China's apparel market 2011

China’s apparel market, 2011November 2011

Li & Fung Research CentreLi & Fung Research Centre

I. Market overview p. 3

II. Competitive landscape p.10

In this issue:

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III. Latest developments p.16

IV. Snapshots of sub-sector performance p.32

I. Market overview

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• According to the National Bureau of Statistics of China (NBS), the totalretail sales of clothing, shoes, hats and textiles* by enterprises abovedesignated size** in 2010 rose nominally by 24.8% year-on-year (yoy) toreach 587.4 billion yuan (Exhibit 1).

• The growth in 1-3Q11 was 24.8% yoy, reaching 545.0 billion yuan.

Apparel sales grew by 24.8% yoy in 2010, reaching 587.4 billion yuan

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*“Clothing, shoes, hats and textiles” replaced the previous “clothing” category in the NBS announcement in 1-3Q09Source: National Bureau of Statistics of China (NBS) ** Enterprises above designated size refer to enterprises with annual sales of 5 million yuan or above and with an employment of or over 60.

Exhibit 1: Growth in total retail sales of clothing , shoes, hats and textiles by enterprises above designated size*, 2006 – 1-3Q 2011

Year 2006 2007 2008 2009 2010 1-3Q 2011yoy % change 19.2 28.7 25.9 18.8 24.8 24.8

Source: National Bureau of Statistics of China (NBS)

Urban and rural households on average spent 10.7% and 6.8% of their annual expenditure on clothing respectively

• The annual per capita disposable income of urban households grew by7.8% yoy to 19,109 yuan in real terms in 2010. The annual net income percapita of rural residents reached 5,919 yuan in 2010, posting double digityoy growth of 10.9% (Exhibit 2).

• Urban households on average spent 1,444.3 yuan on clothing, accountingfor 10.7% of their total annual expenditure in 2010; while rural householdsspent 263.4 yuan, which was 6.8% of the total annual expenditure on

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Exhibit 2: Per capita annual expenditure on clothin g* of urban and rural households, 2006-2010

*“Clothing” here includes garments, clothing materials,

footwear, hats, and other clothing, tailoring and

laundering service fees.Source: National Bureau of Statistics of China (NBS)

spent 263.4 yuan, which was 6.8% of the total annual expenditure onclothing in the same year.

10.4 10.4 10.4 10.5 10.7

5.9 6.0 6.7

6.6 6.8

0.0

2.0

4.0

6.0

8.0

10.0

12.0

0

200

400

600

800

1000

1200

1400

1600

2006 2007 2008 2009 2010

%Yuan

Per capita urban annual expenditure on clothing

Per capita rural annual expenditure on clothing

Share of clothing in per capita urban annual expenditure

Share of clothing in per capita rural annual expenditure

• Consumers aged 26-35 spend more on clothing compared with other agegroups. Boston Consulting Group’s survey results show that urbanresidents aged 31-35 spent the most on clothing, followed by consumersaged 26-30.

• The survey also indicates that urban women consumers aged 14-45accounted for 54% of the total consumption on clothing in China.

Exhibit 3: Annual spending on clothing by age and g ender, 2010

Chinese consumers aged 26-35 spend the most on clothing; women spend more than men on clothing in general

6Note: The data comes from the Boston Consulting Group China Fashion Research Survey 2010; the respondents are urban consumers aged 14-45. The analysis does not include sleepwear, hosiery, accessories, and children’s wear. Source: Boston Consulting Group

Exhibit 3: Annual spending on clothing by age and g ender, 2010

54%

46% Female

Male

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

<20 21-25 26-30 31-35 36-40 >40

yuan

Age

Department stores and specialty stores are the major distribution channels for branded apparel

• Department stores and specialty stores are major distribution channels for brandedapparel in China. Meanwhile, wholesale markets and hypermarkets are popular retailingchannels for lower-priced apparel; many of which are with poor brand recognition orunbranded.

• Around 37% of the total apparel sales were realized in the department stores; whileclothing & footwear and leisure & personal goods specialist retailers accounted for 38%of the total in 2010 (Exhibit 4).

Exhibit 4: Sales of Apparel by Distribution Format: %, 2006 -2010

7Source: Euromonitor

Exhibit 4: Sales of Apparel by Distribution Format: %, 2006 -2010

% retail value rsp 2005 2006 2007 2008 2009 2010

Grocery retailers 13.7 14.8 15.9 17 17 17.2

Department stores 32.5 33 34 36 36.2 36.9

Clothing & footwear specialist retailers 23.8 22.9 23.4 25.1 25.7 26.3

Leisure & personal goods specialist retailers 11.3 11.4 11.5 11.6 11.7 11.7

Other non-grocery retailers 18.5 17.9 15.1 10.1 9.2 7.3

Non-store retailing 0.1 0.1 0.2 0.2 0.2 0.6

Total 100 100 100 100 100 100

• Chinese consumes are generally trading up. According to the ChinaNational Commercial Information Centre (CNCIC), growth of sales ofapparel category in high-end retailing locations such as department storesand shopping malls was 31.2% yoy, higher than the national average of21.2% yoy (Exhibit 5).

Exhibit 5: Growth of sales of apparel category in d epartment stores of different

High-end department stores posted the fastest growth of 31.2% yoy in 2010

8Source: China National Commercial Information Centre (CNCIC)

Exhibit 5: Growth of sales of apparel category in d epartment stores of different levels, 2010

18.4 19.2

31.2

0

5

10

15

20

25

30

35

Low-end Middle High-end

yo

y g

row

th (

%)

Climbing costs pose challenges to apparel enterprises

• Rising costs of raw materials, labor and rental are posing an increasing challenge toapparel enterprises.

− China’s cotton price indices were in a downward trend during mid-March to mid-May of 2011,yet the indices rebounded in mid-August of 2011 and has kept a rising trend since then.

− According to China National Garment Association, labour cost increased for over 20% yoy in2010.

− Local governments in 18 provinces/municipalities such as Beijing, Shanghai, Guangdong,Zhejiang, etc. and one special economic zone (i.e. Shenzhen) raised minimum wage levels intheir jurisdictions in 1-3Q11.

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their jurisdictions in 1-3Q11.

• According to the NBS, the clothing price index has been declined for five consecutiveyears since 2006. Yet it increased by 1.6% in 1-3Q11 (Exhibit 6). While some brandedapparel companies are able to raise their price tags, many smaller companies continueto face squeezing margins.

Source: National Bureau of Statistics of China (NBS)

Exhibit 6: Clothing price index, 2006 – 1-3Q 2011 (S ame month of preceding year=100)

2006 2007 2008 2009 2010 1-3Q 2011yoy % change of clothing prices

-0.6 -0.6 -1.5 -2.0 -1.0 1.6

II. Competitive landscape

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Domestic apparel enterprises dominate in the mass market

Ranking Company Headquarter/Base

1 Youngor Group Co., Ltd雅戈爾集團股份有限公司

Ningbo(Zhejiang)

Exhibit 7: Top 10 domestic apparel enterprises by s ales revenue, 2010

Ranking Company Headquarter/Base

1 Youngor Group Co., Ltd 雅戈爾集團股份有限公司

Ningbo(Zhejiang)

Exhibit 8: Top 10 domestic apparel enterprises by p rofits, 2010

• In China, domestic brands dominate in the mass market, especially in the lower-tier cities and ruralmarket. They generally have more extensive sales channels than their foreign counterparts.

• Exhibits 7 and 8 show the top 10 domestic apparel enterprises by sales revenue and profits in 2010.Most of these enterprises are from Zhejiang, Jiangsu, Shandong and Shanghai.

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限公司 (Zhejiang)2 Hongdou Group Co., Ltd 紅豆集團有限公

司Wuxi(Jiangsu)

3 Heilan Group海瀾集團有限公司 Wuxi(Jiangsu)

4 Bosideng Co., Ltd波司登股份有限公司 Suzhou(Jiangsu)

5 ShanShan Enterprise 杉杉投資控股有限公司

Shanghai

6 Metersbonwe Group 上海美斯特邦威服飾股份有限公司

Shanghai

7 Qingdao Jifa Group青島即發集團 Qingdao(Shandong)

8 Shandong Sinoer Group Co., Ltd. 新郎希努爾集團股份有限公司

Weifang(Shandong)

9 Shandong Ruyi Science & TechnologyGroup山東如意科技集團有限公司

Jining(Shandong)

10 Semir Group Co., Ltd. 浙江森馬集團有限公司

Shanghai

Source: China National Garment Association (CNGA), Li & Fung Research Centre

有限公司 (Zhejiang)2 Bosideng Co., Ltd波司登股份有限公司 Suzhou

(Jiangsu)3 Heilan Group海瀾集團有限公司 Wuxi (Jiangsu)

4 Semir Group Co., Ltd. 浙江森馬集團有限公司

Shanghai

5 Hongdou Industrial Co., Ltd. 紅豆集團有限公司

Wuxi (Jiangsu)

6 Metersbonwe Group 上海美斯特邦威服飾股份有限公司

Shanghai

7 Luthai Textile Co., Ltd.魯泰紡織股份有限公司

Zibo(Shandong)

8 ShanShan Enterprise 杉杉投資控股有限公司

Shanghai

9 Shandong Sinoer Group Co., Ltd. 新郎希努爾集團股份有限公司

Weifang(Shandong)

10 Shandong Nanshan Textile Garment Co.,Ltd.山東南山紡織服飾有限公司

Longkou(Shandong)

Established domestic players spend more resources on brand-building

• Nowadays, more and more domesticplayers are eager to build brand equity;they are willing to put more resources onbrand-building.

• Metersbonwe (美特斯邦威) became themost valuable Chinese apparel brand in2011; its brand value amounted to 11.5billion yuan in 2011.

• Youngor, Rcollar, Shanshan, etc. are newentrants in the 2011 ranking.

Exhibit 9: Most Valuable Apparel Brands in China, 2 011Rank Rank

in 2010

Brand Brand Value (billion yuan)

% of Market Value

Product catogory Headquarter

1 3 Metersbonwe美特斯邦威

11.5 36% Casual wear Shanghai

2 7 Semir森馬 11.0 28% Casual wear/Children

wear

Shanghai

3 2 Anta 安踏 8.8 35% Sportswear Xiamen (Fujian)

4 1 Lining 李寧 4.2 37% Sportswear Beijing5 5 Bosideng 波司登 3.7 25% Down wear Suzhou

(Jiangsu) 6 4 Heilan 海瀾之家 3.4 25% Menswear Wuxi

(Jiangsu)

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entrants in the 2011 ranking.• Most of the brands in the list are

specialized in the sportswear andmenswear sector.

• Apparel companies in Fujian and Zhejiangare very strong in branding; 6 out of top18 most valuable apparel brands arebased in Fujian while 4 are from Zhejiang.

• Exhibit 9 shows China’s most valuableapparel brands in the Hurun MostValuable Chinese Brands 2011 list. Thenumber of apparel brands increased from10 in 2010 to 18 in 2011.

(Jiangsu)7 8 Xtep 特步 2.7 28% Sportswear Quanzhou

(Fujian)7 10 Septwolves

七匹狼2.7 30% Menswear Xiamen

(Fujian)9 N/A Youngor 雅戈爾 2.2 30% Menswear Ningbo

(Zhejiang)10 9 Peak 匹克 2.1 22% Sportswear Quanzhou

(Fujian)11 N/A Rcollar红领 1.9 15% Sportswear Qingdao

(Shandong)12 6 361degrees

361度1.8 22% Sportswear Xiamen

(Fujian)12 11 Lilang利郎 1.8 17% Menswear Quanzhou

(Fujian)12 N/A Shanshan杉杉 1.8 20% Menswear Shanghai15 N/A Red Dragonfly

红蜻蜓1.4 28% Shoes Wenzhou

(Zhejiang)16 N/A Baoxiniao报喜鸟 1.2 16% Menswear Wenzhou

(Zhejiang)16 N/A Erdos鄂尔多斯 1.2 26% Cashmere Inner

Mongolia16 N/A Aokang奧康 1.2 18% Leather shoes Wenzhou

(Zhejiang)

Source: Hurun Research Institute, Li & Fung Research Centre

Some well-established foreign players accelerate expansion plans in China’s apparel market

• In recent years, many foreign apparel brands are keen to have a stronger presence in China.While some well-established players are seeking to expand in the lower-tier cities, thosewhich are not yet present in China are working hard to enter the lucrative China market.

• Established players accelerate their expansion in China− Zara planned to expand to 42 cities in China in 2011.− Uniqlo targets to open 100 stores in China each year starting from 2011.− H&M added 12 new stores in China during 1 December 2010 and 31 May 2011, with a total of 59

stores in the country. It expects China to be one of largest expansion markets in 2011.− In August 2011, International fast fashion brand C&A entered Wuhan of Central China.

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− In August 2011, International fast fashion brand C&A entered Wuhan of Central China.

• New entrants in China− Cross Company (可洛絲) from Japan has signed a deal with leading Hong Kong-based fashion

distributor, I.T. Limited to enter the Chinese market. The first store has opened in Shanghai inSeptember 2011 and the company planned to open 120 stores with sales of 10 billion yuanwithin three years. The joint venture will operate the business via franchises, wholesaling as wellas direct stores.

− In 2011, WE from Holland had opened stores in Shanghai, Chongqing, Ningbo, Shenyang. Italso planned to open a flagship store in Shanghai Longemont (上海龍之夢) in 2011.

• Some apparel enterprises see Hong Kong as the springboard for China’s entry− FOREVER 21 planned to open flagship stores in the prime locations of Hong Kong in 2011;

Abercrombie & Fitch’s sub-brand “Hollister” opened its first Asian flagship store in Hong Kong inAugust 2011.

• Foreign players still dominate China’s luxury apparel market. Luxury brands such asGiorgio Armani, Burberry, Cerruiti 1881 have a stronghold.

• Meanwhile, domestic brands are virtually absent in China’s luxury apparel scene. However,some domestic players have strived to move up the value ladder and hope to get a place inthe premium market.− NE·TIGER (東北虎), which claimed itself to be China’s first luxury apparel brand, has set up

studios in the U.S., France, Italy and Russia in the past few years.− Trands (創世) is another domestic brand that has gained recognition overseas.

Foreign brands still dominate luxury apparel market in China

• Though, we should admit that these domestic brands have only minimal presence in theluxury segment. There is still a long way to go for domestic players to rival their foreigncounterparts.

• Pseudo brands is another issue in the luxury apparel sector in China. Some domesticplayers have presented themselves as foreign luxury brands, e.g. having brand names inforeign languages and using foreign models, in order to lure the unsophisticated Chineseconsumers.

• For more information on Luxury apparel market in China, please see our China Distributionand Trading Newsletter Issue 81 Luxury market in China, 2010:http://www.lifunggroup.com/eng/knowledge/research/china_dis_issue81.pdf

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• Recently, more and more domestic apparel enterprises are eager toexpand overseas.

• Some apparel retailers have been making use of the online retailingchannel to enter the overseas markets.− Metersbonwe launched online stores on eBay US, UK, Germany and Australia in

October 2010.

Some domestic players embark on overseas expansion

October 2010.− In January 2011, some apparel brands such as Moonbasa (夢芭莎), Bossini,

Giordano, etc. cooperated with eBay to explore the overseas online market.

• Besides online channels, some apparel retailers have opened offlinestores in overseas markets.− JNBY (江南布衣) has expanded overseas since 2005 with the opening of 10

shops in various overseas markets such as Moscow, Tokyo, Singapore, etc. Itopened a new store in New York in 2010.

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III. Latest developments

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• After years of rapid expansion, distribution channel rationalization is gainingattention. Retailers begin to focus on boosting store productivity andenhancing distribution efficiency.

− Li Ning (李寧 ) implemented distribution channel reforms to enhance overallefficiency. It consolidated a large number of low efficient sub-distributors and lessenthe proportion of sub-distributors operating single stores. A total of 400 low-efficient

(1) Integration of distribution channels is commonly adopted to enhance operation efficiency

the proportion of sub-distributors operating single stores. A total of 400 low-efficientsub-distributors are expected to be consolidated by the end of 2011.

− Moreover, Li Ning has opened more factory outlets to clear its excessiveinventories.

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• Some enterprises, especially luxury companies, prefer to retain full controlover the ownership of Chinese operations from franchisors or distributors.

− Bestseller, which owns ONLY, VERO MODA, Jack & Jones, etc., retained controlof shops in Xi’an and Jinan; it also opened more direct-owned stores.

− Burberry bought 50 of its Chinese franchised stores in a deal worth 70 millionpounds in 2010.

− Coach acquired the retail business in Greater China from a Hong Kong-baseddistributor ImagineX Group in 2009.

(2) More brands are looking for direct ownership of their brands

distributor ImagineX Group in 2009.

• More brands seek to obtain direct control over the stores in the first-tiercities while keeping the franchising and distribution models in the lower-tiercities. This is mainly due to unfamiliarity with the markets of lower-tiercities, where their local partners may have more expertise to help distributeefficiently.

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(3) Online apparel retailing becomes an important sales channel of apparel

• Online retailing* is an increasingly important sales channel in China, especiallyamong young consumers. According to iResearch estimates, the number of onlineshoppers rose from 108 million in end-2009 to 148 million in end-2010, accountingfor 32.4% of China’s Internet population. The transaction value of China’s onlineretailing market was up by 75.3% year-on-year (yoy) to reach 461.0 billion yuan in2010, accounting for 2.98% of the country’s total retail sales.

• According to the iResearch as shown in Exhibit 10, apparel was the most popularcategories sold online in 2010.

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categories sold online in 2010.

Exhibit 10: Most popular categories sold online, 20 09-2010

Source: iResearch 0 5 10 15 20 25 30 35 40 45 50

OthersJewellery

Toys and giftsElectronic appliances

Maternity and baby care productsHealthcare foodHome products

IT/digital/communicationCosmetics and personal care

Prepaid cards (e.g., top-up cards, etc)Books/music/movies and videos

Apparel, footwear and bags

%

2009

2010

* According to iResearch, scale of online retailing market refers to the total transaction value of consumer-to-consumer (C2C) andbusiness-to-consumer (B2C) online businesses. Scale of C2C online retailing market is calculated by the total value of purchases,excluding that on the B2C arm of C2C platforms. Scale of B2C online retailing market has excluded payments of travel expense, airtickets and online bill payment services.

• Developing online retail channels is becoming popular among traditional apparel retailers;B2C online platforms can be categorized into three major types:

− Pure-clicks apparel retailers (e.g. Vancl凡客誠品, Mecox Lane麥考林)− Multi-channel B2C apparel retailers (e.g. Li Ning, Uniqlo)− Apparel retailers selling on B2C platforms (e.g. Taobao Mall淘寶商城, Paipai拍拍網)

• On the other hand, many C2C individual sellers are expanding fast on TaobaoMarketplace, the largest player in the C2C market. Some of them developed their ownbrands and later shifted to sell in B2C Taobao Mall as “Tao-brands” (淘品牌).

(3) Online apparel retailing becomes an important sales channel of apparel (cont’d)

brands and later shifted to sell in B2C Taobao Mall as “Tao-brands” (淘品牌).− Examples of “Tao-brands” include Ringnor (言若), Milachic (樂米拉), Qiustyle (斯黛歐), etc.

• Venture capital firms are keen to invest in the “Tao-brands”. With sufficient financialsupport, the Tao-brands are able to launch shopping websites in other B2C platformssuch as 360 Buy, V+ etc, or build offline storefronts.

− Selected Tao-brands that attracted investments from venture capital firms in 2010 and 2011include mbaobao (麦包包), Green Box (绿盒子), 7GeGe (七格格), Justyle, Sportica (斯波帝卡).

• That said, many traditional retailers are not very familiar with selling online, posing extrachallenges for them to reach breakeven for their online businesses

− Metersbonwe announced in October 2011 that it will stop operating its own e-commerce platform.Instead, it will entrust Shanghai Banggo Information Technology (Banggo) to sell its productsonline under the domain name Banggo.com. 20

(4) Department store operators launch their own private apparel labels or proprietary brands

• To improve differentiation, some department store operators inChina has begun to develop their own private apparel labels andproprietary brands, etc.

• Private labels or proprietary brands may also increase profitmargins and strengthen customers’ loyalty.

• Examples of private labels or proprietary brands launched byselected department store operators include:

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selected department store operators include:− Wangfujing Department Store (王府井百貨) unveiled a new store

brand Fashion Headquarters, or HQ, in Beijing in September 2010positioned to attract fashion consumers aged 18-35.

− Guangzhou Grandbuy (廣百) launched a new store brand GrandbuyFashion (GBF) in G.T. Land Plaza in Guangzhou in December 2010.

− New World Department Store (新世界百貨) launched its menswearprivate label of XII in December 2010. It also launched the brand “NOnly” in 2010.

− Intime Department Store(銀泰) launched its brand “Justin Intime” in2009.

(5) Apparel enterprises seek to diversify their portfolio; category expansion and adoption of multi-brand strategy are common

• Some brands seek to diversify their portfolio by category expansion:− Bosideng, China’s biggest manufacturer of down wear, announced that it

has acquired a 70% stake in a mid-to-high end women’s apparel brand“Jessie” to diversify and reduce its dependence on winter clothes.

− JNBY, ME&CITY, Yishion (以純), Fairy fair (淑女屋), Xtep (特步), etcexpanded their product category by launching children’s wear.

− Baoxiniao Group, one of the leading menswear companies in China, hasengaged also in the causal and sports businesses. In 2010 and 2011, itinvested in three domestic casual and sports menswear companies, namely

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invested in three domestic casual and sports menswear companies, namelyFranistion (名歐服飾), Bilute (比路特) and Yale (雅樂時裝).

• Multi-brands strategy is also commonly adopted by many players tofurther expand their product category.

− SWJEANS by Septwolves, FUN by JOE/ONE (九牧王 ), Five Plus byOchirly, Lilanz by Lilang (利郎) etc.

Source: ME & CITY, JNBY, Yishion, Fairy Fair Company websites

(6) Lower-tier cities are the major battlefields for apparel enterprises

• Competition in the first-tier cities has become more fierce; to avoidtoe-to-toe competition in big cities, many domestic and foreignenterprises are now targeting the lower-tier cities. Moreover,nowadays, people in the lower-tier cities are getting wealthier andhaving stronger buyer power.

• Hence, for many apparel players, the lower-tier cities are theirmajor battlefields.

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major battlefields.

− For example, XTEP sees Hunan, Sichuan, Shandong and Anhuiprovinces as its main growth engine.

− Adidas plans to expand sales channel coverage to 1,400 cities byopening 2,500 retail shops in middle and small cities in the next fewyears.

(7) Apparel enterprises were active in IPO activities

• Riding the wave of growing investors’ interests in China’s consumption-related themes, many apparel enterprises in China have sought publiclistings in recent years.

• Examples of domestic apparel enterprises sought public listings include:− ZuoAn (左岸服飾) was listed on New York Stock Exchange in February 2011.− Semir (森馬服飾) was listed on the SME board of Shenzhen Stock Exchange

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in March 2011.− Lancy (朗姿股份) was listed on Shenzhen Stock Exchange in August 2011.

(8) Enhancing competitiveness – strategies to cope with climbing costs

• As mentioned before, cost pressure for apparel enterprises is high andmany enterprises are adopting various measures to control their costs.For example:

• Source from various bases outside of China− Due to the surging production costs in China, more companies tend to

adopt the “China-plus-one” strategy and adjust the proportion of sourcingamong different sourcing bases. Metersbonwe, for instance, stated that

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among different sourcing bases. Metersbonwe, for instance, stated thataround 10% of its products in Spring/Summer 2012 collection would besourced outside of China.

• Pass escalating costs to consumers by raising product price− Li Ning would raise price tags of apparel and footwear by 17.9% and

7.8% respectively in 4Q 2011.− Anta, Xtep, Peak and 361 Degrees intend to increase product prices in

order to retain profit margins.

• In order to win consumers and stand out in the competitive apparelindustry in China, companies are investing more in productdevelopment.

• For example:• Bosideng introduced the new “Autumn Down Apparel” series in

September 2011 to satisfy market demands towards light-

(9) Enhancing competitiveness – investing in R&D and focusing on product excellence

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September 2011 to satisfy market demands towards light-weighted and slim down apparel products.

(10) Enhancing competitiveness – offering personal tailoring services

• Personal tailoring service is getting more popular in high-end menswear sector.Foreign brands which have a long history providing tailoring service in the overseasmarket such as Zegna, Gieves & Hawkes and Hugo Boss, are also providingtailoring service in the China market.

• In recent years, domestic apparel companies has gradually tapped into the tailoringmarket. For example, Baoxiniao Group launched its high-end brand “CARL BONO”with tailoring service; the price range of the products is between 6,800 to 180,000yuan.

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yuan.

• Recently, personal tailoring service is extended to areas such as ladies’ wear andinner wear. For example, Lancy (朗姿) and Aimer (愛慕) have also introduced made-to-measure tailoring series for their customers.

Source: Gieves & Hawkes

(11) Enhancing competitiveness – spending resources on marketing and branding

• To enhance competitiveness and to win consumers, apparel companies are nowspending more resources on marketing and branding.

• Event sponsorship is a popular marketing strategy adopted by apparel companiesto extend media coverage

− 361 Degrees became the global partner of the 26th Summer Universiade 2011 held inShenzhen.

− Li Ning has become the sponsor for the Singapore Open in June 2011

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• Digital marketing is also widely used by marketers to promote/market theirproducts. Nowadays, it is common for enterprises to make use of SNS websitesand microblogs to spread their promotion message.

− Metersbonwe used its microblog (Sina’s weibo, http://weibo.com/mtsbw) to launch itsmarketing campaigns and communicate with consumers.

Source:361 Degrees Source: Singapore Open 2011 website

• Organizing social events to celebrate special occasions is another way to enhancethe communication of brand image with consumers.

− In April 2011, JNBY (江南布衣) held a special event - “Naturally Creating The Future”- tocelebrate its first anniversary of JNBY shop in Hangzhou MIXC. Consumers canparticipate in the event and get souvenirs.

• Companies build flagship stores to enhance brand image− ME&CITY, part of Metersbonwe Group, opened a flagship store in Wuhan of Central China

in January 2011.

(11) Enhancing competitiveness – spending resources on marketing and branding (cont’d)

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in January 2011.− Fast fashion retailers, including ZARA, H&M, UR, C&A and Uniqlo build up brand image

by establishing flagship stores in China’s fashion hub, Shanghai.

Source: The Fashion Shop Source: The Fashion Shop

(12) Product safely is still a major concern

• Product safety is still a major issue in China. In August 2011, Guangzhou Industrialand Commercial Bureau conducted random sample checks of casual wear andfound that 32% of the samples failed the checks.

• As Chinese consumers become more discerning, product safety is expected togain more attention in the near future.

30Source: China Quality News, www.cqn.com.cn

(13) Going green is also gaining more attention

• As consumers’ awareness on environment protection climbs, “going green” isgrasping the attention of apparel companies.

− ZuoAn has put a great deal of effort in carrying out R&D for environmental-friendly fabrics; it has also been very proactive in launching green initiatives.For example, the company has launched a number of energy-efficient storeswhich save around 65% of its energy consumption; it has also participated inmany events to promote the message of “protecting the environment”.

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many events to promote the message of “protecting the environment”.

Source: Apparel brands, www.fzpp.com

IV. Snapshots of sub-sector performance

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Background

• The China National Commercial Information Centre (CNCIC)conducts monthly survey to around 200 major department stores* inChina to study the performance of different cosmetics sub-sectors.

• In this newsletter, performance of the following product sectors isexamined:

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examined:• Menswear (men’s suits and men’s shirts),• Ladies’ wear• Children’s wear• Casual wear (jackets, T-shirts, denim wear)• Sportswear• Ladies’ underwear

*Note: It is noteworthy that the CNCIC data covers sales in major department stores only.Retailers of other formats such as specialty stores are growing in popularity. The actual overallmarket share of apparel brands may deviate from the CNCIC data.

• As shown in Exhibit 11, growth in apparel sales volume in major departmentstores in 2010 was 10.2% yoy, increased from 7.4% in 2009.

• Market share of ladies wear was still the largest in 2010 and 1H11.

• Growth of men’s suit was the fastest in 2010, achieving 13.1% yoy; it wasfollowed by ladies’ wear, which posted a growth rate of 12.1% yoy.

Exhibit 11: Retail sales volume of various apparel categories in major department stores, 2009 -1H 2010

Growth in apparel sales volume in major department stores in 2010 outpaced 2009


stores, 2009 -1H 20101H11 2010 2009

Million pieces yoy % growth Million pieces yoy % growth Million pieces yoy % growthOverall 236.5 5.3 455.1 10.2 432.3 7.4Ladies’ wear 69.2 9.2 131.0 12.1 121.3 8.2Knitted underwear 29.6 2.6 57.1 6.5 58.8 4.6Children’s wear 17.4 3.7 32.3 7.3 31.4 9.6Woolen wear 12.7 -4.6 23.5 -4.1 25.8 5.6T-shirts 7.1 2.1 14.1 -2.4 14.7 5.4Thermal clothing 4.7 0.5 9.7 -3.6 10.3 -8.4Trousers 5.7 -3.0 11.1 1.4 11.1 -2.6Men’s suit 6.1 9.1 11.8 13.1 10.7 11.4Men’s shirt 5.5 7.1 9.8 1.5 10.3 1.5Jackets 3.6 3.6 7.1 8.4 6.5 2.9Denim wear 2.9 17.0 5.0 4.8 4.8 3.8Leather wear 0.6 -13.6 1.0 2.1 0.9 6.4

1H11 2010 2009 2008 2007 2006 2005 2004 2003Ladies’ wear 29.3 28.8 28.1 28.5 28.3 28.9 28.6 26.6 25.9

• Ladies’ wear was the major contributor to total apparel sales, accounting for 28.8% ofthe total sales volume in 2010, following by knitted underwear of 12.5% and children’swear of 7.1%. In 1H11, volume sales share of ladies’ wear reached 29.3%, followedby knitted underwear of 12.5% and children’s wear of 7.4%. Exhibit 12 demonstratesthe share of sales volume of different sub-sectors.

Exhibit 12: Share of sales volume of different prod uct sectors, 2003-1H 2011 (%)

Ladies’ wear was the major contributor to total apparel sales


Ladies’ wear 29.3 28.8 28.1 28.5 28.3 28.9 28.6 26.6 25.9 Knitted underwear 12.5 12.5 13.6 15.4 16.8 16.3 16.6 18.6 20.5 Children’s wear 7.4 7.1 7.3 7.5 7.6 7.7 8.0 8.1 8.0 Casual wear 5.7 5.8 6.0 6.5 7.3 7.5 7.4 8.4 7.8 of which: T-shirts 3.0 3.1 3.4 3.6 4.2 4.2 3.7 4.1 3.8

Jackets 1.5 1.6 1.5 1.7 1.9 1.9 2.0 2.2 2.1 Denim wear 1.2 1.1 1.1 1.2 1.2 1.5 1.7 2.1 1.9

Woolen wear 5.4 5.2 6.0 5.8 6.6 7.1 6.9 7.2 7.9 Menswear 4.9 4.8 4.9 5.2 5.6 5.2 5.8 6.6 7.0 of which: Men’s shirt 2.3 2.2 2.4 2.7 3.1 2.9 3.1 3.5 4.0

Men’s suit 2.6 2.6 2.5 2.5 2.6 2.3 2.7 3.1 3.0 Thermal clothing 2.0 2.1 2.4 3.3 3.9 4.2 4.3 3.6 3.8 Trousers 2.4 2.4 2.6 3.0 3.4 3.6 3.5 3.6 4.1 Leather wear 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 Others 30.2 31.1 29.1 24.7 20.2 19.3 18.7 17.1 14.8 Total 100 100 100 100 100 .0 100 100 100 100

Market concentration of most sub-sectors is generally low

• Most of the sub-sectors are highly fragmented, the top 10 players in the sub-sectors such as jackets and T-shirts accounted for less than half of the totalmarket share in 2010. Exhibit 13 shows the market share of the top brands ofselected sub-sectors.

• However, the maternity wear and sportswear market are very concentrated; thetop 10 players in the maternity wear sub-sector accounted for more than 95% ofthe market share in 2010, while the sportswear sub-sector accounted for 85% ofthe market share.

36

the market share.

Source: China National Commercial Information Centre (CNCIC)

Exhibit 13: Market share of top 10 brands of select ed sectors, 2009 & 2010

0.0

20.0

40.0

60.0

80.0

100.0

120.0

%

2009

2010

Performance of selective product sectors

Exhibit 14: Men’s suits - share of total sales value , 2009 & 2010

Exhibit 15: Men’s shirts - share of total sales value, 2009 & 2010

13.2 14.0 14.1 12.5

15.0

• Exhibits 14-15 show the performance of the top 5 players in selected sub-sectors,including menswear (men’s suit, men’s shirt), ladies’ wear, children’s wear, casualwear (jackets, T-shirts, denim wear), sportswear, ladies’ underwear and maternitywear.

37

Source: China National Commercial Information Centre (CNCIC) Source: China National Commercial Information Centre (CNCIC)

8.2 7.2

8.0

5.3 6.4

13.2

4.7 4.3 4.2 4.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Youngor 雅

戈爾

Qinman 琴

曼

Rouse 洛茲 Pierre

Cardin 皮

爾卡丹

Goldlion 金

利來

%

2009 2010

14.1

3.5 3.6 3.1 2.5

12.5

3.1 3.1 2.9 2.6

0.0

5.0

10.0

15.0

Youngor 雅

戈爾

Firs 杉杉 Romon 羅

蒙

Goldlion 金

利來

Playboy 花

花公子

%

2009 2010

Exhibit 16: Ladies’ wear - share of total sales value, 2009 & 2010

Exhibit 17: Children’s wear - share of total sales value, 2009 & 2010

Performance of selective product sectors (cont’d)

9.1 8.2

4.6

2.8 2.6

9.3 8.2

5.5

2.8 2.4 4.0

6.0

8.0

10.0

%

5.9 6.5

5.0

6.1 5.5 5.5 5.5 5.3 5.1

4.6

3.0

4.0

5.0

6.0

7.0

%

38

2.8 2.6 2.8 2.4

0.0

2.0

4.0

ONLY VERO MODA Girdear 哥弟 Ochirly 歐時

力

Shengyuzhu

聲雨竹

2009 2010

0.0

1.0

2.0

3.0

adidas 阿迪

達斯

Paclantic 派

克蘭帝

NIKE 耐克 Dadida 嗒

嘀嗒

Yaduo 雅多

2009 2010


Exhibit 18: T-shirt - share of total sales value, 20 09 & 2010

Exhibit 19: Denim wear - Men’s suits: share of total sales value, 2009 & 2010


4.7 4.1

2.8

5.0

3.8

3.1 2.9 2.4 3.0

4.0

5.0

6.0

%7.6

5.8

9.6

14.0

4.9

11.8 11.4 10.1

7.5 7.3 10.0

15.0

%

39

N/A

1.5

2.4

0.0

1.0

2.0

3.0

Montagut

夢特嬌Goldlion 金

利來

LACOSTE 鱷

魚

Jeanswest

真維斯JOE|ONE 九

牧王

%

2009 2010

5.8 4.9

0.0

5.0

Levi's LEE Kipone 旗

牌王

Boton 波

頓

Braxton

霸獅騰

%

2009 2010

Source: China National Commercial Information Centre (CNCIC)Source: China National Commercial Information Centre (CNCIC)

Exhibit 20: Jackets - share of total sales value, 2009 & 2010

Exhibit 21: Sportswear - share of total sales value, 2009 & 2010


2.7 2.6

3.1 3.0

2.3

3.3 2.8

2.3 2.3 2.1

1.0

1.5

2.0

2.5

3.0

3.5

%

33.4

27.2

10.6 9.1

30.7 27.3

8.8 15.0

20.0

25.0

30.0

35.0

40.0

%

40

0.0

0.5

1.0

JOE|ONE

九牧王Septwolves

七匹狼Jack &

Jones 傑克

瓊斯

"Jin Ba" 勁

霸

Montagut

夢特嬌

2009 2010

10.6 9.1

N/A

8.8 8.1 3.9

0.0

5.0

10.0

15.0

Nike 耐克 adidas 阿

迪達斯

Li Ning 李

寧

Kappa 背靠

背

NIKE360 耐

克360度

2009 2010


Exhibit 22: Ladies’ underwear - share of total sales value, 2009 & 2010

Exhibit 23: Maternity wear - share of total sales value, 2009 & 2010


15.1

9.5

13.7 12.2 12.6

10.9 10.7 10.3 10.2

8.0

10.0

12.0

14.0

16.0

%

27.5 25.3

9.0 8.8

32.7

20.9

16.7

9.9 15.0

20.0

25.0

30.0

35.0

%

41

5.0

0.0

2.0

4.0

6.0

8.0

Aimer 愛慕 Gujin 古今 Embryform

安莉芳Triumph 黛

安芬

Maniform

曼妮芬

%

2009 2010

9.0 8.8

3.5

9.9 6.2

0.0

5.0

10.0

15.0

O.C.T.

mami 十

月媽咪

Hui bao 惠

葆

Tianxiang

添香Sunlight

Baby 今生

寶貝

Amery 孕

美

2009 2010


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China's apparel market 2011