Retail MNC riding consumption frenzy in nation
Foreign fashion brands continue to hike investment in Chinese market
When Eugenio Bregolat Lukashov, a 39-year-old Spaniard who has been living in China for 26 years, was asked about China’s economic development over the past two decades, he used the word “astonishing”.
Bregolat, now president of Inditex Greater China, first came to the country when he was two years old. In fact, he’s lived in China longer than any other place.
As a witness to China’s economic development, he said, “It is astonishing that China has been able to develop so rapidly over the past few decades.”
Bregolat said that when his family first arrived in China, there was even a special currency for foreigners, as they couldn’t pay in local currency.
“At that time, I remember in Beijing there was only one foreign supermarket. There were very few restaurants where foreigners could eat in those days. And I believe we were the only 40 Spanish people in the whole country, not just in Beijing.”
Also, as a resident of Shanghai for 13 years, he recalled the first time that he came to the city from Beijing. The train took him many hours. Today, it takes only four and a half hours to travel from Beijing to Shanghai by high-speed train.
“I remember when I first saw Pudong, there was only the Oriental Pearl Tower and the Jinmao Tower. It’s only been 20 years ago,” he said.
Bregolat’s confidence in China’s economy and the Chinese market was reflected by Inditex’s business strategies in the country over the past years.
The owner of brands such as Zara, Massimo Dutti and Zara Home said it will further adapt its business strategies to consumer needs and adjust store opening plans in China, renovate existing ones, exploit the power of digital platforms and remain upbeat about the local market where consumption upgrade and consumption recovery now form the impetus.
The company has sought to dispel rumors that Zara is gradually moving out of China, clarifying that it is only adjusting its store-opening strategies and increasing emphasis on opening more high-quality stores, following its global approach.
On Aug 17, Zara renovated and upgraded its outlet in Joy City shopping mall in Shenyang, Liaoning province, giving it a more digital edge. Its mobile app can detect the number of available clothing items, reserve an on-site fitting room, and pre-order and pick up goods. It also opened a new image store in Shanghai Sun Plaza and renovated its Han Street store in Wuhan, Hubei province.
“China is important for us and is a strategic market for Inditex. We will keep investing in new digital functionalities and high-quality stores in the Chinese market, and continue to open more stores in top commercial areas or renovate existing ones, so they reflect Zara’s latest brand image and meet the needs of local consumers,” Bregolat said.
He acknowledged the potential of China’s consumption, as well as the inspiration the company gets from Chinese consumers.
“We all know that there are a lot of trends that first begin in China and then are exported to the world, especially with China’s increasing digitalization. So we are constantly learning and taking inspiration from China and its consumers. I can feel the energy in the country, which makes me feel alive,” he added.
Fast fashion, the category that Zara falls into, refers to a clothing production mode that quickly responds to shifting consumption demand from customers and fashion trends. It aims at taking advantage of the supply chain and cutting the cycle period from production to sales so as to offer fashionable clothing to consumers at relatively low prices.
Fast fashion has become a highvalue race of sorts in the clothing sector. Before 1980, the clothing industry was dominated by a model of separated production and sales, and sales channels were mainly department stores. Due to long links, high markup rates and low flexibility in discounts, consumers could not enjoy either good quality or cost-effectiveness at the same time.
After 1980, fast fashion, perhaps best represented by Zara and Uniqlo, rose to prominence, and achieved a vertically integrated sales model encompassing product planning, manufacturing and retail sales, allowing consumers to purchase higher-quality products at lower prices.
Fast fashion in China started at the beginning of the 21st century. In 2002, Uniqlo opened its first outlet in China in Shanghai, unveiling China’s development of fast fashion. Afterwards, a number of fast fashion brands, including Zara and H&M, entered the Chinese market one after another. The fast fashion sector in China experienced a rapidly growing period.
Data from industry research portal chinabaogao.com showed that in 2017, fast fashion brands had set up 416 outlets in China in total, reaching a peak in nearly a decade, and market volume surpassed 200 billion yuan ($27.8 billion).
However, since 2018, affected by the sluggish commercial real estate market, the impact of e-commerce platforms and the trend of consumption upgrading, the expansion pace of fast fashion brands in the Chinese mainland market has gradually slowed. In 2022, the growth of new domestic stores of fast fashion brands decreased to 154, a year-onyear decline of 49.51 percent, according to chinabaogao.com.
“In the past, with broad choices, fast product upgrades, rich fashion elements and high cost performance, fast fashion was popular among Chinese consumers. Now, facing a series of challenges and the fact that the dividend of the fashion era is waning, the industry has entered a stage of differentiation from the original stage of wild growth. To maintain competitiveness and realize sustainable development, fast fashion brands need to positively seek transformation. For example, they can establish diversified product portfolios, integrate online and offline channels, and highlight brand stories and culture,” said the report from chinabaogao.com.
Zheng Lei, chief economist at cloud services provider Smydigtech, said: “After the three-year pandemic, fast fashion brands are shifting their business strategies in China to adapt to new market environments and new consumption demand. This also reflects the change and the upgrade trend in China’s consumption sector. Consumers have higher demand for quality and experience.”
Jiang Han, a senior at market consultancy Pangoal, said: “China’s fast moving consumer goods sector still maintains great potential and room for growth as Chinese consumer demand for fashion and product quality constantly grows. Although some fast fashion brands are shutting down some of their outlets in China, this does not mean foreign companies are moving out of the country.
“On the contrary, they are adjusting their strategies to adapt to new changes in the Chinese market. Through high-end transformation and digital innovation, foreign companies are striving to enhance their competitiveness in the local market.”
With foreign media speculating that China’s consumption remains weak and its economic growth is losing momentum, Yang Jinghao, chief economist at Concat Data Technology (Hangzhou) Co, said that the former only coincides with a statistical data gap period, while the latter is simply a replacement of concepts in macroeconomic growth models to spread pessimistic expectations.
“I hold a moderately optimistic attitude toward China’s macroeconomic growth in the next two years, especially since the third quarter of last year when it was confirmed that China’s economy had bottomed out in the inventory cycle. With the United States Federal Reserve launching a loose monetary policy cycle in Q3, China’s external demand environment will also improve. Therefore, badmouthing China’s economy at this time lacks macroeconomic logic and factual basis,” he said.
Amid the backdrop of the threeyear pandemic, China’s consumption sector has continued to recover, serving as a strong driver of the country’s economy. The latest data from the Ministry of Commerce showed that in 2023, China’s total retail sales of consumer goods reached 47.1 trillion yuan, growing 7.2 percent year-on-year. The contribution rate of consumption to China’s economy was 82.5 percent, demonstrating that the fundamental role of consumption is constantly rising.
Sheng Qiuping, vice-minister of commerce, said at an earlier news conference that this year, the MOC and related departments have launched a series of activities to boost consumption, and introduced a series of policy measures, including those to promote automobile and home appliance consumption, to promote the sustained recovery of consumption.