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WWDStyle issue 02/01/2011

BEIJING — Wang Jung is a far more frugal shopper than the other female twentysomethings in her Beijing social circle of office workers. She balks at spending more than 150 yuan (about $23 at current exchange) on a single item of clothing, unless it’s a winter coat or shoes. Even then, she’ll spend hours combing the city’s hidden retail markets looking for the best deals.

This story first appeared in the February 1, 2011 issue of WWD. Subscribe Today.

“I don’t see the point in spending 500 yuan [$76] on something I won’t be able to wear in a year because it’s not good quality,” she said, referring to big-name international retailers like Zara that have become go-to shopping destinations these days for Beijing’s young and fashionable.

But Wang, the frugal shopper, is no longer representative of all clothing buyers in the Chinese capital, where saving has long been more important than spending. Whereas just a few years ago clothing sales were restricted to state-owned department stores — and many of the big purchases were held off until Chinese New Year — on any day of the week these days the city’s new moderate to high-end malls are crammed with customers, many of them beginning to buy rather than just browse. This change has continued in the face of ever-increasing inflation, ensuring even higher prices to come on clothing in Beijing.

As China grapples with record-pace inflation, the fashion retail industry is far from immune. Overall, the country’s consumer price index increased by 5.1 percent in December, far beyond the target 3 percent central government officials consider manageable.

For apparel, the news is worse.

Prices are rising faster on clothes than in many other sectors, with several experts projecting at least a 10 percent increase in 2011, due in large part to higher prices for raw materials and manufacturing. Already Beijing has been named by an international consultancy as one of the most expensive cities in the world for clothing. Though there might not seem like much room for prices to go higher, increasingly affluent consumers still want the best brands and have thus far been willing to shell out the necessary cash.

“I think there is an effect from China’s unique income distribution,” said Kong Jun, a textiles industry analyst with China Jianyin Investment Securities. “China has a big income distribution disparity. The number of rich people is better than the number in many other countries, the upper middle class is bigger than the number in many other countries.

“Since these kinds of customers don’t care so much about what they have to pay, they can accept high prices,” said Kong. “Yet that leaves a full 80 percent of people who do care about prices. They typically only buy middle or low, large domestic brand clothing.”

In addition, Kong said, twentysomethings and thirtysomethings have different values than their hard-saving parents, and are more willing to part with hard-earned cash to stay in tune with fashion trends.

Kong said clothing prices could potentially increase by a further 20 percent or more in the coming year in some cities, depending on what happens with the overall consumer price index and the costs of raw goods.

“Prices of raw materials have decreased recently. The raw materials supplies for fall clothes will be purchased in the second quarter of this year,” said Kong. “Let’s see what the situation looks like then.”

The situation with retail prices and consumer demand is different, of course, in China’s nether reaches, where personal income lags behind cities and leaves consumers unable to spend the weekend sifting through sales at Mango or Zara. Those parts of China — which include far more people in all than hyper-developed Beijing or Shanghai — have their own retail models, which often include small boutiques and lower-priced options in addition to the luxury goods now widely available across the country. But according to the government’s own numbers, inflation is rising faster in rural areas than urban centers.

Ou Zhihang, a textiles analyst with Haitong Securities, said fast-rising cotton prices amid a shortage are at the heart of spiraling inflation in clothing in China. He said the country faces a cotton shortfall of 3 million tons this year, which potentially would worsen the inflation situation.

Despite higher prices, Ou said, “consumers are passionate in this sector. Retail sales rose in November by 18 percent.”

A raft of clothing retailers in Beijing agreed, saying prices have risen tremendously and are expected to go higher, but customers keep coming back. It’s unclear what the breaking point may be for shoppers. At the Village at Sanlitun mall in Beijing’s embassy district, inflation hasn’t dampened enthusiasm.

“We know it’s expensive, but you have to keep up with trends, and not everyone can fly to Hong Kong regularly for shopping,” said one consumer, Tina Zhou, referring to the growing trend of Mainland shoppers traveling to Hong Kong for cheaper clothes, cosmetics and other beauty items. “There’s much more choice here now, and shopping is actually fun.”

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