Articles / Rubric: Companies and Markets

From Luxury to the Masses
July - August 2013 | Companies and Markets

photo by Anna Demidova

Asian consumers have had their fill of luxury clothing brands. For the first time in the region, budget clothing brands like Zara and Uniqlo have become some of the most sought-after. However, international retailers will have to withstand stiff competition from local players.

Less Luxury
The fashion segment is expanding faster among the middle class than are luxury goods, says a CBRE report. The number of young people in the region is growing. Youth are fully using modern technologies to expand their knowledge of fashion.

“The Asian-Pacific region still attracts international retail chains, despite the slowdown in economic growth and retail sales. Retailers are trying to capitalize on the growing middle class and rising incomes. Many retailers have turned their attention to smaller cities where international brands are underrepresented,” says Kim Mercado, Director of the APEC research department at CBRE.

As Retail Consulting Group Asia’s Eric Lee told WEJ, this trend is related to Asian buyers who have learned to appreciate “price and quality.” When Asians began traveling around the world, their knowledge about purchases improved. They learned what good quality products and services were. And now, Asians could be called the savviest buyers who know what, where, and when to buy things.

The main consumers of luxury goods in Asia were government officials and those in business. They started the tradition of giving one another expensive gifts. Analysts estimate that the number of luxury stores in China over the past five years has doubled.

But Asian consumers have stopped buying brand-name clothing from places like Louis Vitton and Chanel. Asians are now more interested in fast fashion, which has recently entered their market and is quickly gaining popularity.

Head of Retail for Jones Lang LaSalle Tom Gaffney told WEJ that the quality of fashion clothing is getting better in the Asian market, which can’t but please knowledgeable buyers. “I think many consumers realize that they can’t clothe themselves in luxury goods every day. The slowdown in the economy is also playing an important role.”

Another noticeable trend in Asian retail is the increase of local retail chains. The largest clothing supplier in Asia is Japanese company Uniqlo, which is opening an average of two stores a week. Korean lingerie brands, like Sexy Cookie, and clothing stores like Love n Show, are quickly growing in Asia. This is especially true of Chinese and Singapore markets, as Korean fashion is highly valued in this region.

Fashion Group International released a report stating that Japanese fashion, more than others, has penetrated the markets of Hong Kong, Singapore, Bangkok, and Mumbai. Many read Japanese fashion magazines in these countries and people are able to purchase clothing in Japanese boutiques. But in Asian countries where Korean fashion has a bigger demand, people only know about Japanese clothing thanks to the few Japanese TV shows.

Changing consumer preferences has forced producers of luxury goods to postpone plans of opening new stores in Asia. In particular, companies like LVMH Moet Hennessy, Louis Vuitton, and Gucci have backtracked on plans to open new stores.

But experts believe that talking about the end of luxury is premature. It is unlikely that makers of luxury goods will lose revenue. Gaffney says that the luxury sector will grow since Asia’s key markets are visited by millions of tourists ready to make purchases. Louis Vuitton, Chanel, and Gucci will keep being the most popular brands in Asia.

But there is a shift in consumer habits. “Over the past 2-3 years, we have seen growth in the sale of fine watches and jewelry, whereas the number of leather goods and accessories are down,” he explained.

“The luxury segment will continue to grow, though not as quickly as a year ago,” said RetailNext’s Director of Business Development, Ray Hom. “Adverse macroeconomic conditions are, of course, negatively impacting consumer demand. At the same time, the luxury segment in countries like Indonesia and the Philippines will grow. After all, expensive brands are seen as status symbols  in Asia.”

New Options
It is possible, however, that investors will turn their attention to the mass fashion sector. There is currently a lack of inexpensive clothing stores in Asia. Firstly, there is a shortage of retail locations that can serve customers round the clock? Often, stylish, Western clothing is mixed with fakes and is sold in small, open-air stalls. This is particularly true in Bangkok.

In Thailand, international brands of casual clothing like Zara and MNG are very popular. Local brands (Jaspal, Chaps, etc.) are also gaining interest for Thai, who follow fashion and want to look nice. Thai are still reluctant to accept the overly-ornate Japanese fashions.

In Singapore, people don’t follow fashion as much as they do in other countries in the Asia-Pacific Economic Cooperation (APEC). Part of this is due to the hot and humid climate. Here, like in Thailand, there is a large demand for Western brands.

India wants to look more presentable than the average middle class consumer and is therefore highly interested in Western fashion. Young people are no longer “in” to wearing traditional clothing and therefore look to new Western fashion with great enthusiasm. Indians have particularly fallen for the jeans clothing stores.

China remains an unsaturated market in terms of the number of brands, sales volumes, and in regional expansion. “Today, the growth rate of clothing sales in China is 10%, whereas the rate of sales growth for luxury goods is at 9%. According to the forecasts, global sales will swing between 6-10% (luxury between 4-6% until 2015. The Asian market will remain a driver, despite the slowdown in growth and gradual saturation of local goods markets,” said Darya Yadernaya, CEO of Esper Group.

More than 60% of consumers in China buy clothes outside of the country, she added. In recent years, there has been a noticeable trend in purchases by Chinese tourists abroad as well as goods from the largest mass market retails, led by Inditex and H&M. This means that Chinese consumers are beginning to show interest in and towards mass produced goods.

“When H&M, Uniqlo, and Zara stores started opening in Asia, there were huge lines to get in,” Ray Hom tells WEJ. “These retailers are unique in that they have partnered with leading designers so that they can offer quality products at cheaper prices.”

Another driver of growth is the demographic factor. Asian youth now have purchasing power, but haven’t accumulated enough money to buy luxury goods. They have an active interest in international brands, especially in the fast fashion segment. This lets them dress fashionably, follow trends, and quickly update their wardrobe on a small budget.

Second and third-tier brands are making their way onto the Asian market. This trend is helping to expand the customer base for products in other groups as well,” notes Gaffney.

Asian markets are lacking a widespread network of mass-market stores, with such stores concentrated mostly in large cities. Mainland China hasn’t been penetrated very well, even though it is here where the majority of the population lives. “These markets are still poorly studied and the risks of working in them are high. In the coming decades, Chinese mass consumers will uncover for themselves many international mass-market brands, where even Russian brands have a good chance. Most of the production is done in China and the assortment and brand identity is higher than foreign counterparts on a local scale,” says Yadernaya.

But they expect problems when entering the APEC retail market. One such problem is the difficulty of finding suitable space for leasing. This issue is mostly in Hong Kong, Singapore, and Tokyo. These cities are ripe markets ready for new clothing retailers. Cities attractive for foreigners could include Wuhan, Shenyang, and Nanjing.

American retailers led a fairly aggressive expansion into the Asian market in 2012, opening 70 new stores in the region. International retailers are looking with interest towards the emerging markets of South Asia: Vietnam, Indonesia, and Thailand. Investors are also looking at India, especially since the government there eased regulations for expansion.

In 2013, foreign manufacturing of clothing will continue its expansion into the APEC market, but perhaps not at the most impressive pace, suggests CBRE. The arrival of new players will suppress economic slowdown, high inflation, and red tape. In the fashion clothing sector, retailers will have to compete with local companies and with the growing e-commerce sector. In order to be successful in this region, they will have to review their own business model and be continuously improving their products.

Text: Vera Kozubova

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