China Insight: As Economy Struggles, Fashion Brands Look Overseas for Growth
Against the sluggish growth of the global economy, Chinese fashion companies are taking steps to cope with rising geopolitical tensions — but the future remains bleak.
On the one hand, domestic consumption has fallen short of expectations; on the other, China continues to lose share in international markets as firms look to diversify their sourcing operations so as not to be too dependent on one country. At this point, some Chinese companies have decided to go overseas as a way to tap into the trend of globalization and increase the international recognition and acceptance of their brands.
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But the moves are against a backdrop that is grim for China’s apparel sector.
First, exports are under siege. Analyzed in terms of export trade value, China remained the world’s leading garment exporter in 2022, yet its growth rate of 3.6 percent was lower than the global average of 5 percent, ranking China at the bottom of the top 10 garment exporters. The country is losing market share in almost all major garment import markets, including the U.S., the European Union, Canada and Japan.
Second, the performance of the domestic market, which was expected to be high, has also been unsatisfactory. In mid-August, social financing data released by the People’s Bank of China showed that in July, renminbi loans totaled 345.9 billion yuan, or $47.51 billion, 89 percent below the June level and the lowest amount since 2009; renminbi deposits fell by 1.12 trillion yuan, or $1.54 billion, reversing a 3.71 trillion renminbi increase the month before.
The negative reaction of global stock markets to this data shows that the prevailing pessimism about the Chinese economy is likely to continue to grow and will further impact Chinese consumer spending, including in fashion. The number of reports in Chinese media about the business difficulties of garment companies is clear evidence of the difficulties the sector faces.
Despite the lingering negative views, economist Xu Xiaonian contends, “Do not underestimate China’s economic growth potential. The recession is not necessarily a bad thing, because the consensus and momentum of reform are gradually gaining force. We are getting closer to a way out of the crisis and the entrance to the new economic growth.”
Chen Dapeng, president of the China National Garment Association, believes the international environment has become increasingly complex since the beginning of 2023, with insufficient market growth and global trade being impacted by geopolitical tensions. Given this environment, problems such as the weak momentum of economic development and insufficient consumer confidence affected the recovery of the overall economy in China. This has in turn placed immense pressure on the development of the apparel sector.
At the same time, he said the industry is in a period of strategic restructuring and development. Despite the overall slowdown in the growth rate, the pace of the rebound in the domestic market is accelerating. Numerous companies are committed to the digital economy, seeking transformation and upgrading during this painful transition phase.
But China’s garment industry does have companies — such as Eeka Fashion, Bosideng, Biemlfdlkk and JSW Jeanswest — that achieved good results in the first half of 2023.
Icicle — which has always challenged the concept of overconsumption and fast fashion — saw a net increase in sales of 48 percent year-over-year in the first four hours of the “618 midyear shopping festival,” averaging sales of 3,782 yuan per customer. The high-end clothing brand already has two offline stores in Paris.
The interior of the Icicle store in Paris.
Anta, which was once far ahead of Adidas in China, has shown in its first-half financial results that its “single focus with multibrand aiming for globalization” strategy has achieved strong results, with revenues reaching 29.65 billion yuan, or $4.07 billion, an increase of 14.2 percent year-over-year, and operating profits of 7.62 billion yuan, or $1.05 billion, an increase of 31.6 percent year-over-year. In other words, Alta’s revenue in the first half of 2023 was the sum of Li Ning’s and Adidas China’s, and 1.1 times those of Nike China. Chinese menswear brand Dikeni raised 792 million yuan, or $108.8 million, and just recently gave a reply to the Shenzhen Stock Exchange’s inquiry letter and updated its initial public offering prospectus.
So how should garment companies survive the current economic environment? Developing overseas markets has become a path that can not only solve the bottleneck of the current market development in China, but also maximize a brand’s revenue over the longer term.
Unlike Shein’s rapid rise overseas — which has stirred controversy among government entities and sustainability organizations over its sourcing practices and business methods — the difficulty for Chinese mid- to high-end local brands in expanding abroad generally lies in whether they can resonate with overseas consumers, which is even harder to achieve against the backdrop of cultural differences between the East and the West. As a result, some more traditional Chinese companies have attempted to expand internationally through large-scale acquisitions, eventually falling into difficulties due to a lack of understanding of those markets. In this regard, Icicle is different from the rest.
Consumer response to the two stores in Paris has shown that the menswear (both the workshop line and eco-friendly line) is well received, which stems from the brand’s long-term strategy. As early as 2013, Icicle set up a creative design center in Paris. Over the years, its designs were done through the eyes of Parisian designers and their understanding of the Chinese aesthetic, while incorporating the brand into the daily lives of local consumers. Exchanges and communication with the market and consumer provided feedback to the product side, enabling improvement in the design.
These products also help inform the Chinese market about what performs well in Europe. According to Xu Ye, chief strategy officer of Icicle, the Paris design center gathers high-level design talents in Europe and even globally, which plays an important role in pushing the overall growth of the brand. She believes that Paris is the most challenging place in the international fashion industry, and building and operating in the market is preparation for expanding elsewhere in Europe.
As for the home market, positioning Icicle as an international fashion brand and executing the requirements and standards of such labels is conducive to obtaining new growth.
In addition to Icicle, which has been cultivating the overseas market for 10 years, many leading enterprises in China’s garment industry have experiences and plans to go overseas. But unlike in the past, they decided to go overseas as “a group” this year. At the beginning of September, under the organization of Chic, a group of Chinese brands will participate in this year’s Who’s Next exhibition in Paris. They will include K-boxing, Joeone and other nationally recognized menswear brands, as well as the Ellassay, JNBY, Laurèl and Liangsanshi womenswear brands; designer labels such as Raxxy, as well as Hemple Group, a fashion group that evolved from an OEM factory to a company with a forward-looking vision and digital transformation to demonstrate the strength of “China’s Intelligent Manufacturing.”
The collective participation of these companies in Paris aims to enhance the global influence of Chinese brands, expand the international vision of local designers and tell a good story of “What Makes China Unique” through the sharing of brand stories and products.
Editor’s Note: China Insight is a monthly column produced by WWD’s sister publication WWD China looking at developments in that key market.
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