21 Aug 2015
Tiered View of Mainland Cities Deemed Out of Date at UK Fashion Forum
Gaining a foothold in mainland China was the first item on the agenda at the British Fashion Council's second Fashion Forum, with many delegates learning that their view of the Chinese retail landscape may now be woefully outdated.
British designers, international brands, lawyers, bankers, investors, retailers and tech companies were all very much in attendance for the British Fashion Council's second Fashion Forum. Many of them had been drawn by one particular topic – how to gain a foothold in China.
The event was introduced by Natalie Massenet, Founder and Executive Chair of New York-based Net-a-Porter, as well as the current Chair of the British Fashion Council. Highlighting the aim of the event, she said: "We are here to create a think-tank for debating the important issues of the sector, while engaging the investment, finance and broader fashion communities. We are also looking to showcase businesses with a high potential for growth and to generate investment opportunities."
In order to encourage everybody to share opinions and information openly, the event was held under strict Chatham House Rules, preserving the anonymity of all concerned.
The opening session, Entering China, proved a timely reaction to recent headlines proclaiming the end of opportunity in Asia, with the China bubble apparently set to burst. This impression was quickly countered by a series of telling statistics related to China's growing economy. China, delegates were informed, is expected to surpass the United States and become the world's largest consumer market within three years. Even back in 2010, 80% of wealthy consumers in China were under the age of 45, compared to only 30% in the US.
The panel of experts had plenty of advice for those looking east and more than one stated the importance of securing a brand trademark right from the start. Los Angeles-based Phillip Lim was just one designer who had learned this the hard way when he discovered his 3.1 Phillip Lim signature logo had been bought by somebody else in 2007, even though Lim had been trading in China since 2005.
Many of the panel also highlighted the pitfalls of not researching real estate thoroughly, with the right lease terms and location being vital to success in China. It was also widely recommended that entrants to the market should take time to find the right property partner, someone who will support inward investors and share the risks. One warning was to never to commit to a floorplan. Instead, it was advised that aspirant retailers should do their homework as to what exactly the locals are buying, while also ascertaining whether the local management team truly understand the brand. The panel also advised that entering the market with a multi-brand retailer would make it easier to test products and build brand awareness.
The notion of first, second and third tiers cities was also dismissed as somewhat out-dated. In today's China, according to the panel, each mainland city – or cluster of cities – has developed its own culture, with needs and desires that inward investors have to engage with. The average shoe size in Chengdu, for instance, was said to be two sizes smaller than that in Beijing. The only way to get to know the culture and the customer properly, then, was seen as through repeat visits and by establishing trust via a clear brand presence.
Chengdu was cited as a prime example of how the Chinese market is maturing. While many businesses still tend to primarily target Shanghai or Beijing, more than half of the Fortune 500 companies now have offices in Chengdu.
The Chinese government's crackdown on corruption and gift-giving three years ago was also seen as having a very real impact. The gift card culture in retail stores is disappearing and people are shopping for themselves, meaning brands are having to work harder to appeal to a more discerning customer base.
One of the reasons given for the tiered approach to cities being outdated was the democratising effect of digital. The Chinese customer is generally acknowledged as hugely online savvy, requiring new businesses to implement a robust e-commerce programme in order to succeed. To this end, it was seen as best to work with one of the better-known multi-brand sites that customers know and trust.
When setting up a business, the role Hong Kong as a useful learning space was also emphasised, as was the changing nature of the mainland shopping experience. This has seen fashion outlets expand beyond the malls, with the younger, independent brands exploring new retail space possibilities. In line with these changing customer expectations, it was seen as good time to test brands with millennials.
The forum's second session turned to Sustainability – Setting your Agenda, a theme that prompted a number of questions from the audience. Constant reference was made as to how best to convince financial managers of the importance of sustainability. The general view of the session, however, was that if your Chief Financial Officer doesn't buy into sustainability, then your business might not have a future. With climate change widely seen as affecting resources, knowledge of a company's impact within the supply chain was seen as essential for future-proofing any business.
A key part of any survival strategy was seen as aligning profits and purpose – re-educating investors that it's not about losing ROI, but more a case of reinvesting along the supply chain in order to secure longevity. One of the last discussions in the session centred on the idea of creating a risk model for sustainability, with a short-term view high risk and a long-term view more of a low risk.
The final session of the forum turned to Investment – What's the Deal? This saw a panel of entrepreneurs and investors discussing the best means of matching investors with businesses. While everyone agreed that each deal is different, it was seen as the people involved that ultimately make any deal work, with choosing the right investor/brand as a partner making a huge difference. In an ideal situation, these backers become an extension of the core team, going on to work together for many years.
Business basics were also reiterated at the session. These included making sure there's enough capital available to 'upgrade' talent and make key appointments, having a solid business plan with an investment strategy that considers the short, medium and long-term, and a clear focus on your products.
The underlying theme from all three sessions was planning and thinking long term. This was seen as important whether entering a new market, creating a sustainability strategy or looking for investment.
The second British Fashion Council Fashion Forum was held at London's Café Royal on Tuesday 30 June 2015 for an invitation-only audience.
Sharon Gethings, Special Correspondent, London