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Unfazed by global competition local brands dominate interior Chinese market

"Fashion brands like H&M and Zara might dominate the global market but penetrating the low cost clothing market in the Taobao villages’ of China is tough for them. The clothing brands operating here are fully domestic. International brands, inspite of their aggressive marketing have failed to make inroads into this market as people living in these parts of China, have never heard of them."

 

Unfazed by global competition local brands dominate interior Chinese market 002Fashion brands like H&M and Zara might dominate the global market but penetrating the low cost clothing market in the Taobao villages’ of China is tough for them. The clothing brands operating here are fully domestic. International brands, inspite of their aggressive marketing have failed to make inroads into this market as people living in these parts of China, have never heard of them.

Wholesale clothing factories, traditionally dealing in low-cost apparel, were concentrated in Zhejiang, Fujian and around Guangdong in the Pearl River Delta. These factories would offload their nameless, brand-less, largely design-less goods to small vendors who would truck them around the country to sell at wholesale clothing markets. All this changed with the rise of Taobao: the platform that unlocked the ability of Chinese consumers.

Focusing on core competencies

According to Alibaba’s research arm, AliResearch, 10 per cent households in these Taobao villages run stores,Unfazed by global competition local brands dominate interior Chinese market 001 with their total annual online revenue reaching at least 10 million yuan (about US $1.5 million). There are currently more than 1,000 such villages in China.

These villages focus on a niche category. Hongxing, in China’s eastern Jiangxi province, makes jackets, with 420 companies in a village devoted to manufacturing and distributing puffy outerwear to Chinese consumers. Every year, the village makes 2.5 billion yuan (US $360.2 million) in revenue from jackets, more than 1 billion yuan (US$144 million) of which comes from Taobao sales.

Traditionally, low-cost Chinese brands won market share by covering the country’s shopping centres and high streets with thousands of brick and mortar stores — still a viable strategy for major players such as the aforementioned Metersbonwe (the founder of which, Zhou Chengjian, has a net worth estimated at US$1.4 billion (by Forbes), Bosideng (founded by Gao Dekang, (who Forbes estimates is currently worth $1.7 billion), plus Ochirly and Five Plus, both owned by Guangzhou-based Trendy Group (founded by Jacky Xu, whose current net worth sits at $1.3 billion).

Local manufacturers have an edge

International mass-market players haven’t been able to gain a foothold among many young Chinese consumers. This is partly due to the first-mover advantage of local brands manufacturing cut-price fashion with remarkable turnaround speeds, but also because China’s post-90s generation don’t necessarily care where affordable clothing comes from — unlike Chinese luxury consumers who place a premium on "made in Europe" luxury. Another problem with these companies is that they didn’t focus on their e-commerce operations even as China’s online apparel market boomed. Their e-commerce sales lagged behind the anticipated 2018 China average online retail spend of 33.6 percent.

As Jason Yu says, China’s low-cost apparel manufacturers currently face the choice of either upgrading to domestic brand status, downgrading to sell their wares on the lowest-tier e-commerce platforms, or shutting down their operations altogether. More complex is the fate of global players, most of whom seem destined to play second fiddle to domestic giants in China’s mass-market apparel sector. Any thought of dominating the kingdom seems to be a like ‘boiling the ocean.’

 

 
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