HONG KONG — Chinese domestic spending is once again going full throttle. National retail sales data in the second quarter of the year revved up 11 percent, stunning analysts, and if there was any skepticism about those government statistics, international fashion houses from Kering to Hermès and LVMH Moët Hennessy Louis Vuitton have reported stronger bottom lines, boosted by a rejuvenated China market.
The impact isn’t being felt in the same way among Chinese fashion brands and retailers, however.
Growth in the luxury space for Chinese labels seems slow or even stagnant. Little has been heard about Qeelin, the high-end jewelry brand Kering bought in 2013, or Shang Xia, the luxe apparel and home goods venture from Hermès started in 2010.
Shanghai Tang epitomizes the latter problem. Acquired in 1998 by Compagnie Financière Richemont SA, the brand failed to find a larger audience or innovate much past its signature qipao dresses, and eventually was sold off to a new Italian owner last month.
On the other end of the spectrum, some of China’s biggest fashion chains are closing stores en masse. For instance, Bosideng at its peak counted over 7,000 doors, but has closed around 3,000 of them in the last decade — roughly the equivalent of Gap disappearing in its entirety. Metersbonwe’s network has contracted from over 5,200 stores in 2012 to 3,700 units in 2015, while Semir has shuttered 300 stores annually over the past four years.
Segment by segment, here’s what is going on in each space.
Some took Richemont’s disposal of Shanghai Tang as a sign that Chinese shoppers are unwilling to pay luxury prices for something from their own country, but a report this week from consulting firm OC&C Strategy found that attitudes toward homegrown brands have changed dramatically in a short period of time.
International brands are disproportionately popular in China, but the number of shoppers who said they like Chinese brands has more than doubled in the span of two years to 46 percent. The survey, carried out between March and April and covering 2,450 people across China, also showed that negative opinions toward homegrown labels dropped to a low of 10 percent from 24 percent.
“We asked them what would be the number one reason why you would not buy a Chinese brand,” OC&C partner Pascal Martin said. “The number-one answer by far — 47 percent of respondents — said poor design. Not quality, they are fine with quality. If we had done that survey 10 years ago, quality would be one of the top criteria.”
Moreover, “too expensive” only came in fifth as a reason not to purchase, indicating that Chinese shoppers are happy to open their wallets if they like the design. When asked why they shopped domestic labels, “Chinese elements” were chosen by 39 percent of the respondents, the second most-popular answer.
Frank Cintamani, founder of the Asian Couture Federation, said in his experience, Chinese consumers aren’t ultimately swayed by a brand’s origins. “[They] are looking for quality, they are looking for innovative design and they are looking for value, rather than where a designer is from,” he said.
Some brands, at least in the case of Shanghai Tang, aren’t able to convey an authentically Chinese message. Its most recent creative team was headed up by Europeans, who commuted between France and Hong Kong, which probably did it no favors.
“[Chinese shoppers] don’t want to continue to look at designs of so-called Chinese-style fashion through the perspective of the Westerner and the romantic vision of Chinese culture,” said Joanne Ooi, who once served as creative director of the brand. “That has always been the problem.”
That stands in contrast to the success of Chinese haute couturiers Guo Pei and Yiqing Yin — both have been invited to the Chambre Syndicale de la Haute Couture. Guo said in February that she would begin designing a ready-to-wear line too.
For Qeelin and Shang Xia, it could come down to more of an issue of time to establish oneself.
Louis Houdart, the founder of China-based brand agency Creative Capital, said, “In luxury, either you have 100 years of history and expertise in something — Hermès, for example, is known for leather, horses — with a fully owned supply chain, or a star designer like Christian Dior, Marc Jacobs, or eventually the combination of both.”
Shang Xia offers high-quality Chinese craftsmanship in apparel and home goods; however, its workforce is not exclusive to them. “This is very different from Hermès, where all the craftsmen work exclusively for Hermès in their own atelier,” Houdart said. “It would probably have been easier, faster and cheaper for Hermès to purchase an older silk factory in Suzhou and relaunch it.”
There is more flexibility for Chinese companies to enter the designer or contemporary space. Marc-Olivier Arnold, chief strategy officer of RTG Consulting, said this allows brands to “rethink luxury, according to modern consumer expectations — especially those of a younger audience.”
“Today’s luxury consumers see luxury brands as tools for self-empowerment and individualization,” he said. “Luxury is in the eye of the beholder, and brands should consider self-expression and cultural codes as a way to engage this new generation of consumers.”
Japanese designers like Yohji Yamamoto and Rei Kawakubo, who came up in the Seventies and lack a long and storied history, exemplify this. “This is where we see an opportunity for Chinese luxury brands to ‘play,’ compete and make their mark,” Arnold continued. “Many Japanese brands have been successful in achieving this image. It’s now up to Chinese luxury brands to take advantage of this opportunity to redefine ‘luxury’ in a way that is genuinely ‘cool’ to the wider world.”
Although very nascent, noticeable names attempting this include Comme Moi, the label founded by model Lu Yan in 2013, and Exception de Mixmind, which was propelled to the spotlight after being worn several times by Chinese first lady Peng Liyuan. Men’s wear designer Feng Chen Wang, nominated for the LVMH Prize last year, and Hui Shan Zhang are both Chinese designers based in London who are gaining international recognition, among others.
“What’s key in these brands is that they were created around designers, who by definition, because they are designers, are trying to be on trend or to create trends,” OC&C’s Martin said. “They are not trying to copy a model from another brand. They try to be themselves.”
The lower-end segment is another story altogether. Companies such as Peacebird, Marisfrolg and Bosideng are publicly traded, counting as many as several thousand stores in China, but are nevertheless names that draw blank looks overseas.
Fast-fashion brand Urban Revivo revealed plans last month for an ambitious 22,000-square-foot global flagship at Westfield London to open in March 2018. It will compete on its retail abilities more than on its brand, going head to head with H&M and Zara. Revivo has 150 stores in China — but much larger companies have tried and failed to conquer the Western market.
Bosideng, which originally positioned itself as an aspirational, younger Hugo Boss, made a high-profile international push with the opening of a prominent London flagship in 2012, but pulled out in February. It continues to close a huge number of stores — 979 stores just in the most recent fiscal year ended March 31 — blaming “overcapacity, overexpansion, [and] ambiguous brand image.”
“If you look at the ranking of Chinese brands five years ago, there’s been a complete reshuffling,” Martin said. “The top brands that were there five years ago have come down. It’s very interesting.”
Of the six local brands which ranked in OC&C’s top fashion brands in China in 2011 — Metersbonwe, Semir, Bosideng, Anta, Lining and Baleno — only Anta and Semir remain in the top 10. On the other hand, Heilan Home, La Chapelle and Peacebird have surged in popularity.
“Many brands had stellar growth at the beginning because they had money and they opened stores, but this growth was not very healthy,” he said. “It was based on increasing stores and not like-for-like growth. After a while, it starts to hit you.”
According to Martin, these companies suffer from a “Zara-wannabe” syndrome.
“Metersbonwe tried to create shops that looked like Zara, but they probably didn’t realize how important design was,” he said. “They replicated a Zara-type store which looks and feels like a fast-fashion store but didn’t put in place capabilities and resources to be able to catch trends and provide fresh product in a short cycle time. It’s all the things that the consumer doesn’t see are not happening.”
It is not all bad news, though. Houdart said brands with potential include Icicle, JNBY, Dazzle, Mo & Co., OCE and Zuczug, which have a more defined image.
Zuczug is known for its funky and colorful prints, while Dazzle is the trendy retailer whose story rests on the idea of travel. Icicle bills itself as China’s first eco-friendly fashion company, using natural fabrics and ecological dyes derived from soybeans, tea leaves, and the like. The company keeps a large design studio in Paris, Houdart said, and “some of their best-performing stores reach 4 million renminbi [$595,000 at current exchange] a month for [1,000 square feet], and the average product price is around 3,500 renminbi [$520].”
JNBY, which stands for “just naturally be yourself” takes its inspiration from contemporary art and has an aesthetic similar to the H&M brand Cos, operating over 700 stores in countries including France, the U.S. and Canada.
“[Chinese] buy what they like no matter where it is from as long as it is relevant to them,” Houdart said. “A good foreign brand is as relevant as a good local brand.”