Three reasons why Zara and other foreign fast fashion brands failed in China

The golden age of ZARA in the Chinese market has quietly come to an end. The latest news is that Bershka, Pull&Bear and Stradivarius, sister brands of Spanish fast fashion brand Zara, which are “benchmark” of global fast fashion, will completely exit the offline market in China by the middle of 2021.

Inditex Group, the parent company of Zara, said that “these young audience brands will focus on strengthening e-commerce development in the Chinese market”.

More international fast fashion brands are adjusting their plans for the China market in 2020, as the COVID pandemic hits industries around the world. Old Navy, a division of Gap, announced it was pulling out of China. C&A, the Dutch fast-fashion company, sold its China business; Spanish fast fashion brand Mango has called off a 2019 plan to expand 16 offline stores in China.

Although the pandemic has made it difficult for fast fashion brands to survive and develop in the Chinese market, if we look back at the development process of these brands in the Chinese market, we can find that the decline has already appeared.

In fact, since 2016, fast fashion brands have had bad news in the Chinese market.

In 2016, British fast fashion e-commerce company ASOS ended its operations in China for 10 million pounds. In 2018, Topshop, a British high street brand, ended its business in China by terminating its cooperation with the agency Shangpin.com in its sixth year in China. That same year, British fast-fashion brand New Look, which had vowed to open 500 stores in China within three years, pulled out of the country. In 2019, Forever 21, an American fast-fashion brand, pulled out of the Chinese market for the second time — the first time it had been in China since it briefly opened a store in Jiangsu province in 2008.

Even Zara and Swedish fast fashion brand H&M, which are still giants in the market, have not escaped the bad luck.

The number of Zara stores in China plummeted to 6 in 2017 from the double digits of the previous year, and directly negative growth of 4 stores in 2018. So far, the brand’s store opening growth rate has not improved significantly.

H&M is in a similar position. The group’s several brands, including H&M, COS and Monki, opened about 100 stores a year in China around 2016, but by 2017, that number had nearly halved. In 2019, there was a net direct decrease of 10 stores.

Du Bin, head of the Shanghai branch of Beijing Hanbo Business Management Co., told that since about 2016, the commercial real estate owners it has directly or indirectly served no longer tend to rent core stores to fast fashion brands. Instead, spaces previously rented to fast-fashion brands are now the first choice for new ones.

According to Ran Wei, Director of Retail Property, Jones Lang LaSalle China, during the golden period of fast fashion brand development, in order to recruit the aforementioned international fast fashion brands to the shopping mall, commercial real estates would generally offer many benefits to these brands when signing, including providing a gold store location on the first floor of the shopping mall.

To some extent, this has also promoted the expansion of fast fashion brands in the Chinese market.

Real estate developers also generally allow brands to pay rent in the form of a net deduction rather than a fixed amount, and even allow the brand to terminate the lease early without liability.

Real estate developers used to focus on the direct deductible income that fast fashion brands could bring with their annual increasing sales, as well as the flow of people that brands could attract for shopping malls. However, in recent years, the popularity and turnover of fast fashion brands’ stores have been declining. In addition, their stores occupy a large area and their floor efficiency has been decreasing.

Success was “fast”, failure was also “fast”

Looking back on the development history of international fast fashion brands in China, these brands have created a “golden age” of about 5 years in the Chinese market before 2016. Forever 21, Topshop, ASOS and other brands entered the Chinese market in this period.

However, brands that entered the Chinese market earlier in 2006, such as Mango, Zara, Uniqlo and H&M, began to expand at a higher speed during this period.

Take Zara as an example. Since 2011, it has maintained an annual expansion rate of nearly 20 stores in the Chinese market for five consecutive years. H&M opened about 100 stores a year in China between 2013 and 2017.

In those years, China’s economy was growing rapidly, and Chinese consumers’ purchasing power and desire to spend was at an all-time high. The entry of fast fashion brands, to a certain extent, has enriched the Chinese fashion consumer market, but also educated Chinese consumers. Chinese consumers, hungry for something new and trendy, have in turn given international fast fashion brands the opportunity to expand at a rapid pace.

The rapid expansion of stores fully occupied the view of consumers online and offline, more importantly, with a large number of new models every two weeks or even every week to stimulate the eyes of consumers, coupled with the ability to quickly replicate the fashion elements of the big brands and quickly transform them into affordable items, the brands made the “fast” of fast fashion deeply rooted in the hearts of the people, and became the best in the industry for a while.

Fast-fashion brands were once seen as disrupters in the clothing industry, creating business models that consumers couldn’t resist.

According to an analysis by business management platform Intuit QuickBooks, up to 50 percent of Zara’s products are manufactured and designed midseason. Products that capture real-time trends can be placed in stores around the world twice a week. H&M will prepare 80% of the goods in retail inventory in advance, and the remaining 20% will increase production orders according to the changing market trend.

These numbers became the hottest topic of discussion in the textile industry at the time – how to integrate supply chains and speed up to new speeds to cope with increasingly impatient, picky and hungry consumers.

But failure can be as fast as a success.

The reasons for fast fashion brands’ failure in China vary, but they all have something in common.

Shops quickly spread out, putting consumers at their fingertips, leading to the fashion sense created by fast fashion brands and the collapse of international standards as quickly as possible.

The rapid response of the supply chain is often at the cost of sacrificing certain product quality. Since entering the Chinese market, fast fashion brands like Forever 21, Zara, H&M and Mango have been listed on various quality blacklists almost every year due to their products’ fiber content, colorfastness, PH value and other aspects that do not meet relevant standards.

At the same time, Chinese consumers, exposed to more fashion brands, have become more demanding of quality.

Tang Mengmeng, a senior analyst at research firm Euromonitor International, said that as per capita disposable income in the Chinese market grows, the fast fashion clothing category, known for its cost performance and variety of styles, is being hit by other categories, such as women’s fashion, business wear and luxury brand ready-to-wear.

According to Du Bin, fast fashion is characterized by first-class design, second-rate price and third-rate quality. In recent years, he observes, more consumers are willing to buy higher-priced brands in pursuit of quality.

Fast fashion brands have become increasingly unpopular because of the fast fashion model itself, as millennials and Gen Z have become the largest consumers in China.

On the one hand, a new generation of consumers is becoming more and more concerned about environmental issues. The fast fashion model, which is believed to induce overconsumption by constantly creating demand, has been criticized globally for producing too much fashion junk – cheap, low-quality clothing products that quickly iterate are junk itself.

On the other hand, the new generation of consumers is more in pursuit of personalization. Fast fashion mode determines that brands need to copy fashion elements in large quantities. This in itself has gone against the “personality”.

One set of products for the global market could inevitably be unacceptable

It is worth mentioning that the fast fashion model requires companies to utilize a global supply chain to replicate captured trends in large quantities into standardized products at the lowest possible processing cost, and then sell those products to global consumers at a lower price.

In other words, at its best, fast fashion brands need to be able to reach the global market with a single set of products. This makes it almost impossible for brands to gain recognition in all regional markets.

In fact, no matter from the perspective of product design or brand construction, international fast fashion brands have been operating in the Chinese market for many years, but they have not been able to adapt to the Chinese market well, especially considering that China is still a vast country with great differences in consumption habits and cultural characteristics between cities.

This is another reason why many brands are struggling in the Chinese market. One of the main reasons why brands like Forever 21, Topshop and ASOS eventually withdrew from the Chinese market was that most of their product designs failed to appeal to most Chinese consumers.

Lu Beiye, an investor in the luxury and fashion industry, said in an interview that differences in culture and lifestyle to some extent have influenced international fast fashion brands born overseas to fully resonate with Chinese consumers.

Taking Topshop as an example, the brand takes cocktail dresses designed based on the British party culture and social scene as its core category. However, these categories are not consumed frequently by the domestic mass class in China and there are alternatives with higher cost performance. For example, she said, some brands will make clothes that flatter their figure, which doesn’t match the relatively restrained demands of China’s mass consumers.

In addition to the category itself, she believes that this is also related to the brand’s Chinese team’s lack of voice, “some overseas brands in China’s management does not have too much decision-making power, in the brand image, marketing strategy, site selection, display and even product selection there is a voice limit and decision-making disconnect, they would naturally out of step with the local market.”

Cheng Weixiong, general manager of Shanghai Liangqi Brand Management Co., Ltd, a textile and footwear brand management expert, mentioned that although some international fast-fashion brands had a strong momentum when entering the Chinese market, they were unable to open up the situation when sinking from first- and second-tier cities to lower-tier towns because the prices were not low enough and the product and brand recognition were not high enough.

Therefore, the difficulties in growth of these brands in the Chinese market are gradually emerging as the first and second-tier cities become increasingly saturated.

In this context, Uniqlo is a special case.

China has become the most important overseas market for Uniqlo. As of August 2020, the number of Uniqlo stores in China reached 767, surpassing the 764 stores in Japan for the first time. Tadashi Yanai, president of Uniqlo’s parent Fast Retailing, has said the company will open more stores in China, up to 3,000 based on the country’s population.

Uniqlo has a natural advantage because of its similarities to China in culture, aesthetics and even the size of its consumers.

Complex markets and escalating competition

Brands that are still trying to grow in China have all tried to localize to varying degrees.

For example, when launching limited collections in China on a small scale, H&M will highlight special products and marketing plans for the Chinese New Year every year. For another example, in recent years, in the popular collaboration, H&M has integrated Chinese elements, and launched a collaboration series with Chinese designer Angel Chen.

Inviting spokespersons is also a direction of effort. ZARA, which never had a spokesperson, officially announced two Greater China ambassadors – actors Wu Lei and Zhou Dongyu – for the first time in 2018, and launched a limited collection with the same spokesperson at Tmall. However, this attempt was more like a one-off, the connection between these two ambassadors and the brand was not close, and there was almost no extra interaction except for a few promotional materials for the relevant cooperation. The most recent content related to ZARA spokespersons on Weibo platform was the brand campaign content posted by Wu Lei’s fans in 2019.

Brands are also actively optimizing their channel strategies. Among them, a very important point is to increase the investment in the local advantage of e-commerce channels. Zara and H&M opened Tmall flagship stores in 2015 and 2018 respectively. By contrast, Uniqlo, which still has a significant advantage in Tmall channel, has opened a Tmall flagship store as early as 2009.

Closing small shops and opening big ones is another trend. In 2015, Uniqlo opened what was then its largest flagship store in the world in Shanghai; That same year, H&M opened its largest store in China, in Hangzhou. In October 2020, Zara opened its largest store in Asia on Wangfujing Street in Beijing.

In this way, brands are streamlining costs and optimizing profitability. In turn, consumers can reap the benefits of a better shopping experience.

Ms. Lu said that with no change in markup multipliers and a very large number of product SKCs, opening a large store could be a breakthrough and the most economical option for fast fashion brands. Bigger stores also give brands the space to showcase more products, brand image installations and experiment with new technologies. For example, Zara will place new digital retail terminals in large stores to reflect the technological and digital aspects of its brand.

But an inevitable reality is that once the brand enters the discount season, once the stocked goods are on the shelves, in the process of being repeatedly shopped and tried on by consumers, the store, no matter how big, no matter how new and no matter how avant-garde the design is, cannot escape the image of being dirty and messy. On the public review, consumers are often complaining about this.

The most intractable problem for international fast fashion brands is that the particularity of the Chinese market is also reflected in the continuous upgrading of competition.

On the one hand, “Tao Brand”, which has similar positioning and even mode to fast fashion brands, has been growing in recent years. With the expansion of the size of these brands, their capabilities in design selection, supply chain management, brand management and other aspects have been continuously improved, and their threats to international fast fashion brands have become more direct and specific.

In the Tmall Double Eleven promotion in 2020, “web celebrity” brands “Madame Money’s Snow Pear Customized” and “ASM Anna” were once temporarily ranked first and third on the Tmall women’s hot store list, surpassing Uniqlo, ZARA and other brands.

On the other hand, since Mango entered the Chinese market in 2002 as the first fast-fashion brand, China’s local textile and clothing industry has been “educated” by international fast fashion brands for nearly 20 years. Over the past two decades, China’s homegrown fashion companies have been hit hard. However, in recent years, both in terms of supply chain management and brand building, Chinese local fashion companies have grown to different degrees.

Overseas-focused fast fashion e-commerce company SHEIN is currently testing up to a thousand SKUs per day and delivering new models 365 days a year.

Cheng Weixiong said that the emergence of domestic cross-border e-commerce companies with flexible supply chains like SHEIN in China has made traditional fast fashion brands proud of their integrated supply chains and the speed of new arrivals seem to lag behind.

And more and more Chinese fashion brands have successfully refreshed their brand image through joint design and overseas fashion week catwalks, and their ability to compete with international fast fashion brands has been greatly improved. Coupled with the deepening of the sinking market, the channel advantages accumulated by these brands for a long time also increase the brand competitiveness.

In addition, these brands were born and grew up in the Chinese market. Local genes make these brands more aware of the changes in Chinese consumers’ preferences, and it is easier to form emotional connections with local consumers. Especially as the national pride of Chinese consumers has gradually strengthened in recent years, and the acceptance and love of local brands have increased, “from China” or “Made in China” has become a rare bonus item to attract Chinese consumers.

Source: Jiemian News

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