“The fashion market in China, which tripled over the past ten years, is expected to increase threefold over the coming decade,” according to a Boston Consulting Group report released in July.
Over the past decade, the fashion industry in China has tripled in market size, reaching nearly RMB 400 billion by the end of 2010. It is expected that the fashion market in China will grow threefold yet again over the next decade, to more than RMB 1.3 trillion as the world’s second fashion market by 2020, said the report.
With Chinese consumers’strong willingness to spend on apparel and their wallets swelling over the past decade, China’s fashion market is expanding. In the coming years, it will continue to grow at a fast speed, offering plenty of opportunities for foreign fashion companies entering this market.
However, many of the global brands have a small footprint in China. For instance, Zara has roughly 70 stores in China, the Italian fashion house Benetton has about 25, and Gap operates 5, compared with more than 1,000 stores each in their home markets in Europe or North America. Still many globally or regionally popular brands like Topshop, J. Crew, and Ann Taylor, have yet to open a store in the country.
By contrast, many of the brands that have achieved early success in China may be a surprise. Nike and adidas each has approximately 6,000 stores in China, and clothing company Bestseller has more than 4,000. Chinese sports brands Li Ning and anta each has roughly 7,000 stores, while local casual clothing brands Metersbonwe and Semir have more than 3,000 stores each. Almost all of these are singlebrand stores.
“Traditionally, for fashion players, the keys to winning were having a ‘big’ brand name, a low-cost supply chain, and the ability to rapidly develop a retail footprint through franchising,” said Vincent Lui, a BCG partner and coauthor of the report.
“To win in the future,” he added,“companies need to adapt their strategies in response to new demands from consumers.”
China：A unique market
The report, with more than 5,000 Chinese consumers aged 14 to 45 interviewed across a variety of regions and city tiers, shows that China’s fashion market is unlike any other in the world. The first decade of the twenty-first century did more than witness a tripling in



growth. It ushered in the very birth of fashion in modern China.
In the late 1990s, the expression of individuality through fashion became possible in China, as the society opened up and consumer wealth began to rise. Foreign and local brands began to appear. Consumers’ fascination with “big names” was rekindled. Prior to that time, brands were not distinguished to a great degree.
Early movers like Nike and adidas made their debut in the 1980s in China. Consumers were hungry for highly recognizable brands, and sports brands not only filled the bill, but were also a perfect fit for the lowkey wardrobe needs of consumers at a time when there were very few occasions that required more fashionable apparel. Local brands like Li Ning and Anta were established and gained scale during this period, too.
Against the backdrop, sportswear became popular and dominant in China. The “first-mover” brands, which in addition to sports brands included casual clothing brands such as Metersbonwe and Bestseller, also benefited from the adoption of franchising, specifically single-brand franchises, as their primary business model for growth.
Franchising represented a standardized, easy-to-operate retail format that enabled rapid expansion and wide market access without the need for significant upfront capital. Nike, for example, grew its store network from about 1,400 stores to roughly 6,000 stores between 2003 and 2009, a scant six years, the report said.
Given that consumers were not demanding in terms of seeking the latest styles and that sportswear, in particular, does not go out of fashion as quickly as casual wear, franchisees could invest with a lower inventory risk.
Single-brand franchises predominated because, at this early point in the development of the retail landscape, there were very few multibrand retailers. Single-brand stores also had the benefit of assuaging consumers’ fears about counterfeiting, because these stores made shoppers feel that they were buying directly from the brand company, wrote the authors of the report.
To date, the fashion market has also been defined by department stores. Through the early 1990s, department stores were the only available trade format for fashion retailing, giving brands access to millions of potential customers while offering consumers “retailtainment”, a place for families to hang out on weekends.
Department stores defined consumers’ conceptions of what it is to go shopping, and they will remain important going forward, especially in low-tier cities. Even though more innovative retail formats have cropped up in recent years, department stores still accounted for 35 to 40 percent of fash-



ion retail sales in 2010.
All of these factors, namely the relatively crude early conception of fashion as big brands, the dominance of sportswear, the proliferation of the franchise model, and the entrenchment of the department store format, made China’s
fashion market different from any other market in the world, said the report. The emerging trend in the next decade
With the middle class burgeoning in China, the next decade will see a golden time for fashion companies. Half of the consumers interviewed by the report express their intention of trade up in apparel in 2011. Fashion is among the top “trading-up” categories for such households.
Yet per capita fashion spending among urban consumers age 14 to 45 remains low—just RMB 1,150 per year, compared with the equivalent of RMB 5,770 in the U.S. and RMB 5,020 in the U.K. That is still in the early part of the penetration curve compared with that in mature markets, giving China the potential to become an even more significant fashion market. Over the next five years, China’s fashion industry will account for about 30 % of the global fashion market’s growth
However, competing in China’s dramatically changing fashion market over the next ten years requires companies to understand the full range of buying behaviors that will emerge across disparate consumer segments and city tiers. To that end, the report identifies six key trends that will be vital to a company’s success in this market.
Over the next decade, the authors of the report foresee three significant trends related to demographics, namely more spending on fashion by younger generations, a larger proportion of spending on fashion by women, and more heavy spenders in low-tier cities.
The authors also anticipate three major trends related to consumers’fashion needs: an increasing demand for bigger wardrobes driven by changes that have broadened people’s lifestyles, a growing emotional dimension to consumers’ thinking about fashion, and opportunities to enhance the shopping experience through new distribution channels and retail formats.
As for new distribution channels and retail formats, companies must consider geography and city tier in determining the right distribution channel with which to enter, and expand in, the market. Companies must consider geography and city tier in determining the right distribution channel with which to enter, and expand in, the market.
In low-tier cities, the prevalent shopping formats, namely department stores and single brand stores, will remain the most popular choice for consumers. Even in high-tier cities, department stores are still contenders, accounting for more than 35 percent of apparel sales.
Overall, though, consumers in high-tier cities are becoming more demanding and expect more positive and novel shopping experiences with highquality service. As a result, they are turning away from department stores.
The question of whether a multibrand versus a single-brand retail channel is right for a brand depends on its position in China’s fashion market.
The authors point out that the franchise model will remain key to fashion retailing in the next ten years, especially in lower-tier cities. Franchisees currently contribute between 50 to 90 percent of the revenue of the major casual and sports brands in China. Going forward, more brand companies will start to take more direct control of their retail in high-tier cities, but in lower-tier cities they will continue to rely on distributors and franchisees to penetrate and expand their presence in the fashion market.
Online shopping will certainly grow in importance as well, given that the rising wave of shoppers hails from the Internet generation. It is estimated that the number of Internet shoppers in China will increase from roughly 145 million in 2010 to about 329 million in 2015. In fact, apparel is already the most popular category of online purchases among Chinese consumers, and continued opportunity for success is seen through online retailing. Yet few brick-and-mortar retailers are fully multichannel.
The race to build a truly multichannel model has just begun. Players who can first center their retail and service model around target customer segments and embrace them with a consistent, 24/7 online and offline experience will have a competitive advantage over their peers.
“The fight for share of mind and retail real estate will be even more intense than in the past ten years,” said Yunling Zhou, a BCG project leader and coauthor of the report.
“Anticipating such dramatic changes and developing the right offerings early on,” she continued, “will be the key for companies with the ambition to win in China.”
New strategies needed to meet new demands
To win a share of the new wave of growth, companies need to adapt their strategies on the basis of their starting positions and emerging consumer trends, the report pointed out.
Critical to formulating new strategies will be assessing opportunities to serve low-tier cities, determining which

consumer emotional space a brand owns versus which space it should own, and exploring how to create an exciting retail experience for shoppers, said the authors of the report.
A plan for low-tier cities. The authors point out that having the right footprint strategy is important to success in China. Companies should identify the right locations, that is, those with the appropriate affordability and retail infrastructure for them, and deploy there in a logical manner to achieve maximum impact with limited resources.
The report estimates that by 2020, 50 percent of MACs will live within a 50-kilometer radius of a tier 1, tier 2, or tier 3 city, in a city cluster, which is a number of cities in close geographic proximity grouped together for the purposes of creating an expansion plan. This concept allows companies to invest resources into one city in a cluster and leverage them in other nearby cities within the cluster.
Fashion companies, especially those that have already penetrated high-tier cities, could borrow a chapter from retailers in other sectors when they design their expansion plans. Meanwhile, companies need to recognize the unique requirements for success in fashion when they seek to serve low-tier cities in a cluster.
An emotionally relevant value proposition. The still-underdeveloped retail landscape in China is marked by an insufficiency of brands in specific emotional spaces and undifferentiated product offerings in similar emotional spaces. Foreign players must carefully consider which of their successful brands are right for the market, while local companies need to identify or create their unique positions within the market and differentiate themselves from competitors, the authors wrote.
It is important for both foreign and local companies to understand what consumer emotional space their brands own versus what space they should own, and they need to align themselves accordingly with shoppers’emotional desires.
The report tells that Casual retailer Bestseller has distinguished itself in China by successfully creating a credible presence in multiple emotional spaces, and by clearly differentiating its offerings in them. It currently has more than 4,000 stores in China under four different brands, offering consumers a portfolio of brands targeted at different emotional spaces. Vero Moda is its basic, midrange casual and professional women’s brand. Jack & Jones is its casual men’s brand. Its Only brand is trendier, more youth-oriented, and pitched at a slightly lower price point than the other two, and Selected is its premium, more expensive men’s brand that is only available in top-tier cities.
A unique and differentiated consumer experience. The authors believe that as consumers grow savvier about fashion, shopping, and the Internet, companies need to think more about the way their products are being brought to the market and create an exciting retail environment for shoppers. This is especially important in high-tier cities in which consumers who have grown overly familiar with traditional retail formats are seeking out new and more stimulating avenues for shopping, and in which growth is increasingly happening outside of physical retail channels.
Hong Kong company I.T has proven itself one of the most buzz-worthy fashion players to watch because of its signature “multibrand, multilayer” approach.
Among its offerings are an upmarket cutting-edge format that carries established international labels like Alexander McQueen and Givenchy; a youth-oriented format with a focus on Japanese designs; and a street style unisex format. Poorly performing products are dropped quickly, and the constantly rotating inventory means that consumers’ visits to its stores remain fresh and exciting in a uniquely style-focused environment, according to the report.
The company has also moved beyond its original value proposition of introducing new brands alongside established ones and now has seven of its own in-house brands, which earn higher profits than some other brands in its multibrand stores.
Bestseller is worth noting for its development of value-added services that enhance shoppers’ retail experience. The company devotes much attention to staff training, aimed at creating deep knowledge of the brand’s product offerings. It also coaches its staff to suggest single items or combinations of items for customers to try on—a service model that is highly effective in lower-tier cities where consumers’ sense of personal style is not yet strongly developed and that has resulted in a much higher rate of purchase per “try on.”
The report shows that although apparel is the top e-commerce category, as of now, there are few retail players who have developed a true multichannel retail experience in China. As companies try to expand their footprint online, they face the issues of real-time inventory visibility, reliable logistics service, product returns, and consistent promotion across channels. Also, few companies have integrated systems that would enable a consumer.
One company, Uniqlo, the flagship brand and format from Japanese fashion powerhouse Fast, is beginning to break out into a multichannel approach. Its most notable strength has been in integrated marketing. The company has made a number of bold moves in China that have generated extensive buzz and excitement.
It is apparent that there are ample opportunities for foreign brands willing to enter the Chinese fashion market. Any company able to pull off true multichannel success will have access to China’s coveted such a big number of online shoppers by 2015.