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.
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.
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.
FASHION & BEAUTY
Chinese Streetwear Incubator Raises $10 Million in New Funding
Milly Rock Group (MRG), a streetwear incubator based in both Los Angeles and Shanghai, has secured almost $10 million in Series A funding led by Bai Capital. MRG’s founder, Xia Jiahuan, also co-founded the sneaker marketplace Solestage. He expects company revenue to hit 100 million yuan ($15.68 million) in 2022. (BoF)
K-Beauty Giant Amorepacific Looks to Shift Gears In China
The group behind brands like Sulwhasoo, Etude House and Innisfree is considering giving sales China a much-needed boost by cutting back on physical stores and accelerating expansion of its premium offering and digital channels. (BoF)
TECH & INNOVATION
China’s ‘Livestream Queen’ Viya Fined $210 Million for Tax Evasion
China’s top livestream host, Huang Wei, better known as Viya, has been fined 1.34 billion yuan ($210 million) for tax evasion, according to tax authorities. The tax bureau for the city of Hangzhou released a statement saying the 36-year-old influencer failed to fully disclose her personal income in 2019 and 2020. (BoF)
Xiaohongshu Bans 29 Brands Over ‘False Marketing’ Accusations
The platform said it had found the companies were using “external intermediaries” to pay a large number of users with products and cash to “spread false marketing content” on its platform. It did not provide details of the nature of the content in question or how it contravened either platform rules or Chinese advertising laws. A number of international beauty and skincare labels were among the brands affected. (BoF)
CONSUMER & RETAIL
OTB Group to Open Four New Stores in New Shanghai Development
The Italian fashion group has snapped up four street-front, double-storey pieces of real estate in JC Plaza Mall for Maison Margiela, Jil Sander, Marni and Amiri stores. The long-awaited new development in Shanghai’s downtown shopping district of Nanjing Xi Lu will be home to the first Jil Sander flagship store in Shanghai. The Amiri store will be the brand’s first in China. (Press Release)
POLITICS, ECONOMY, SOCIETY
Sportswear Giant Anta’s Founding Family Donates $1.2 Billion in Shares
The billionaire family behind one of the world’s largest sportswear brands has pledged to donate 84.5 million shares worth HK$9.26 billion (approximately $1.2 billion) to charity, according to a statement released by Anta. The Ding family, including chairman Ding Shizhong and his brother, deputy chairman Ding Shijia, largely control the Anta Group’s business and their pledge comes amidst a broader call from Chinese president Xi Jinping for “common prosperity” to narrow the country’s wealth gap. (Forbes)
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