A year of crisis and disruption hasn’t slowed the world’s biggest fashion market, but it is reshaping it.

While domestic luxury sales in China are expected to roughly double next year compared to 2019, according to BoF and McKinsey’s The State of Fashion 2022, the brands and companies positioned to profit from this growth are changing.

BoF’s annual round-up of the forces that shaped China’s fashion, beauty and luxury sectors in 2021 offers a crib sheet to understand the landscape for the year ahead.

Domestic Brands Gain Ground

Relatively robust demand for fashion and beauty in China this year has not favoured all players equally.

International brands have struggled to navigate cultural and political dissonance between Western and Chinese markets, with controversy over allegations of forced labour in the Chinese region of Xinjiang proving a particular flashpoint. Companies including Adidas, Nike and H&M faced a financially bruising nationalist backlash in the country after saying they would not source cotton from the region. Meanwhile, domestic rivals like Li Ning and Anta have enjoyed a spike in sales.

The demand for domestic brands, fuelled by growing nationalism, travel bans and ongoing geopolitical strife, is also supporting a thriving ecosystem of buyers, event organisers, editors, consultants and entrepreneurs in China’s fashion capital, Shanghai.

The result is increasingly intense competition for Western brands and retailers as domestic businesses gain traction and build loyal communities. The race is especially fierce in the country’s $51 billion beauty market, where local players like Heat, Wow Colour, Harmay and The Colorist are making their mark by stocking local beauty brands and offering consumers niche in-store experiences.

With Chinese shoppers likely to remain under travel restrictions for the duration of 2022, brands will need to carefully navigate increasingly tense politics, while continuing to invest in local store networks, relationships and activations.

Regulation on the Rise

In September, President Xi Jinping made a call for “common prosperity” and the curbing of “excessive incomes.” The statement, and the prospect of new taxes for China’s elites, spooked investors, wiping an estimated $120 billion off luxury players’ market capitalisations. The stocks have since rebounded as experts concluded China’s goals could help grow the country’s middle class and in turn, luxury demand, but Xi’s comments have also resulted in a palpable shift in tone in the market. For instance, e-commerce giant Alibaba’s major Singles’ Day sales event adopted lingo stressing sustainability and the common good instead of sales figures this year.

Meanwhile, the threat of further volatility and regulation continues to loom over several sectors.

It’s been a particularly tough year for big tech players, which fashion and beauty brands rely on to reach the country’s vast consumer base. New guidelines aimed at curbing the power of China’s tech giants have created uncertainty around the country’s biggest e-commerce players.

Actress Zheng Shuang in Prada's latest Chinese New Year campaign.

Elsewhere, regulations on celebrities and media are also creating shifting sands for fashion. In the wake of scandals about tax evasion, rape allegations and geopolitical sensitivities that implicated former luxury brand ambassadors Zheng Shuang, Kris Wu and Zhang Zhehan respectively, President Xi ordered a clean-up of China’s entertainment industry resulting in not only the censorship of “immoral” celebrities but a heavier burden on brands to form relationships cautiously, or risk aligning themselves with disgraced figures.

The crackdown has extended to culture, with broadcasters and platforms told to ban stars with “incorrect” politics and poor “moral conduct” in September. It’s a challenging situation for brands to navigate, with activists and industry insiders concerned the crackdown will affect diversity and promote discrimination.

Economic Uncertainty

In the past year, the convergence of several market-shaping crises amped up pressure on China’s economy and businesses, creating an uncertain outlook for the months ahead.

The country’s economic growth rate slowed to 4.9 percent in the third quarter, compared to 7.9 percent the quarter earlier, hit by a housing slump and energy crisis. Analysts fear the slowdown could extend into the new year, mixing with wider economic pressures caused by a global supply chain crisis.

China’s manufacturers are already feeling the impact of these crises. The country’s energy crunch — the result of slowing coal supply from Australia, which China depends on for more than half of its power supply, and growing demand for electricity in the mainland — led to planned shutdowns in industrial hot spots across fashion’s most important manufacturing hub and a surge in textile and garment prices.

That adds to the challenges facing the country’s manufacturers, who are already dealing with soaring raw material prices, global supply chain disruptions and scrutiny over alleged forced labour practices tied to cotton production in Xinjiang. Those pressures are expected to accelerate an ongoing shift to alternative manufacturing hubs.

The looming risk ahead is the threat of stagflation: when a country sees both a slowing economic growth and rising inflation. It’s unclear what the repercussions for both local and global brands will be, but rising prices across logistics and raw materials will require costs to be passed on to shoppers, which few aside from the top luxury houses can afford to do.



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