China has been the world’s largest apparel manufacturer and exporter for over a decade. However, in recent years, the expansion of China’s clothing sector has slowed, intending to build a more sustainable and technology-intensive industry, writes Kristina Koehler-Coluccia, Head of Business Advisory for Woodburn Accountants & Advisors
Since 2015, China’s apparel manufacturing industry has undergone a profound transition. Rising labour costs shifted the sector in a less labour-intensive and highly automated direction. Geographically, many apparel enterprises have relocated to regions with lower labour costs, such as western and central China.
Technologically, apparel enterprises upped their research and development spending. In 2020, more than 26,000 R&D projects were carried out in the textile and clothing sector. Nevertheless, many apparel enterprises exited the market during this industrial upgrading and structural transformation.
Besides manufacturing, China’s apparel export industry faced significant challenges from international trade disputes and increasing production costs. China’s clothing export value and global share have continuously dropped between 2014 and 2020. In the meantime, several rising apparel manufacturing countries in Southeast Asia started to threaten China’s leading position.
Despite these circumstances, China’s garment exports saw an upsurge in 2021 amid the Covid-19 pandemic. In contrast to many countries that shut down clothing manufacturing during lockdowns, Chinese clothes makers benefited from the country’s effective pandemic controls.
Given the fierce competition in the international fashion markets, China is looking for more opportunities at home. In the past two decades, the average expenditure on clothes and shoes in China increased dramatically.
Chinese consumers’ willingness to buy domestic brands also increased substantially. According to a recent survey, around 60% of Chinese consumers had bought fashion items from domestic clothing brands.
The prevalence of online shopping has also boosted China’s apparel retailing sector. In 2020, more than one-third of the apparel sold in China was via online retail platforms. To improve consumers’ online shopping experience, Chinese apparel retailers have invested in innovative technologies.
In spring 2020, China’s leading online retailer, Taobao, launched its first virtual dressing room, allowing consumers to try on more than 600 pieces of luxury items virtually. According to Statista’s Digital Market Outlook on the apparel industry, by the end of 2025, nearly 60% of China’s apparel market revenue will be generated through online sales, well ahead of the global average of 43%.
Despite the popularity of online platforms, almost 50% of fashion consumers still shop in physical stores (including department stores, speciality stores and monobrand stores) because they can feel the texture of the products and try them on if necessary. A secondary reason is that they can make sure the quality of the product matches their expectations.
Current trends: Dressing down, sustainability and more
Clothing and footwear in China are fragmented, with local and international fashion brands competing in different price ranges. However, the pandemic changed consumers’ habits. They now spend more time at home, choosing relaxed dress codes and work-from-home attire, which means that sweatshirts and jogging bottoms saw impressive results.
After the sales downturn in 2020, retail channels (especially brick-and-mortar stores) started to recover in a steady manner throughout 2021, in line with the proactive channel revolution by clothing and accessories players to get the most out of traffic to physical stores.
With the shift in shoppers’ behaviours post-pandemic and to better equip offline channels with the ability to combat unexpected events such as extreme weather and natural disasters, fashion retailers are adapting to new levels of operational efficiency pursuits in a consumer-oriented manner.
The pandemic accelerated the adoption of new technologies. When stay‑at‑home orders made it harder for consumers to shop in stores, many brands launched “virtual fittings”, where consumers could try fitting at home using online meetings and 3D body scanning technology.
Second, third and fourth-tier cities in China have pushed the growth of the luxury market. As a result, 88% of China’s luxury growth was driven by new consumers. One group of shoppers that have made a huge impact are Gen Z consumers, representing 40% of the industry growth. However, Chinese Gen Z consumers have different shopping behaviours from their predecessors when it comes to luxury purchases. Whereas a decade ago, 90% of Chinese luxury consumers would have first purchased leather goods, today’s Gen-Z consumers are more likely to first buy a ready-to-wear item, such as a signature T-shirt from an up-and-coming designer.
Another important factor to consider is the recent impact of the sustainable fashion movement in the apparel industry. People worldwide are increasingly conscious of the environmental impacts of their consumption habits, and Chinese consumers are no different. Young, urban and increasingly environmentally conscious consumers in China are following this trend.
With the rise of fast fashion – the mass production of cheap and readily disposable clothing – the fashion and apparel industry has become increasingly scrutinised by environmental activists. By some measures, the fashion and apparel industry is responsible for 4-10% of global greenhouse gas emissions.
In contrast to fast fashion, sustainable fashion emphasises low-emissions clothing products that are made to last. As China seeks to radically reduce its greenhouse gas emissions, sustainable fashion has the potential to transform the country’s fashion and apparel industry – but requires long-term investments to drive cultural change among consumers.
China’s most prominent sustainable fashion brands, such as Icicle, Klee Klee, Krop and Ziran, largely cater to a higher-end market. Other companies, like Bastine, focus on sustainable textile production. Some foreign brands specialising in sustainable fashion have entered the Chinese market, including Everlane and Allbirds, with mixed success.
Do Chinese consumers still want to buy foreign fashion brands?
In recent years, China’s fiercely competitive environment has been pushing some international players out of China. Foreign brands are struggling to compete with domestic brands that leverage large social media followings to offer cheaper products at lower prices via live-streaming and e-commerce platforms, where Chinese e-commerce users can buy clothing products for less than RMB 50 (US$7.5).
Recent data from iiMedia Research showed that 62% of Chinese consumers bought clothes via e-commerce platforms in 2022, while 58.5% of all customers spent between RMB 201 (US$30) and RMB 600 (US$ 90) on making clothing purchases via traditional offline and online platforms combined.
The rise of nationalism is also stimulating the apparel industry to adopt more Chinese essentials, with “being a Chinese brand” and “having Chinese elements” being top considerations for young Chinese consumers, according to the China Youth Consumption Report from iiMedia Research.
The boycott of Xinjiang cotton by predominantly Western firms further exacerbated this trend, with Baidu’s 2021 big-data search report showing that the search volume of Chinese clothing brands increased by 137% after the moves due to concerns over human rights, which China has denied.
H&M, which drew criticism for being the first company in China to publicly boycott Xinjiang cotton, reported a nearly 40% year-on-year decline in sales in China. The company announced the closure of its flagship Shanghai store but returned to Tmall, having previously been dropped from the business-to-consumer online retail platform.
Old Navy, owned by Gap Group, closed all its stores and exited the Chinese market in March 2020 after six years in the country to focus its business on maximising efficiency in North America.
British clothing brands Topshop and New Look suspended their operations in China in 2018 due to weak performance. Bershka, Pull&Bear and Stradivarius, all brands in the Inditex Group portfolio along with Zara, have also closed their online stores.
According to industry experts, Chinese consumers prefer the lower prices and diverse designs offered by Chinese brands. Overseas fast fashion brands will be unlikely to respond to changes in design style to suit the aesthetics in China. Moreover, the notion that anything hip and trendy must come from abroad is slowly changing as Chinese companies are establishing their own fashion brands and collections. Big Chinese fashion companies, such as the casual wear brand Metersbonwe, the Trendy International Group and jewellery company Qeelin, have all discovered foreign shores for expansion, especially in Europe and the US.
Anyone wanting to break into the Chinese fashion industry – be it as a brand, retailer, designer or service provider – should, first of all, understand the market and the consumer, including Chinese sizes and bodies.
Quality is a big draw, with the best example being European products, which Chinese consumers love for their premium quality and fabrics. Geography is also key – keeping the vast market with its regional preferences in mind and that not only first-tier cities are important but also second and third-tier ones.
In terms of channels, anyone approaching China should keep in mind that e-commerce is booming and that a strong, customer-friendly Internet presence is a must.
Geographically, the industry is mainly located in the southeast around the Pearl River Delta, Yangtze River Delta, the Bohai Sea region and the southeastern coastal areas. Though there are 50 garment clusters throughout China, the total output of Shandong, Jiangsu, Zhejiang, Fujian and Guangdong make up 70% of China’s total garment output.
Though China is the number one in terms of textile and garment exports in the world, its situation is different from a country like Bangladesh when it comes to the industry’s overall importance. While in Bangladesh, it is the main and most important industry (at 85.9% of all exports), in China, it is one of many major industries such as mining, iron and steel, machinery, automobiles and others.
The challenges of manufacturing in China
In recent years, wages have increased in China faster than in other Asian countries, forcing foreign brands to look for manufacturing alternatives in the region, such as Vietnam.
Another difficulty has been the long transportation lead time to Europe and the US and the currently high freight costs. Due to recent supply chain disruptions and the Covid pandemic, some companies are finding it unsustainable to produce in Asia, turning to near-shoring, at least partly.
Additionally, the ongoing trade war with the US has hurt both countries. Tariffs have encouraged foreign companies to look for alternative markets and to outsource at least part of their production.
One problem companies sourcing from or manufacturing in China encounter is insufficient lead time assessment. Finding the right materials requires sufficient time and attention, and human errors may cause delays. Establishing efficient supply chain logistics in the region and coordinating all the delivery, storage and other activities within the supply chain is costly and time-consuming, risking unwanted — and often avoidable — delays.
Ensuring high quality can be tricky. Many factors can negatively affect product quality: insufficient apparel manufacturer assessment, poor quality assurance at the start of production, lack of quality control following production and no consideration for the quality or suitability of inputs.
A single sample often does not tell the full story about the quality of a product, and the reliability of a manufacturer’s quality control mechanisms. Many suppliers in China, Bangladesh and other major garment-producing countries in Asia either don’t follow production standards closely or have bad production standards.
Some companies don’t conduct a feasibility study before they start production. This often leads to underestimating prices and overestimating production speed, resulting in unpleasant surprises, higher costs and slower final delivery.
Legal challenges
On the legal side, intellectual property protection and trademark and copyright registration are necessary in China. In 2020, China concluded 2,429 court cases involving IPR in the fashion industry. The best way to protect a fashion brand against counterfeiters is by correctly registering it as early as possible with the appropriate IPR administrative agencies.
China’s IPR legal framework is similar to that of many countries. However, there are detailed differences that must be considered in the case of any cross-border transactions involving China. Among these, one of the most important is that China is not a signatory of many bilateral judicial assistance treaties. This means that the decisions of foreign courts are not enforceable in China and vice versa.
Administrative bodies, such as the State Administration for Market Regulation and its local delegates, typically carry out raids to seize goods from IPR infringers. They also have powers to impose penalties on IPR infringers.
Trademark law, patent law, copyright law and anti-unfair competition law and their matching regulations are the key laws in China to protect IPR.
China Consumer 2023
This article was produced as part of a series for China Consumer 2023.
Learn more about CBBC’s flagship consumer event of 2023 here.
