In China, Hangzhou Brands Face Identity Crisis

Hundreds of women’s fashion businesses, born in the mid-1990s in Hangzhou, China, based their success on mediocre, embellished copies of global best sellers, cheap commercial distribution, and high margins. But in today’s highly competitive China market, where brand matters more than ever, Hangzhou labels face a serious identity crisis. BoF reports.

JNBY Fall/Winter 2012 | Source: JNBY

HANGZHOU, China — Have you heard of Chiu Shui, JNBY or Vandoren? Behind these names — which might easily evoke a Mexican puppy, a New York law firm and a Belgian chocolate-maker, respectively — are, in fact, three sizeable womenswear brands established here in Hangzhou in mid-1990s. 

Hangzhou is an important hub for the Chinese fashion industry. Although 80 percent of China’s garment factories are still located in the Pearl River Delta, Hangzhou has about 1,000 manufacturing plants and is the home base of 50 percent of China’s roughly 600 ready-to-wear brands focused on the upper-middle women’s fashion market.

Conquering the territory

The founders of Hangzhou brands are often former garment manufacturers. Vandoren’s CEO launched the label after spending many years as an OEM (contract manufacturer). Other chiefs, like Li Lin, who launched JNBY (Just Naturally Be Yourself) in 1994, after doing a university degree in chemistry, represent a new generation, however. This new breed of young entrepreneur has laid the foundations of what is known in the local apparel sector as “Princess”-style clothing, characterised by rich ornamentation like ruffles, lace and sequins. It’s a style that took off amongst Chinese women, tired of the austere simplicity of the Mao suit.

In the 2000s, womenswear brands from Hangzhou rose quickly and soon conquered large swathes of the domestic Chinese market. Chiu Shui opened its first store in 2005. By 2011, it had 350 stores.

The retail expansion followed the key precepts of the 2,500-year-old Chinese strategy game Go: encirclement from the periphery to the center. While large international chains like H&M and Zara fought to find the best locations in the streets of megacities like Shanghai and Beijing, the pioneers of Hangzhou pushed into some of the 300 third, fourth and fifth tier cities of China.

The strategy paid off. These towns have populations ranging from 500,000 to upwards of 5 million inhabitants. They account for 40 percent of the total urban population and 43 percent of the country’s overall GDP. What’s more, most of these cities are not located in the Chinese Hinterland or the deep Far West, but are situated in the residential outskirts of the major urban centers of Eastern coastal regions, making them easy to penetrate, logistically. Additionally, commercial real estate in these cities was cheap, while dense populations ensured growing revenues. Competition was virtually non-existent.

“Every style is our style” 

In China, fashion brands are seen, first and foremost, as commercial vehicles. The notion that a brand embodies certain values, meets the aspirations of consumers, expresses an aesthetic or reflects the extraordinary personality of its founder is not widespread. As a consequence, the fashion collections of most Hangzhou brands do not convey any special or cohesive meaning. They often stem from a random collage of fashion pieces picked up by designers while shopping overseas, visiting trade shows or browsing Internet websites.

This opportunistic approach usually resulted in overcrowded collections (600 styles for a season, minimum) where one could find a bit of everything and, above all, anything. Mediocre copies of the latest best sellers from Dolce & Gabbana, Chanel, Chloé or Dsquared were adorned with lace and sequins, and re-branded, much to the delight of China’s “Princess” consumers. “Every style is our style,” proudly proclaimed the CEO of Hangzhou brand One More, a few months ago.

But style didn’t matter much as long as profits continued to grow. And with retail prices ranging from €30 (about $40, at current exchange rates) for a t-shirt to 250 euros for a coat, margins well very comfortable: between 7 and 11 times production cost, according to estimates. Most Western brands operating in this market sell for between 2 and 5 times production costs.

Brand or die?

But from 1995 to 2013, “Princess” consumers matured. Meanwhile, competitors increased in number and expanded their geographical presence. And today, the retail performance of many Hangzhou brands has unmistakably degraded, with an estimated average turnover per square metre now below €1500 per year. Leading fashion retailers Metersbonwe and Bosideng recently announced significant profit drops. And unsold inventory is rising and often disposed at 90 percent discounts on Chinese e-commerce site Taobao, whose hometown is also Hangzhou.

As a consequence, many Hangzhou brands now feel that their future lies in the creation of a unique identity that will attract more targeted consumers with a distinctive style. But the challenge is complex and their approach unsophisticated. In brand manuals and interviews with company directors, target consumers are characterised by stereotypical bullet points: they are 18 to 30 years old; they are active and live in urban areas; they love fashion and shopping.

For many Hangzhou clothing companies, the task of defining a real brand identity and a distinctive style is perplexing and creates uncertainty. Rather than attempting to anticipate fashion trends and make clear style statements, a collection that simply compiles the bestsellers of leading global brands is seen as a safer approach and Hangzhou labels often return to this reflex.

Additionally, it’s difficult for these brands to give up their habit of skimping on quality and attempting to compensate for this with cosmetic add-ons which are supposed to “add value.”

Many prefer to diversify and create a new brand or develop a new market. For instance, JNBY has launched menswear label Croquis, while Chiu Shui has founded Cocoon to target affluent customers. Some have also explored growth opportunities outside China. JNBY, for instance, has opened more than 20 boutiques in Japan, Canada, Russia, Singapore and the Middle East.

But in today’s large and highly competitive China market, developing a real brand identity is crucial to success. For the many fashion companies in Hangzhou, however, the question of how to actually go about doing this lingers heavy in the air.

Many of these brands are now 18 years old. It’s time for them to put away their princess dresses and grow up.

Genevieve Flaven is CEO of Style-Vision Asia, a trend agency based in Shanghai.