China’s New Strat­egy: Think of Home

WWD Digital Daily - - Front Page - BY NYIMA PRATTEN

Do­mes­tic ap­parel brands prove the “Made in China” la­bel has for­ever changed.

SHANG­HAI — The ap­parel in­dus­try in China is go­ing through a pe­riod of tran­si­tion at break­neck speed, with the per­fect storm of in­creased la­bor costs, the U.S. trade war and in­ter­na­tional un­cer­tainty. These changes, com­bined with an in­crease in do­mes­tic de­mand from the na­tion’s ris­ing mid­dle- class, have led to a mo­men­tous shift.

“This year, we have faced many chal­lenges, such as con­sump­tion up­grad­ing, and many key con­di­tions of our pro­duc­tion, such as la­bor costs, also chang­ing. We are cre­at­ing many in­no­va­tions in our pro­duc­tion tech­nol­ogy and our com­mer­cial pro­duc­tion pat­terns.

Also, the in­ter­na­tional mar­ket en­vi­ron­ment is chang­ing. To put it sim­ply, China’s cloth­ing in­dus­try no longer fo­cuses on the pro­duc­tion quan­tity, but is now more qual­ity-ori­ented,” said Chen Dapeng, pres­i­dent of Chic Shang­hai and ex­ec­u­tive vice pres­i­dent of the China Na­tional Gar­ment As­so­ci­a­tion.

“Over the past half year, cloth­ing quan­tity has not in­creased at all, but do­mes­ti­cally, the re­tailer quan­ti­ties are in­creas­ing and our ex­port has re­al­ized a neg­a­tive growth of 0.8 per­cent. So, you can see that even though our pro­duc­tion quan­tity is not in­creas­ing, our pro­duc­tion value is in­creas­ing,” said Chen. “Ac­tu­ally, we are still pro­duc­ing, but we are mov­ing our fac­to­ries to other coun­tries. But I think tech­nol­ogy will change the sit­u­a­tion. We are now mov­ing the in­dus­try to be in­tel­li­gent, more au­to­mated, and more in­for­ma­tion- ori­ented.”

Women’s wear sales in China in­creased by 5.7 per­cent year-on-year to 116.93 bil­lion eu­ros in 2017, ac­cord­ing to Euromon­i­tor. The mar­ket re­search firm pre­dicts that the mar­ket value in this sec­tor will con­tinue to in­crease to 139 bil­lion eu­ros by 2021.

“The cloth­ing in­dus­try has put more fo­cus on de­sign­ing and in­no­va­tions.

We have im­proved on our in­for­ma­tion tech­nol­ogy com­bined with the de­vel­op­ment of the whole in­dus­trial tech­nol­ogy. We have in­creased our pro­duc­tion ef­fi­ciency, which has im­proved our pro­duc­tion qual­ity as well as im­proved our com­mer­cial op­er­a­tion ef­fi­ciency,” said Chen.

As the mid­dle class rises in China, and be­comes in­creas­ingly bet­ter ed­u­cated with higher dis­pos­able in­come, con­sumers have be­gun to fo­cus more on their in­di­vid­ual style, qual­ity and brand names of their cloth­ing. “I think in the next five to 10 years, China’s cloth­ing in­dus­try will put more fo­cus on the ex­pres­sion of its de­sign and fash­ion. We will put more Chi­nese spirit into these prod­ucts. The cloth­ing in­dus­try is also a part of our cul­ture, so I think in the fu­ture, what the Chi­nese peo­ple are wear­ing will have more of a Chi­nese spirit. I think the young peo­ple will love these kinds of de­signs. I think this will be the trend in the fu­ture,” said Chen.

As lo­cal brands strengthen their hold in the coun­try, and gain more ex­pe­ri­ence on the ODM side of the busi­ness pro­duc­ing their own de­signs, ex­port­ing their own brands might be­come a more pop­u­lar op­tion than sim­ply ex­port­ing oth­ers’ prod­ucts. “China’s do­mes­tic mar­ket is good, but the in­ter­na­tional mar­ket is not sta­ble, and also the profit space for the ex­port in­dus­try is very small. I think, in the fu­ture, some well-de­vel­oped Chi­nese com­pa­nies might adopt the strat­egy of their own brand in­ter­na­tion­al­iza­tion,” said Chen.

Chi­nese ap­parel brands have al­ready be­gun to out­source their pro­duc­tion to other coun­tries in or­der to re­main com­pet­i­tive in the face of ris­ing costs in the coun­try. “We are a Hong Kong com­pany, but we have dif­fer­ent pro­duc­tion units in China, Bangladesh and Myan­mar. Right now, be­cause of the high cost in China, we have had to open up in other parts. We do OEM and ODM, but right now we do more ODM and want to ex­pand this busi­ness. Most of our cus­tomers are look­ing for de­signs from us, not their own de­sign,” said Tommy Lee, sales di­rec­tor at Kei Lock Fash­ion.

Out­sourc­ing some man­u­fac­tur­ing from China to its other fac­to­ries has the added bonus of help­ing the com­pany avoid tar­iffs from the U.S. trade war, although this wasn’t the rea­son for the open­ings.

“Con­sumers used to spend money on many dif­fer­ent styles at Zara, H&M or Uniqlo, but now their busi­ness is also go­ing down. Con­sumers are look­ing for more qual­ity and style, not pric­ing. The [in­ter­na­tional] tex­tile in­dus­try is chang­ing. Be­fore, cus­tomers were look­ing for cheap prices and fast fash­ion. Now they are not — they are look­ing for qual­ity and more per­sonal style. That is why we have de­vel­oped our work­shop in the front-end and more in de­sign,” said Lee.

Chi­nese con­sumers in­creas­ingly value high-qual­ity prod­ucts and trusted brand names, es­pe­cially af­ter nu­mer­ous coun­ter­feit prod­uct scan­dals on­line. Lo­cal buy­ers from newer Chi­nese brands at the Chic Shang­hai fair tended to hand­pick qual­ity prod­ucts and the lat­est styles. Many val­ued the op­por­tu­nity to meet sup­pli­ers face to face.

“Our brand has only been es­tab­lished for one year. Our cus­tomers be­lieve in our prod­ucts. They are older cus­tomers and when we get new prod­ucts, they buy them im­me­di­ately. We can’t have them doubt our qual­ity and we need time to build our rep­u­ta­tion,” said Zhang Shan Shan, owner of a Zstylles, a chain of lux­ury wom­enswear bou­tiques in Hu­nan prov­ince.

Many lo­cal booths at the fair were de­signed to at­tract at­ten­tion, with blar­ing pop mu­sic, mini cat­walks and even a fe­male model rid­ing a plas­tic horse. The cloth­ing de­signs were eye-catch­ing, and ex­hibitors were turn­ing away buy­ers who hadn’t booked an ap­point­ment. There was a buzz among ex­hibitors that this was the new “Made in China” la­bel and that it was here to stay, thanks in part to trade be­ing bol­stered by strong do­mes­tic growth.

“We are look­ing for for­eign brands. We are very com­pet­i­tive. We have our own fab­ric, fac­tory and de­sign­ers, so we can pro­duce all our prod­ucts by our­selves. There are so many brands in China now that we are do­ing busi­ness in China first, and when we do this busi­ness bet­ter, then we can ex­tend to the over­seas mar­ket,” said Zhu Hai, founder and chief ex­ec­u­tive of­fi­cer of Shang­hai ap­parel com­pany Yi Shang.

An­other ex­hibitor that was at­tract­ing a lot of at­ten­tion through­out the fair was Fu­jian Fucheng Net­work Tech­nol­ogy and its “global sup­ply chain pro­fes­sional plat­form,” which was also cel­e­brat­ing the launch of its English lan­guage plat­form. This plat­form fa­cil­i­tates com­mu­ni­ca­tion be­tween small- and medium-size en­ter­prises within China by utiliz­ing in­for­ma­tion tech­nol­ogy and lever­ag­ing data an­a­lyt­ics. It al­lows these types of com­pa­nies, which have suf­fered the most as low-cost man­u­fac­tur­ing has moved away from the coun­try, to con­nect with in­ter­na­tional buy­ers and share ca­pac­ity and re­sources, there­fore re­main­ing com­pet­i­tive on the global mar­ket.

The com­pany claims to have over 200,000 small- and medium-size Chi­nese busi­nesses on the plat­form, all of which are man­u­fac­tur­ers or in­di­vid­ual busi­ness en­ti­ties that sell or en­gage in busi­ness in the ap­parel, footwear, or bags and lug­gage in­dus­try. “The idea is to fa­cil­i­tate the whole sup­ply chain, es­pe­cially for you Amer­i­cans, who come over here try­ing to find who can sell you rib­bons or but­tons. You can find them on our plat­form,” said Si­mon Lam, chief op­er­at­ing of­fi­cer at Fu­jian Fucheng Net­work Tech­nol­ogy.

“On the Chi­nese side of it, we have many of these small- and medium-size com­pa­nies that seem pretty ig­no­rant about how to use the In­ter­net [for busi­ness]. So, we are ba­si­cally go­ing through the whole ed­u­ca­tion process try­ing to bring them on­board so they can start to get them­selves utiliz­ing the IT and get all the data they need to man­age their busi­ness. Right now, they don’t try to man­age their busi­ness with data,” said Lam.

Pro­duc­tion and op­er­a­tional ef­fi­ciency has been key to keep­ing de­mand within China, along with main­tain­ing high pro­duc­tion stan­dards. New tech­nol­ogy and big data is one low-cost way of achiev­ing this. The peer-to-peer-based shar­ing that Fu­jian Fucheng Net­work Tech­nol­ogy pro­vides fol­lows the shar­ing econ­omy trend in the coun­try of car­pool com­pa­nies, shared bi­cy­cle schemes and many other con­cepts.

“They haven’t in­vested that much in tech­nol­ogy. We help to or­ga­nize what we call the mi­cro fac­to­ries. There are a lot of lit­tle fac­to­ries, 20-per­son fac­to­ries. What we do is a whole food chain, or what we call the quick or­der sup­ply chain. We try to or­ga­nize dif­fer­ent mi­cro work­shops. Then you have, on top of that, a fa­cil­ity that takes the or­ders and does some part of the au­to­ma­tion and dishes out the other stuff to other work­shops. Then they come back to­gether and ship it. From that sense, we can have a quick turn­around within 10 days, which is quicker [com­pared to other coun­tries] to a large ex­tent,” said Lam. “Part of the big is­sue for [other coun­tries] is if they get an or­der of some lat­est fash­ion, they have to find the ma­te­rial. To­day, I have the ad­van­tage of find­ing the ma­te­rial in China, not over there.”

Big data can also be used to help some buy­ers and sup­pli­ers nav­i­gate the trade war with the U.S. by cir­cum­vent­ing the

U.S. tar­iffs through shar­ing in­for­ma­tion and out­sourc­ing some pro­duc­tion ca­pac­ity to Chi­nese-owned fac­to­ries in for­eign coun­tries. “Some [Chi­nese fac­to­ries] in­vest in Bangladesh, Pak­istan or In­dia. Their fac­tory could ac­tu­ally ship the prod­uct to the U.S. with­out the ad­di­tional tar­iff be­cause they do it from there,” Lam said. “But if they do it from here and ship it over there, they would prob­a­bly now have to in­cur the ad­di­tional tar­iff. We help them to be more ef­fi­cient, whereas in the past there was a gap of in­for­ma­tion.”

In to­tal, 719 ex­hibitors with 825 brands from 14 coun­tries and re­gions con­verged on Chic Shang­hai’s au­tumn edi­tion. This year, the bian­nual fair was moved for­ward from its nor­mal mid-Oc­to­ber tim­ing, as the au­tumn-win­ter buy­ing sea­son has in­creas­ingly been pushed for­ward. This was in line with the con­cur­rent In­ter­tex­tile Shang­hai Ap­parel Fab­rics fair, both of which were held at the Na­tional Ex­hi­bi­tion and Con­ven­tion Cen­ter. The Chic Shang­hai fair or­ga­niz­ers reg­is­tered 58,400 visi­tors, which was sim­i­lar to last year’s fig­ure. Although, it was noted that foot­fall might have been lower this sea­son as the fair fell be­tween two im­por­tant hol­i­days in China

“I think in the next five to 10 years,

China’s cloth­ing in­dus­try will put more fo­cus on the ex­pres­sion of its de­sign and fash­ion.”

— CHEN DAPENG, CHIC SHANG­HAI

At Chic Shang­hai, Chi­nese brands fo­cused in­creas­ingly on qual­ity over quan­tity and more on the do­mes­tic mar­ket.

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