SHANGHAI – The apparel industry in China is going through a period of transition at breakneck speed, with the perfect storm of increased labor costs, the U.S. trade war and international uncertainty. These changes, combined with an increase in domestic demand from the nation’s rising middle-class, have led to a momentous shift.
“This year, we have faced many challenges, such as consumption upgrading, and many key conditions of our production, such as labor costs, also changing. We are creating many innovations in our production technology and our commercial production patterns. Also, the international market environment is changing. To put it simply, China’s clothing industry no longer focuses on the production quantity, but is now more quality-oriented,” said Chen Dapeng, president of Chic Shanghai and executive vice president of the China National Garment Association.
“Over the past half year, clothing quantity has not increased at all, but domestically, the retailer quantities are increasing and our export has realized a negative growth of 0.8 percent. So, you can see that even though our production quantity is not increasing, our production value is increasing,” said Chen. “Actually, we are still producing, but we are moving our factories to other countries. But I think technology will change the situation. We are now moving the industry to be intelligent, more automated and more information-oriented.”
Women’s wear sales in China increased by 5.7 percent year-on-year to 116.93 billion euros in 2017, according to Euromonitor. The market research firm predicts that the market value in this sector will continue to increase to 139 billion euros by 2021.
“The clothing industry has put more focus on designing and innovations. We have improved on our information technology combined with the development of the whole industrial technology. We have increased our production efficiency, which has improved our production quality as well as improved our commercial operation efficiency,” said Chen.
As the middle class rises in China, and becomes increasingly better educated with higher disposable income, consumers have begun to focus more on their individual style, quality and brand names of their clothing. “I think in the next five to 10 years, China’s clothing industry will put more focus on the expression of its design and fashion. We will put more Chinese spirit into these products. The clothing industry is also a part of our culture, so I think in the future, what the Chinese people are wearing will have more of a Chinese spirit. I think the young people will love these kinds of designs. I think this will be the trend in the future,” said Chen.
As local brands strengthen their hold in the country, and gain more experience on the ODM side of the business producing their own designs, exporting their own brands might become a more popular option than simply exporting others’ products. “China’s domestic market is good, but the international market is not stable, and also the profit space for the export industry is very small. I think, in the future, some well-developed Chinese companies might adopt the strategy of their own brand internationalization,” said Chen.
Chinese apparel brands have already begun to outsource their production to other countries in order to remain competitive in the face of rising costs in the country. “We are a Hong Kong company, but we have different production units in China, Bangladesh and Myanmar. Right now, because of the high cost in China, we have had to open up in other parts. We do OEM and ODM, but right now we do more ODM and want to expand this business. Most of our customers are looking for designs from us, not their own design,” said Tommy Lee, sales director at Kei Lock Fashion.
Outsourcing some manufacturing from China to its other factories has the added bonus of helping the company avoid tariffs from the U.S. trade war, although this wasn’t the reason for the openings.
“Consumers used to spend money on many different styles at Zara, H&M or Uniqlo, but now their business is also going down. Consumers are looking for more quality and style, not pricing. The [international] textile industry is changing. Before, customers were looking for cheap prices and fast fashion. Now they are not — they are looking for quality and more personal style. That is why we have developed our workshop in the front-end and more in design,” said Lee.
Chinese consumers increasingly value high-quality products and trusted brand names, especially after numerous counterfeit product scandals online. Local buyers from newer Chinese brands at the Chic Shanghai fair tended to handpick quality products and the latest styles. Many valued the opportunity to meet suppliers face to face.
“Our brand has only been established for one year. Our customers believe in our products. They are older customers and when we get new products, they buy them immediately. We can’t have them doubt our quality and we need time to build our reputation,” said Zhang Shan Shan, owner of a Zstylles, a chain of luxury womenswear boutiques in Hunan province.
Many local booths at the fair were designed to attract attention, with blaring pop music, mini catwalks and even a female model riding a plastic horse. The clothing designs were eye-catching, and exhibitors were turning away buyers who hadn’t booked an appointment. There was a buzz among exhibitors that this was the new “Made in China” label and that it was here to stay, thanks in part to trade being bolstered by strong domestic growth.
“We are looking for foreign brands. We are very competitive. We have our own fabric, factory and designers, so we can produce all our products by ourselves. There are so many brands in China now that we are doing business in China first, and when we do this business better, then we can extend to the overseas market,” said Zhu Hai, founder and chief executive officer of Shanghai apparel company Yi Shang.
Another exhibitor that was attracting a lot of attention throughout the fair was Fujian Fucheng Network Technology and its “global supply chain professional platform,” which was also celebrating the launch of its English language platform. This platform facilitates communication between small- and medium-size enterprises within China by utilizing information technology and leveraging data analytics. It allows these types of companies, which have suffered the most as low-cost manufacturing has moved away from the country, to connect with international buyers and share capacity and resources, therefore remaining competitive on the global market.
The company claims to have over 200,000 small- and medium-size Chinese businesses on the platform, all of which are manufacturers or individual business entities that sell or engage in business in the apparel, footwear, or bags and luggage industry. “The idea is to facilitate the whole supply chain, especially for you Americans, who come over here trying to find who can sell you ribbons or buttons. You can find them on our platform,” said Simon Lam, chief operating officer at Fujian Fucheng Network Technology.
“On the Chinese side of it, we have many of these small- and medium-size companies that seem pretty ignorant about how to use the Internet [for business]. So, we are basically going through the whole education process trying to bring them onboard so they can start to get themselves utilizing the IT and get all the data they need to manage their business. Right now, they don’t try to manage their business with data,” said Lam.
Production and operational efficiency has been key to keeping demand within China, along with maintaining high production standards. New technology and big data is one low-cost way of achieving this. The peer-to-peer-based sharing that Fujian Fucheng Network Technology provides follows the sharing economy trend in the country of carpool companies, shared bicycle schemes and many other concepts.
“They haven’t invested that much in technology. We help to organize what we call the micro factories. There are a lot of little factories, 20-person factories. What we do is a whole food chain, or what we call the quick order supply chain. We try to organize different micro workshops. Then you have, on top of that, a facility that takes the orders and does some part of the automation and dishes out the other stuff to other workshops. Then they come back together and ship it. From that sense, we can have a quick turnaround within 10 days, which is quicker [compared to other countries] to a large extent,” said Lam. “Part of the big issue for [other countries] is if they get an order of some latest fashion, they have to find the material. Today, I have the advantage of finding the material in China, not over there.”
Big data can also be used to help some buyers and suppliers navigate the trade war with the U.S. by circumventing the U.S. tariffs through sharing information and outsourcing some production capacity to Chinese-owned factories in foreign countries. “Some [Chinese factories] invest in Bangladesh, Pakistan or India. Their factory could actually ship the product to the U.S. without the additional tariff because they do it from there,” Lam said. “But if they do it from here and ship it over there, they would probably now have to incur the additional tariff. We help them to be more efficient, whereas in the past there was a gap of information.”
In total, 719 exhibitors with 825 brands from 14 countries and regions converged on Chic Shanghai’s autumn edition. This year, the biannual fair was moved forward from its normal mid-October timing, as the autumn-winter buying season has increasingly been pushed forward. This was in line with the concurrent Intertextile Shanghai Apparel Fabrics fair, both of which were held at the National Exhibition and Convention Center. The Chic Shanghai fair organizers registered 58,400 visitors, which was similar to last year’s figure. Although, it was noted that footfall might have been lower this season as the fair fell between two important holidays in China — Mid-Autumn Festival and Golden Week.