SHANGHAI — When elite golfers line up a putt, they
don’t just aim for the hole, they zero in on a particular blade of grass
along the rim of the hole. By aiming that precisely, they greatly improve
their chances of getting the ball into the cup.
Marketers are
finding they need to take a similarly pointed approach to entering the
Chinese apparel market. With 1.3 billion residents, China seems to offer a
vast pool of potential shoppers. But the vast majority of Chinese shoppers
live in poor rural areas and lack the disposable income to pay for branded
clothing and the interest to seek it out.
To find attractive
consumer segments, marketers focus on shoppers in urban areas, where
per-capita incomes are more than triple those in the
countryside.
Experts vary on how to define apparel market segments
in China. In general, any garment priced at $50 or higher is considered
high-end, but many studies use more international standards.
Ivan
Kwok, a fashion industry analyst with Boston Consulting Group’s Shanghai
office, said many international brands jack up their retail prices or
offer only their most premium products in China. Coupled with the effects
of import and luxury taxes, this can make their products about 30 percent
more expensive in China than in the U.S. or Europe.
“People are
brand-driven in this market, so brands can’t sell at the midprice range
because of the perception of poor quality,” Kwok said. “There is a big gap
in the comparative middle, with no equivalent of the Gap or Old Navy,
which is what it takes to be sustainable.”
Kwok added that Esprit,
which is considered a high-end brand in China, is the international label
with the most substantial penetration of the Chinese market.
Qin
Guoliang, president and design director of Hangzhou Hallowell Garments,
which sources China production for international brands such as Fubu, said
he believes most foreign brands selling in China are slowing their growth
because their prices are too high.
“The rich in China are too few
in number and most people’s incomes are too low to afford luxury goods,”
he said. “In China, the interest in brands is the highest, but the ability
to buy them the lowest.”
Susana Chen, China director of Swatch
Group, said the Swatch brand in China mostly appeals to white-collar,
well-educated, 20- to 30-year-olds, mainly women, who are more concerned
with style than status. The group’s Omega brand appeals mostly to wealthy,
status-conscious men in their 30s and 40s.
Bruno Sälzer, chairman
and chief executive officer of Hugo Boss, described a similar constituency
of young-to-middle-aged businessmen as its “core customer” in
China.
Tong Minqiang, director of Hangzhou Tower, one of China’s
most profitable luxury brand malls, said the mall’s clientele is “mostly
the upper management of companies, banks and the government, plus the
bosses of private companies, mostly aged 30 to 40. Women shoppers
outnumber the men, but the sales values are about the same.”
Ye
Kangxia, an analyst at CTR Market Research, which conducts one of the
country’s largest consumption and lifestyle surveys, said the biggest
spenders in China are urban men aged 35 to 45.
He said they work as
“senior teachers, doctors, lawyers, managers, chief executives…in all
kinds of enterprises or government departments. They are not only the
decision-makers in their own workplaces, but also [play] determining roles
in expensive household buying activities.”
Another group growing in
importance as consumers are young, educated, white-collar urban dwellers,
who make up the so-called “aspirational middle class.”
Boston
Consulting’s Kwok defined this group as 20- to 35-year-olds who have lower
incomes than their elders, but spend more of their cash and are most
interested in fashion. College graduates entering the workforce earn
starting pay of roughly $200 to $400 a month, a figure that can double
after a few years on the job. The overwhelming majority continue to live
with their parents until they get married, which means their spending on
basic needs like food and housing are minimal.
Chinese families
traditionally pool their financial resources, but the current generation
of pampered only children is under little pressure to contribute to the
family account. They are expected to save some, but large future
investments such as property and education will mostly come from parents’
income or savings.
“Chinese in general spend 8 to 10 percent of
their disposable income on clothing, including footwear, hats and
accessories,” Kwok said. “But young people spend 20 percent or
more.”
Twentysomethings are the most brand-conscious, as they grew
up during a more capitalist milieu and have had greater exposure to mass
media advertising and susceptibility to peer pressure. Wang Lan, an editor
at Exquisite Life, a luxury lifestyle magazine in Zhejiang Province, said
fashion consumers in their 20s spend a lot of time browsing, but are
cautious buyers.
In its latest study, conducted in the second half
of 2004, CTR found that 49.8 percent of respondents aged 25 to 34
considered dressing fashionably as “quite important” and devoted a large
proportion of their expenditures to it. A majority agreed with statements
such as they “love to pursue fashion trends” and “wearing famous brands is
part of my charm.” Only 38.4 percent professed indifference to current
trends.
Respondents said they primarily buy middle-range casual and
sportswear brands, primarily local labels. In the prior 12 months, 16.7
percent of survey participants in this age group had purchased apparel by
Shi Pai, 12.3 percent by Baleno, 9.9 percent by Giordano, 8.2 percent by
Crocodile and 7.9 percent by Adidas.
Young, white-collar Chinese
entering the workplace spend their first few paychecks on clothing,
electronics and entertainment like going to restaurants, teahouses and
bars. The CTR survey found that 92.9 percent had dined out recently, and
while Chinese food remains predominant, 48.8 percent had been to a Western
restaurant in the previous month. Dating and socializing account for the
relatively large entertainment spending among this group.
Beyond
entertainment, apparel’s biggest competitor for young Chinese shoppers’
yuan are small electronics. Most middle- and upper-class Chinese have
their own mobile phone by high school, if not sooner, and many will trade
up for newer, trendier models with more advanced functionality. Better-off
Chinese will buy a new mobile phone every year or so, and now cameras,
online gaming, short messaging and e-mail functions are de
rigueur.
According to the CTR survey, 99.7 percent of young white
collars have mobile phones, 82.3 percent have personal computers and 91.6
percent use the Internet.
BCG’s Kwok identified a significant
gender gap in how recent graduates spend their first few
paychecks.
“Guys will spend more on gadgetry and maybe a good pair
of athletic shoes,” he said. “Young women will use their first paycheck to
buy clothing, particularly maybe a good bra for themselves,” which their
more practical parents previously would not have subsidized.
Young
middle- and upper-class Chinese are willing to spend the bulk of their
income on nonessentials like fashion, but those incomes, while high by
Chinese standards, remain comparatively low by international standards.
Many young women will save several months’ income to purchase, for
example, a single Louis Vuitton bag, often to accessorize a wardrobe of
knockoffs of the same brand.
According to data from China’s
National Bureau of Statistics, last year the average per capita income
among urban residents was $1,137, while rural dwellers made about
$354.
Fashion preferences among Chinese shoppers also vary greatly
by city. Generally speaking, young white-collar Chinese in the so-called
“first tier” cities of Beijing, Shanghai, Guangzhou and Shenzhen enjoy
higher salaries and exhibit a more sophisticated approach to fashion. They
are highly brand-aware and know their Givenchy from their Gucci. This
sophistication, however, means that they are not easily impressed and do
not exhibit as much blind enthusiasm for famous brands as many of their
country cousins. Rather, they will pick and choose to establish their own
personal style and image. In particular, young Shanghainese are willing to
support emerging local designers, and have embraced rebellious styles like
hip-hop and grunge.
China’s 40 to 50 “second tier” cities are
defined as such by population size and economic conditions. They include
massive municipalities such as the coastal Tianjin, with a population of
10 million, and inland Chongqing, population 30 million, as well as
smaller but prosperous provincial capitals like Hangzhou, home to 1.7
million, and Nanjing, population 6 million.
Tastes are more
conservative in the second-tier cities, even among young people.
Twentysomethings in the secondary cities dress similarly to the
thirty-somethings in the main urban centers. This is in part because of
more slowly adapting social attitudes and traditional tastes, and in part
because the young professionals in secondary cities are more likely to
work in manufacturing and state-owned enterprises, compared with the small
companies and creative and service fields predominant in the large
cities.
As college-educated, professional, middle- and upper-class
Chinese enter their 30s, their place in society changes, as do their
consumption habits. Either promoted to management or founding their own
businesses, their incomes rise substantially. As they marry and move out
from their parents’ home, they enjoy the double income but also confront
significantly higher expenditures, such as the purchase and furnishing of
a home.
Instead of splurging on imported, brand-name Italian shoes,
they will splurge on an imported, brand-name Italian toilet for their posh
new condominium.
Similar to other countries, Chinese professionals
in their 30s and 40s have less leisure time to spend shopping or thinking
about fashion. For some, this combines with rising incomes and a growing
need for status to push them toward international luxury brands and brand
loyalty.
“People aged 30 to 50 do not spend much on clothing,” said
BCG’s Kwok. “It depends on their occupation and stage in life, but for
their clothing needs, comfort and durability matter more than brands,
compared to the kids who just care about brands.”
Especially once
they have children, middle-aged Chinese are more concerned about saving
for and spending on their offspring. A study by Horizon Research Group
found that 31 percent of Shanghainese reported school fees for their
children as their biggest expenditure increase in 2004.
The
children of the well-off are an important but often overlooked consumer
demographic in China. Kwok asserted that the 10 to 20 age group is one of
the main markets for luxury goods, including apparel, in China. Families
will spend significantly more on luxuries for their children than for
themselves.
Despite all the demographic variety within China’s
middle and upper classes, and despite their high profile, they remain a
tiny proportion of what remains a developing, largely poor nation, where
60 percent of the population still lives in rural settings. Behind the per
capita gross domestic product of $1,094 lies a huge wealth gap between
rural and urban residents. China’s National Bureau of Statistics estimated
that the middle class represents 5 percent of the population, roughly 65
million people.
For the time being, however, 95 percent of Chinese
consumers are far from able to afford foreign fashion. Even mid-range
domestic and Hong Kong brands like Baleno and Giordano are beyond their
usual range. The mainstream Chinese consumer will rarely spend more than
$5 on an item of apparel and will splurge on something costing $15 to $30
only once or twice a year. Their preferences run toward low-end local
brands and knockoffs of foreign luxury brands.
That leaves many
foreign brands engaged in marketing efforts that they hope will pay off
over the long term, when more of China’s population can afford their
products.
“Interest in brands is high, but the ability to buy is
low,” said Wang. “Here, it’s maybe 3 to 5 percent [of the population] that
can afford the top products.”
 Few Chinese shoppers can afford to spend $50 on a
garment.
Photo by Doug Kanter
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