China’s Fashion Reboot: 5 Lessons The Industry Must Know

China’s Fashion Reboot: 5 Lessons The Industry Must Know

Written by Sufiana SharuddinApril 23, 2020

China’s Fashion Reboot: 5 Lessons The Industry Must Know

A sense of cautious normalcy has returned in China after its government ended the 76-day lockdown on most of its major cities, including Wuhan, the original epicentre of Covid-19.

Starting April 8th, public transport and retail spaces have resumed operations. Intercity borders have also been lifted, allowing citizens to travel freely for the first time in three months. Offices, malls and restaurants have started to fill up again as the workforce returns in full swing. 

With great efforts underway to restart the economy, all eyes are on China to catch a glimpse of what a post-corona future could look like.

Q1 Aftermath

To no surprise, the Covid-19 pandemic has put a dent on Q1 performance as many fashion companies saw a major slump during this fiscal quarter. In China, several domestic brands reported double-digit declines – among the impacted brands are sportswear megabrand, Li-Ning and casualwear specialist, Giordano who reported a whopping 36.4% drop in revenue.

Other international retailers operating in China are not excluded. H&M who has over 518 stores in the country suffered a 46% plunge in March. Despite the Swedish retailer having a majority of its stores open and minimal supply chain issues, sales in week 10 fell by 79%, leading many to question the retailer’s future as the pandemic worsens in the West.

Nike Inc. was one of the lucky few as its quarterly results only showed a modest 5% drop in sales for Greater China, following 22 straight quarters of double-digit growth. While only having a fourth of its stores in operation, Nike cites digital sales as a huge contributing factor for this quarter’s results as online engagement increased tremendously during this period.

In the luxury sector, LVMH’s revenue also shrunk by 15% compared to Q1 of last year. Sales for the fashion and leather goods segment, in particular, were down by 9% in a YoY comparison and contributed  €4.6 billion to the group’s total earnings. Rivalling luxury conglomerate, Kering also shared that sales fell just under 15.4%  – Gucci’s revenue suffered a 22% drop worldwide.

Meanwhile, other companies more dependent on China’s consumption, such as Burberry and Salvatore Ferragamo, are taking a much bigger hit – preliminary reports for Salvatore Ferragamo S.p.A. revealed earnings have declined by 30.6% with a more than €120 million loss. 

Early Signs of Recovery 

Although Q1’s outcome is anything but positive, brands remain hopeful for the rest of the year as Chinese spending slowly makes a comeback. 

Soon after the restrictions had been lifted, images of people queuing outside of Beijing’s SKP mall and Bicester Village in Shanghai began to circulate online. A decent number of customers wearing masks were also seen roaming around the popular IAPM mall, indicating physical retail is back on the mend. 

China's fashion reboot - Shoppers out in Beijing.
Shoppers out in Beijing during March 2020. Image Source: Bloomberg

In what seems like a miraculous feat, Hermès was said to have brought in $2.7 million in sales on the reopening day of its Guangzhou flagship. Believed to be the highest single-day tally for a boutique in China, confidence in domestic luxury demand has been restored to the relief of many luxury retailers. LVMH also reported that sales in China have quickly picked up in March – Chief Financial Officer Jean Jacques Guiony stated YoY sales for early April are already up by 50%.

This is likely the result of the nation’s growing upper class who is less impacted by the economic downturn. Omnilytics data extracted from Matchesfashion China shows non-apparel categories such as bags and jewellery were uptrending at a relatively high rate throughout March. 

China's fashion reboot - Uptrending product categories at Matchesfashion China in March.
Uptrending product categories at Matchesfashion China in March. Source: Omnilytics Dashboard

‘Revenge Spending’ as a Temporary Band-Aid 

A term that you will see for the coming months is ‘revenge spending’. With shopping seemingly back in China, many brands are betting on this phenomenon to pave the way for recovery.

While we are seeing a new injection of cash flow post-lockdown, analysts are unsure how long this will last. Concerns for the looming recession have dampened consumers’ need to over-consume as a majority of the population was not prepared to weather this storm financially. Now, with the addition of salary cuts, unpaid leaves and furloughs, it is unlikely that an immediate rebound will take place. 

Brands are responding to this by re-aligning their pricing combined with deep discounts to give shoppers better deals. A Chinese online retailer told Business of Fashion, some of the discounts being offered right now are “better than Black Friday and Boxing Day”. As a result, sales for categories like women’s bags and men’s watches have grown 2.7 times and 7.6 times respectively.

Digitalisation at the Forefront of Retail

With enforced store closures since the end of January, online presence has never been more vital than in the past few months. E-commerce sales grew by 3% during this period as brands expanded their online assortments and pivoted to social channels like WeChat to accommodate online transactions. 

Brands that lacked online presence in China, especially luxury names, had to rely on market places such as Tmall’s Luxury Pavillion, Secoo and JD.com to push sales. At the peak of the outbreak, Prada joined a pool of other luxury brands in launching on Tmall for the first time

China's fashion reboot - Screenshot of Prada’s ads on Tmall
Screenshots of Prada’s ads on Tmall. Image source: Jing Daily.

China’s video-focused social channels also meant brands had to adopt various new methods to promote their products online. Livestreaming, which was already a popular trend led by Alibaba, played a key role in assisting online sales. Sales assistants would host daily livestreams from their stores to showcase new arrivals for viewers at home. As the livestream went on, shoppers could purchase or ask questions through an online chatbox, which would be addressed on the spot much like TV shopping channels such as QVC.  

Health and Lifestyle Brands Emerge as Winners

With Covid-19 triggering health concerns among China’s vast population, one of the major consumer shifts observed during this period was the focus on health and fitness. As lockdowns kept people from gyms or exercising outside, any information surrounding ways to boost immunity and health were viral across China’s social platforms. 

This new fitness frenzy provided an opportunity for brands like Nike and Lululemon who were not only able to offer related products such as trainers or activewear but also valuable content through their apps, live streams and video – allowing these brands to position themselves as market leaders during the pandemic.

As stated earlier, Nike’s online engagement grew exponentially during this period as online sales through the retailer’s website and app reached triple-digit growth. Lululemon also managed to penetrate China’s burgeoning yoga community through livestreams, leading to a 70% uptick in sales during this period.

Omnilytics data from Lululemon Hong Kong showed leggings as the winning category for activewear in the last six weeks, more than 57% of the sell-out was driven by full-priced products. Overall, sports bras and tops dominated Lululemon’s total sell-out, outperforming the wider category benchmark of 33.3%.

China's fashion reboot - Category sell-out performance at Lululemon Hong Kong.
Category sell-out performance at Lululemon Hong Kong. Source: Omnilytics Dashboard

Experts at Bain & Co. predict the transition to fitness will be mirrored elsewhere too, as health becomes everyone’s top priority for the foreseeable future.

All Eyes On China

As the first country to contract the virus, China is also going to be the first country to recover from the downfall. After a brutal first quarter, brands are now using China as a training ground to test new strategies that will eventually be the playbook for everywhere else. 

Undoubtedly, e-commerce and digital channels are the future of retail in China. The country’s quick adaptability to new tech has softened the blow on retail as most non-essential purchases migrate online. However, it will be interesting to see how this strategy will be adjusted for the rest of the world, considering the lack of tech adoption by both brands and consumers. 

The closest thing we have to WeChat e-store is Instagram Shop, which does not support any online transactions. Emerging video platform, TikTok may offer some unique opportunities given its ability to make trends viral, almost instantly. 

Regardless, China’s innovation-first model still stands. Brands have no choice but to catch-up with technology as it is the sole connector to consumers during these tough times.

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