Private Label Clothing Brands in China | Daxue Consulting

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PRIVATE LABEL CLOTHING BRANDS

IN CHINA

SEPTEMBER, 2015

Daxue香港上海北京

Consulting



TABLE OF CONTENTS1.0 PRIVATE LABEL CLOTHING BRANDS

• KEY HIGHLIGHTS: THE APPAREL MARKET

• WHAT IS A PRIVATE LABEL BRAND?

• PRIVATE LABEL CLOTHING BRANDS IN CHINA

2.0 DISTRIBUTION CHANNELS

• DEPARTMENT STORES & SPECIALTY STORES

• HYPERMARKETS & SUPERMARKETS

• ONLINE RETAILING

• E-COMMERCE, O2O & OTHER OPPORTUNITIES

3.0 WHAT THE MEDIA SAYS

• CHINESE MEDIA

• CHINESE SOCIAL MEDIA



Private-label growth requires strategies

that are tailored to each market.



KEY HIGHLIGHTS: THE APPAREL MARKET

Chinese culture places great emphasis on the

much-discussed concept of “face” – it is a cultural

desire to behave and look appropriate in front

of others. This is why brands are so popular in

China’s fashion industry, allowing consumers to

easily publicly identify themselves. If we have a

closer look at brands in the apparel market, this

market can be subdivided into three segments:

the non-brands, the luxury brands and private

label clothing brands. Non-brands costumers care about practical aspects of clothes: they

are searching for the lowest price and therefore

do not place value on brand identity or quality.

Normally these consumers are low-income

individuals.

On the other hand, luxury brands will continue to play a crucial role in China. These clothes

represent a social status and high living standard.

SOURCE: http://chinaculturecorner.com/2013/10/10/face-in-chinese-business/



The customers of luxury brands in China are

perceived to be stars or come mainly from the

upper class. Only a part of the upper middle class

can afford luxury brands (though middle income

individuals are also known to save up for months

for a handbag). The consumer group for luxury

brands is relatively small compared to the whole

market. Only 1.11 million out of 1.4 billion people are part of the upper class who can afford to regularly purchase luxury brands.

The consumer group

for luxury brands is relatively small compared to

the whole market.

“



The third category of brands on the apparel

market is private label. Its customers are mainly

from the middle class. These individuals care about their image but cannot or are not willing to pay the high prices for luxury brand clothes.

They do care about quality and the price and are

therefore about cost-effectiveness. However,

the clothes also have to be individualized or

personalized in some way to appeal to their

desire to present a unique face to the world. It is

not easy for the manufacturer to find this balance

but the middle-class in China represents a huge potential.

In the year 2000, only 4% of the urban population

was classified as middle-class. In 2012, this ratio

moved to 66% and is expected to rise to a level

of 75% by 2022. As a consequence, there is a

huge demand for private label clothing brands

in China.

SOURCE: http://www.theglobalist.com/6-facts-chinas-growing-middle-class/



WHAT IS A PRIVATE LABEL BRAND?

A private label brand is not

owned by the producer but

by the retailer or supplier.

The retailer or supplier

normally gets its products

by creating a contract with

the manufacturer under its

own label.



PRIVATE LABELCLOTHING BRANDSIN CHINA

A private label brand is not owned by the

producer but by the retailer or supplier. The

retailer or supplier normally gets its products by

creating a contract with the manufacturer under

its own label. The most important advantage

of private label clothing brands in China is the

greater margin. Another positive effect is the

exclusivity of the brand as it is supplied only by

one retailer.

The giant Chinese global supply chain manager

Li & Fung, for example, is forming a joint venture

with two prominent department retailers in China

in order to develop their own private label clothing

brands. In the first three years of new cooperation

they aim to develop three private labels and six

licensed brands in the field of fashion and home

design.

SOURCE: http://www.lifung.com



DEPARTMENT STORES & SPECIALTY STORES

Department stores and specialty stores remain

the main channels for apparel distribution in

China. In 2013, these channels accounted for

36.3% and 29.7% of market share, respectively.

Various types of retail formats like discount stores,

outlets, and multi-brand stores have also attracted

more attention than before. Meanwhile, internet

retailing recorded a high growth.

SOURCE: http://www.funggroup.com/eng/knowledge/research/industry_series25.pdfSOURCE: http://news.fznews.com.cn/fzjj/2014-3-7/201437BviGvkANss2228.shtml

Department stores account for half of the total

revenue coming from apparel sales, remaining

the primary channel for mid-to high-end apparel.

However, some department stores have recently

reorganized their merchandise assortment to

reduce their dependency on apparel sales. Oriental

Department Store, a domestic store in Fuzhou, has

reduced the number of apparel products to focus

more on education products.



Department store

Intime Department Store

Ito Yokado Department Store

SOURCE: http://www.funggroup.com/eng/knowledge/research/industry_series25.pdf

As department store operators launch and develop their private apparel label brands, they are seeking to

increase their profit margins and build customer loyalty by offering a comprehensive range of products.

Just Intime

pbi

Private label brand

Wangfujing Department Store FIRST WERT

Golden Eagle Department Store Aquila D’oro

IVREA

LISALEN

Antonghui

Women’s apparel

Apparel

Product category

Men’s apparel

Men’s apparel

Men’s apparel

Women’s apparel

Kids’ apparel



MARKET SHARE OF APPAREL BY RETAIL FORMAT

Department stores

Apparel specialist retailers

Grocery retailers

Leisure and personal goods specialist retailers

Non-store retailing

Other non-grocery retailers

36.3%

29.7%

5.6%

12.0%

11.0%

5.4%


2013



Apparel brand owners

and manufactures in

China choose self-operated stores and

franchised stores to

sell their products.

“Specialty stores are becoming increasingly favored by apparel brand owners. Growth in

the number has been fast, already reaching

584,800 in 2013. Apparel brand owners that sell

through retail stores (specialty stores and outlet

stores) maintain control over price and other

activities related to their image. They still have

the opportunity to convey their brand’s image

and engage Chinese consumers, communicating

their values. Apparel brand owners in China

generally manage the most profitable stores or

strategic areas, handing over secondary locations

to franchisees as distributors.




Department stores are the primary channel for mid-to high-end apparel distribution.

Hypermarkets and

supermarkets target

middle-income andlower-middle-income groups.

“

SOURCE: Fung Business Intelligence Centre 2014



HYPERMARKETS &SUPERMARKETS

Hypermarkets and supermarkets are gaining

popularity in China as retailing channels for lower-

priced apparel that are usually unbranded (or don’t

have enough brand recognition).

Interestingly, some hypermarkets have recently

launched their private clothing label brands

tailoring them a mass customer base with

affordable prices. For example, Auchan, a French

hypermarket chain, introduced a low-priced

private women’s wear brands (Grey, Monochrome,

Pretty and Blue Jeans) in selected stores in 2014.

Wal-Mart, a hypermarket chain from the U.S., also

offers a comprehensive range of private label

brands tailored to meet local tastes in China.




Internet retailing is the fastest growing non-store sales channel for apparel in China, and currently represents plenty of opportunities.

“




China’s showrooming effect: shoppers browse in

stores but buy online.

“ONLINE RETAILING

Online retailing is the fastest growing channel in

China for selling apparel products. In fact, more

and more Chinese consumers are choosing to

buy apparel products online. The total transaction

value of China’s online apparel market reached

RMB 434.9 billion (USD70.75 billion) in 2013, with

a YoY increase of 42.8%, accounting for 23.1% of

China’s entire online shopping market.

However, Chinese consumers still research and

shop in store. Experts call this popular method of

shopping “China’s showrooming effect”.

SOURCE: http://www.chinainternetwatch.com/8942/online-apparel-market-2014/



E-COMMERCE, O2O & OTHER OPPORTUNITIES

For the past 10 years, China’s GDP increased

rapidly and people’s purchasing power grew with

it. With increased spending power, expectations

were also raised: a lot of Chinese consumers

are no longer satisfied with basic needs, they

expect higher quality, better service and a

reasonable price.

As consumers of private label clothing brands in

China are growing middle class, this sector has

sector has huge business potential.

O2O commerce (Online to Offline) is a new and

popular trend and often applied to private label

clothing brands in China.

SOURCE: http://daxueconsulting.com/o2o-business-in-china/



Meters/bonwe, China’s leading casualwear

apparel company, used a QR code that was printed

on each product in their store. With a smartphone,

customers could read the QR code and visit the

official website of Meters/bonwe to get additional

information about the product they bought.

Zara established an online store (www.zara.cn) in

China in September 2013 to directly encourage

consumers to collect online purchases from their

physical outlets.


Apparel retailers are

exploring

O2O business models to reach more

customers.

“



China’s apparel market remains one of the fastest growing markets in the world.

The rise of e-commerce and fast fashion have further encouraged its growth.

“




The booming e-commerce market in China is

indeed another opportunity for apparel retailers.

Some customers prefer to try clothes on in stores

and then buy them later online. Clothes in stores

are more expensive than online due to rent, labor

costs, costs for maintenance, management fees

etc. The whole e-commerce trend was a shock

at first for traditional department retailers. But

at the same time, e-commerce offered serious advantages for other market players to grow.

Private label clothing brands in China have

experienced an upward trend as some

customers suffer from aesthetic fatigue for top

luxury brands and prefer new, customized,

personalized brands that appeal to their desire

for something exciting and unique.

Selling private label clothing brands in China can

also be a challenge for the management of the

retailer: it requires higher labor quality to deal with

complex situations, including sales analysis, brand

promotion, commodity display etc.

The transition from retailer to designer is not easy though, and maintaining the quality of the product is a challenge. This is a crucial point to

doing business in China as quality is increasingly

important to the Chinese consumer.

SOURCE: http://www.metersbonwe.com/



Overseas apparel brands or retailers are also selling to Chinese consumers.Some choose to enter the market via

online platforms, and not opening physical

stores. Miss Selfridge, for example, a

high street brand from the UK, entered

the Chinese market in September 2014

opening an online store on Shangpin.com.

Other brands choose to reach Chinese

consumers through overseas online

shopping platforms called “haitao”. A

number of overseas apparel e-commerce

players establish partnerships with local

third-party online payment providers, to

be able to accept payment in RMB on

U.S. websites.


As the quality in China’s

apparel industry varies

greatly, private label brands may be the

solution addressing

a growing

consumer segment

in the market.

“



CHINESE MEDIA

“Over time many e-commerce enterprises have entered the private label clothing sector. Clothing products have a relatively high profit in traditional industries. However, in e-commerce industry, most brands gain popularity but not much profit. The impurity of purpose, lack of business model innovation and so-called “light asset” e-commerce companies are the main causes of the current situation.

Source: http://finance.eastmoney.com/news/1355,20120912250604754.html

“Since Wal-Mart launched its private label clothing

brand, it has won many customers due to its

competitive prices. Recently, Wal-Mart launched

nearly 200 “Autumn 2015 private brand clothing”

products, greatly expanding product segment

categories in order to hold more than 50% of the

price advantage compared to clothing in the market

with the same materials and quality.

Source: http://roll.sohu.com/20150828/n419991515.shtml



CHINESE SOCIAL MEDIA

[Wuxi: Vanguard, Carrefour and etc. launched private label clothing brands] Previously people used to go to the mall or clothing stores for clothes, but recently many people find clothing in supermarkets. Supermarket clothing are no longer primarily for the elderly, but are getting more youth-oriented and fashionable! Since supermarkets launched their own brand of clothing, “granny clothes” have disappeared from the shelves. The supermarket clothes are relatively cheap, having to compete with fast fashion and e-commerce in order to survive!

1



CHINESE SOCIAL MEDIA

[Discovery: how to run a private label clothing brand] The Chinese department store industry has been seeking a breakthrough in the joint and self-operated models and trying to develop their private label brands. However, private label brands have a long history in western countries and formed a deep understanding of local consumption patterns and habits. Brand clothing begins to attract more and more consumers and cheap clothing sales have slowed down. Private clothing brands remains at 30% -50% of the market.

2



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