and now we are starting to see more sophisticated consumers in first-tier cities migrating from sportswear to smart-casual wear. This will be to the benefit of the smart-casual brands – from Zara to Nautica and everything in between – while the sports brands will start to lose ground at the top and increasingly rely on sales in second- and third-tier cities. However, fashion trends move fast in China so the period of sportswear growth in the hinterlands may prove to be less long-lived than many expect.
Many in the industry also believe a similar delineation is taking place in the much-hyped luxury sector. With the likes of Louis Vuitton rolling out in ever more remote locations and their bags becoming ever more common, discerning Chinese consumers are moving upward. There is now differentiation between the more run-of-the-mill luxury brands like LV, Chanel and Gucci and those brands where craftsmanship and individuality (both in style and corporate terms) are more apparent, such as Hermès. We are about to see the emergence of two luxury markets as China’s retail sector develops – mass market and a more discreet and knowing luxury market.
One sector benefiting from these two shifts interests me a lot – women’s footwear. Why so interesting? Well, it’s one sector where the few chain operations have the potential to dominate. Upmarket women shoe store chains are few and far between in most markets. Even in the US and Europe it is largely an independent store business. Not so in China – just consider Belle International, which has expanded to nearly 6,500 outlets. As women increasingly step out of their sneakers and into their high heels, this is going to be a fascinating slice of the Chinese fashion market.
It’s a very different story over at the appliance retailers, whose glory days appear to be behind them. Many analysts appear perplexed at the downturn seen by the likes of Gome, Suning and Yongle. One factor is simply choice. A few years ago these big boys were pretty much all there was, but if you went out to buy an Apple product in Shanghai tomorrow you would find it in Best Buy, in Apple’s own outlets or in many electronics plazas. Eventually there will be consolidation – but not as long as funds are still willing to invest in the large players and these players are still not quite truly nationwide. So for now the dogfight will continue.
I note that it’s taking a lot longer to open new stores in second- and third-tier cities than it used to. Looking at my stats on several recent openings outside Shanghai and Beijing, each store needed to deal with an average of six district, city and provincial administrative departments for approvals. This involved eight different forms of approval procedures taking on average 80-120 days. This slower process is annoying for retailers as they must secure the property prior to application, meaning they’re paying rent with no commercial return. The location is effectively dead for two to three months, which hits the bottom line.
After two decades of domination, it seems the days of celebrity endorsements in advertising are finally (and thankfully) drawing to an end. One senior Beijing ad executive told me it was the tainted dairy product scandal that changed things after well-known and respected stars endorsed various brands implicated in this crisis. Her agency has concluded that today Chinese consumers are almost universally rejecting celebrity endorsements. Hooray!