SHANGHAI — The world’s largest apparel market is expected to see a 15 percent contraction this year, a survey conducted in April by Oliver Wyman found, equivalent to the wiping out of $60 billion in market value, with little retaliatory spending seen in April and May.
More than 75 percent of Chinese consumers reduced or postponed purchases on apparel and footwear. Total spending for survey respondents decreased by 45 percent in the first quarter, but consumer spending in China is expected to return to its 2019 level in the second half of the year.
“It is going to be a turbulent year, with structural and longer-term shifts in the apparel and footwear market in China,” said Imke Wouters, the Oliver Wyman partner who led the survey. “Despite the industry downturn, we are seeing the further growth of e-commerce, with an accelerated penetration into sub-segments, such as high-income customer groups. The post-COVID-19 market is expected to be more polarized across income levels and city tiers.”
In Wuhan, the epicenter of the COVID-19 outbreak, the retail spending decline was much steeper, falling 60 percent in the first quarter. The firm expects recovery to be slower in the city with spend for the rest of the year forecast to decline 30 percent year-over-year versus a national average of 3 percent positive growth.
While there have been a few examples of big bounce backs for some brands and retailers in China, such as record sales at Hermès and concept store SND, the overall landscape has been substantially impacted by COVID-19.
“It depends on the reference point. [Instead of sequentially month-by-month] we really ask consumers, ‘We want you to compare with pre-COVID-19 in 2019, are you spending now more or less?'” Wouters said. “In any market you have winners and losers, it really depends with segments you’re looking at, and a big part of the market is driven by lower income consumers and those consumers are not spending more.”
The survey found a marked divergence between higher and lower income groups, with the latter buying less and trading down for essentials. More than 60 percent of lower-income groups said they would purchase essentials only. On the other hand, the respondents from the high-income group said they would trade up and go for both value and quality, with 54 percent of them saying they would still look to buy products offering higher quality and functionality.
But the importance of offering value for money was key to both groups. More than 70 percent of lower-income respondents and 56 percent of high-income respondents said they preferred items offering value for money.
The firm also predicts that online channels could take up to half of the entire market ￼in 2020, surging from 34 percent last year, although most consumers also stated they preferred to shop across multiple channels including off-line.
The virus is expected to hollow out a middle chunk of retail and accelerate existing trends. Sportswear showed stronger resilience in its offline presence than the general apparel market, the survey said, with Nike, Adidas and Anta leading the way. But sales in department stores are not expected to come back robustly and the impact on China’s high-street fashion market has been material as even before the virus hit, fast-fashion brands such as Lachapelle, Forever 21 and New Look had already been struggling in the market.
“Either you have value for money and are looking for essentials and this is not what these brands offer,” said Wouters, “or you’re looking at higher-income groups who want to spend more and we clearly see the recovery there. They are also looking value for money but good quality.”
She advised retailers to examine and refine their proposition while rationalizing and implementing cost-cutting measures during this consumer pullback.
“Retailers need to focus on the service aspect — whether it’s a fitting service or providing clothing advice, which is really appreciated as consumers still see that as unique to an offline store compared to buying online.”