The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
Every year, Chris Zhang looks forward to taking advantage of steep discounts and special promotions in the run-up to China’s 618 online shopping festival.
Even though it takes a backseat to Singles Day later in the year, the summer festival usually prompts her to spend up to 1000 yuan ($150) on clothing and accessories. This year, however, the Shanghai-based educator in her 40s went for more practical items. Abstaining from fashion, she bought a wok and a high-end water purifier.
Zhang’s approach to the event, which climaxed on June 18, mirrored that of many bargain hunters. With China’s consumer confidence index in April at its weakest level since records began, premier Li Keqiang said the economy could struggle to record positive growth in the current quarter.
Given the deteriorating economic mood, it is unsurprising that even younger Chinese shoppers tended to prioritise vitamins, pet food and healthcare items, or big-ticket items like freezers, over fashion and beauty products.
Over the coming days, some brands are likely to hail their high-profile festival campaigns as a success despite the challenging environment, but for most fashion and beauty players used to an easy ride, the consensus seems to be that this could end up being the toughest 618 in history.
That is almost certainly because the lead-up to this year’s festival fell right during an outbreak of the Omicron variant of Covid-19 in Shanghai and Beijing and the country’s strict ‘zero-Covid’ lockdowns in several cities had a negative impact on consumer sentiment, said e-commerce analysts.
“People [in Shanghai] are just getting out of lockdown now,” said Ben Cavender, managing director at China Market Research Group, a firm with international and domestic brand clients. “There’s been an uptick in purchasing, but a lot of it is comfort purchases [or essentials]. People are restocking on things … that that they had a lot of trouble procuring during the lockdowns.”
While the latest lockdown is now officially over, people remain uneasy about the potential for another one as cases begin to rise again, said Cavender. Recent Covid cases arising from a bar in Beijing and a hair salon in Shanghai have led to renewed anxieties. Indeed, these scares have slowed the pace of recovery of everyday activities and discretionary spending.
“They’re really worried [that] if it happens again that they’re not going to be prepared. And so they’re kind of doubling down on stuff like that. They’re not thinking about some of the typical purchases that they might otherwise have been making in the beauty category or in the fashion category.”
There’s been an uptick in purchasing, but a lot of it is comfort purchases [or essentials]. People are restocking on things… that that they had a lot of trouble procuring during the lockdowns.
Jean-Paul Schmitz, chief executive and founder of Asia Assist, a provider of Chinese e-commerce services for international brands, agreed. “Clearly what you see is just a shift in spending behaviour, not a lot of luxury goods,” he said. “There’s a lot of uncertainty around people’s jobs. A lot of people have not been paid salaries in the last few months.”
In April, when lockdown restrictions were further tightened in Shanghai, sales for major high street and fast fashion brands did not move online. In fact, some saw a steep decline on Chinese e-commerce platforms, according to data compiled by market research firm YipitData. The gross merchandise value for Uniqlo that month on Alibaba’s Tmall site was down 33 percent year-on-year while Zara’s GMV declined 56 percent.
Against this troublesome backdrop, e-commerce companies like Alibaba, JD.com and Pinduoduo incentivised shoppers in the lead-up to the festival by offering rebates of 50 yuan for every purchase of around 300 yuan across their platforms. This is a marked increase from rebates offered in previous years.
Although the bulk of the recent lockdowns’ impact was felt in Shanghai, Cavendar said, there has been that a ripple effect across the country. Some brands are still trying to fulfil orders made in March, April and May that backed up due to downstream supply chain congestion. So, any spike in online shopping activity during this year’s 618 festival could further clog up the logistics network.
“Those orders now need to be prioritised over orders of the same thing in other geographies,” he added. Backups at the Shanghai port and Tmall warehouses located in Shanghai further exacerbated the problem.
“A lot of brands not only haven’t had the team on the ground in China to do the fulfilment of last mile delivery, they have a lot of product which is still sort of sitting outside of China waiting to come in. And that’s created havoc,” Cavendar said, not just in Shanghai but throughout the Yangtze River Delta region that includes Zhejiang and Jiangsu provinces.
Tracy Dai, director of operations at China Skinny, a China-based market research firm, said that even die-hard enthusiasts of Alibaba platforms Taobao and Tmall, such as herself, have been frustrated with the disruptions.
“I couldn’t get anything [during the lockdown] because of the logistics, everything was shut,” she said. “But on the other hand, although JD [deliveries were] coming late, they still have [their] own stock warehouse [and] delivery system, so they can at least get things delivered.” This is why she started using JD.com more these days, she added.
Dai said the knock-on effect of e-commerce platforms’ earlier delivery woes is a decline in consumer demand. Alibaba reported a drop of ten percentage points in the company’s GMV in April. “[The month of] May saw some signs of improvement, but it still takes time to digest the backlog of packages,” Alibaba chairman and chief executive Daniel Zhang told the local media.
JD.com and WeChat owner Tencent posted their slowest revenue growth on record in the first quarter of the year, according to analysis by financial data services provider Wind Information.
Two months of consumers being stuck indoors and continuous travel restrictions have been beneficial for a few brands, particularly those with highly targeted campaigns ready to tap pent-up demand in post-lockdown lifestyle categories. JD announced that sales volumes of sun-protection clothing and outdoors and camping gear was up six-fold since last year. However, lockdowns generally made it hard for most fashion players to capture consumers’ interest during this 618.
Though certain consumer profiles will have returned to the so-called ‘revenge spending’ mindset that prevailed after the first lockdown relaxation period last year, Cavendar said others are becoming much more thoughtful in how they choose to spend their money.
“I think now you’ve got a very sophisticated consumer,” he said. “They do have money to spend, but it’s a little harder to get them to open their wallet.”
Cavendar advised brands to work even harder on the story they tell consumers in China and choose carefully the marketing channels they use. One success story, he said, was Biolane, a French mother-baby skin care brand, which has foregone livestreamers and promotions and is instead marketing through mother influencers and online parenting chat groups.
More broadly, the uncertain economic climate is leading shoppers to be more deliberate, said Josh Gardner, chief executive and co-founder of Kung Fu Data, a firm in China specialising in e-commerce services.
I think now you’ve got a very sophisticated consumer ... They do have money to spend, but it’s a little harder to get them to open their wallet.
Gardner said that brands should try to connect with their Chinese audience in a deeper way. “Consumers are looking for a spiritual or meaningful connection to the brand,” he said, adding that if a brand can help them feel as if they are part of a community that may help them do better in the long run, rather than focusing on short-term promotions during festivals like 618.
Exhaustion with smaller shopping festivals like 618 could be playing a role in this year’s sluggish growth, but analysts said that things could be very different by the end of the year. Cavender suggested that the fashion sector could be hit in the short term but he’s not pessimistic about it longer term.
“Fashion brands here, they’re really sort of in a bind right now because they’re not really sure how to handle their inventory management because they got stuck with weak sales through the most of the second quarter of this year,” he said. “[But] I think we’re going to see it pick up in the third quarter and fourth quarter [as] I’m expecting much more out of 11-11 (Singles Day) this year than I am out of 618, from a spending standpoint.”
This year’s 618 has not been a total washout. Some categories, labels and value segments appear to have fared better than others during the festival period.
Skin care was up 14.2 percent but beauty overall was down 2.49 percent in Alibaba’s pre-sales period in late May. According to Nint, a digital retail data service provider, Estée Lauder and Lancôme did well in pre-sales.
JD.com reported that its JD Luxury platform had been strong for selected brands, with jeweller Bulgari quadrupling its average daily sales and Longines seeing a 160 percent year-on-year sales increase for its luxury watches. But analysts suggested that discount-focused online shopping festivals like 618 are not as useful as a barometer for the luxury goods sector demand as they are for non-luxury.
Overall, JD.com posted 618 numbers on Sunday showing an increase in transaction volumes for the shopping holiday, with sales totalling 379.3 billion yuan ($56.43 billion). Analysts said year-on-year data indicated this is the firm’s slowest ever recorded sales growth. Alibaba and other platforms don’t always post results for 618 as the shopping holiday is seen as dominated by JD.com, which developed it.
Tracy Dai, director of operations at China Skinny, a China-based market research firm, suggested that the numbers show JD had still done relatively well despite the challenges because it can rely on non-fashion categories such as computers, communications devices and essential consumer products.
THE LATEST NEWS FROM CHINA
by Zoe Suen
FASHION & BEAUTY
‘Lipstick King’ Goes Silent After Stream Ends Abruptly
Top livestream KOL Austin Li, known for his record-breaking lipstick sales, appears to have found himself in hot water with the authorities. On June 3, Li’s stream on Alibaba-owned Taobao was cut short after he presented an ice cream cake resembling a military tank, mere hours before the anniversary of 1989′s Tiananmen Square crackdown. Li hasn’t posted anything to his 64 million followers since citing technical difficulties, and cancelled his scheduled stream on Sunday. Search results featuring his name have been censored. According to The Guardian, some followers have said they only learned about the protests since searching for reasons for Li’s disappearance, while others say they’re using virtual private networks (VPNs) to research the strictly censored event. Many are betting that Li will return to Taobao eventually, but a prolonged break will undoubtedly have repercussions for Li and brand clients. (Nikkei Asia)
Shanghai Fashion Week Wraps Up Virtual Season
Even as China’s fashion capital slowly recovers from its months-long lockdown, Shanghai Fashion Week (SHFW) wasted little time in making its online comeback. Taking place across a number of social media platforms — from TikTok sister app and event partner Douyin, to video hub Bilibili, to Instagram — designers showcased their Autumn/Winter 2022 wares over the course of a three-day schedule that ended June 19. BoF China Prize finalist Shuting Qiu kicked off festivities with a collection brimming with her signature clashing prints. Meanwhile, emerging designer incubator Labelhood hosted several activations and showcases, including a collaborative short film with Nike, titled ‘At the Moment,’ and name-to-know Nan Knits’ collection of eye-catching sculptural separates. On the 19th, Feng Chen Wang’s metaverse collection took its audience inside an ominous web-like world populated by models in both real and virtual designs. The same day, investor and philanthropist Wendy Yu’s fashion prize, the Yu Prize, awarded the winner of its cash and mentorship prize for up-and-coming Chinese fashion talent, where gender-neutral brand Ponderer took home the top prize. As of June 20, the total number of views on Douyin’s SHFW content had exceeded 2.5 million, with the event’s hashtag generating over 68 million views. On Weibo, the topic #ShanghaiFashionWeek was up by over 1 billion views from the previous season. (Shanghai Fashion Week)
Kering Gears Up to Boost Gucci’s China Sales
At an investor presentation earlier this month, Gucci owner Kering revealed its roadmap to amplify its star brand’s sales in the key market up to €15 billion in the medium term. Gucci makes up over half of the French group’s revenue, totalling €9.73 billion in 2021. According to Barclays estimates, the Chinese mainland is responsible for around 35 percent of Gucci’s annual sales, compared to LVMH’s 27 percent for fashion and leather goods, and Hermès’ 26 percent. Former Tiffany executive Laurent Cathala has been handed the reins for Gucci’s Chinese fashion operations, and will encourage “stronger local execution” by giving local teams greater control over marketing and advertising. Meanwhile, watches and jewellery divisions will be managed directly by Milan for consistency. The brand’s popularity in and dependence on the mainland is evidently both a blessing and a curse. Though it will reap the rewards once consumer sentiment recovers in China, Beijing’s Covid-zero policy leaves it more exposed than its rivals. (Reuters)
Machine-A Launches Shanghai Store
The Tomorrow Group-owned London multi-brand player, which stocks brands like Raf Simons, Lemaire and Bianca Saunders, is going global with plans to open its first overseas boutique in Shanghai. According to WWD, the store is currently under construction and will span around 2,640 square feet; the retailer aims to open its doors in the city’s Jing’an district this fall. The move makes sense, given the original outpost’s popularity among Chinese shoppers who make up over 60 percent of Machine-A’s online and offline sales. The Shanghai boutique, which will also host installations and parties, will work to amplify emerging global and Chinese design talents while bringing its unique curation to local shoppers. (WWD)
Shein Pledges $50 Million to New Sustainability Fund
The ultra-fast fashion giant has launched a $50 million extended producer responsibility (EPR) fund that it says will power global textile waste management and help grow a circular economy over a five year period, at the annual sustainability gathering Global Fashion Summit in Copenhagen. Under EPR, producers take responsibility for the disposal of products that are no longer used by shoppers. The fund’s first beneficiary is Or Foundation, a US and Ghana-based non-profit with environmental goals to tackle textile waste in cities like Accra. The move is just one of many in Shein’s attempts to amp up its sustainability credentials, in spite of its role in industry-wide overconsumption and overproduction. (KrAsia)
TECH & SUPPLY CHAIN
ByteDance Said to Weigh Sale of Stake in Poizon as Douyin E-Commerce Thrives
The TikTok-owner is mulling a sale of its minority stake in the sneaker resale marketplace, according to people familiar with the matter, noting that the former would prefer to sell to an existing investor but could still opt to keep the stake. Over the last year, Bytedance has made several moves to exit investments and streamline its business in the wake of regulatory crackdowns across tech. In January, Bloomberg reported that the group dissolved its venture capital team and reorganised its strategic investment unit; it has also sold its stake in Indian news aggregator Verse, according to local news outlet Mint, and agreed to sell its trading app to a local brokerage. The news comes amid hints that Bytedance is preparing to take Douyin public, as opposed to going public itself — a move that could have to do with tightened data security regulations. Speaking of Douyin, the TikTok sister app reported on May 31 that its online sales more than tripled for the year ending in April, signalling its growing threat to dominant platforms Alibaba and JD.com. It is unlikely that the sale of Poizon is motivated by local media reports cited by Jing Daily that Chinese Olympic medalist Su Bingtian is suing the platform’s parent company for image rights infringement after it allegedly used his picture illegally. (Bloomberg)
Singapore Beats China as Best Startup Ecosystem in Asia Pacific
China, which last year topped Asia Pacific rankings on StartupBlink’s Startup Ecosystem Index, has lost its crown to the Southeast Asian city-state and dropped to third place, preceded by Australia and followed by India and Japan. When it comes to specific cities, Beijing and Shanghai have the region’s top two spots, but China’s trajectory marks the biggest loss among the top 10 countries. The study cited a lack of local-focused start-ups and “friction” between founders and authorities as the main obstacles. “In the long run, China is the only country other than the US that can directly contend for global entrepreneurial leadership. To do that, China should aim internationally, and that can only be done by connecting to the global internet and allowing Chinese entrepreneurs to flourish,” the report writes. (Tech in Asia)
Reports: Bilibili to Lay Off 20% of Staff
The Gen-Z video platform reportedly kicked off a round of layoffs last month that have affected a fifth of its staff, in a move to reach its 2024 profitability goal. Bilibili hasn’t turned a profit since it listed on Nasdaq in 2018, and posted that losses were widening at a faster rate than revenues last year. According to Caixin, which cites several sources at the firm, the job cuts have mainly hit its streaming, gaming and commercial units, but a company representative denied it was pursuing layoffs on a big scale. This adds Bilibili to the long line of Chinese tech players laying off staff as Beijing’s Covid-zero policies take their toll — a list that already includes the likes of Tencent, JD.com and Alibaba. (Caixin)
CONSUMER & RETAIL
China’s Retail Sales Slide
Amid unpredictable lockdowns and re-openings, the country’s retail sales slid for a third consecutive month in May, data from the National Bureau of Statistics reveal. Sales fell 6.7 percent year-on-year — a slower decline than April, but not yet a sign of recovery as the threat of targeted lockdowns loom, and mass testing orders in Shanghai and Beijing prioritise antivirus policies over economic growth. While sales of cars, online goods and F&B by larger firms picked up, an improvement was offset by steep declines in consumption in catering and clothing categories. (Financial Times)
Forever 21 Bets That Third Time’s a Charm
The American fast fashion player announced plans to unveil a physical store in China — its first official opening after exiting the market for the second time in 2019. Forever 21 said in a WeChat post that it would open a store this month at the Jingjiang Impression City mall in Taizhou, a third-tier city in Jiangsu. The retailer first broke into the mainland in 2008 for a brief stint and exited a year later; its second go at wooing Chinese shoppers commenced in 2011, after which it ran 11 stores until 2019, when it left several countries and filed for bankruptcy, before getting acquired by Authentic Brands Group in 2020 and licensing Chinese operations to local companies. Forever 21 quietly re-entered China last fall through online channels Tmall, VipShop and group buying app Pinduoduo, and has posted ads in the lead up to the 618 online shopping festival — whether it has a better go this time around and can compete with both global and homegrown fast fashion giants remains to be seen. (Reuters)
Will China’s 618 Shopping Event Lose its Allure?
Over the last decade, 618 has risen to become one of China’s top online shopping events after Singles’ Day and a major barometer for consumer sentiment. But with shoppers tightening belts and non-stop extravaganzas filling up marketing calendars, this year’s figures could disappoint. Thanks to a post-lockdown spending surge and government subsidy programs, 2020′s early pandemic 618 sales were a roaring success. But local news outlets are calling 2022′s edition the “toughest” in history: unpredictable and strict antivirus measures remain omnipresent, while brands, shoppers and logistics firms have yet to fully recover from months of lockdown, which saw factory production screech to a halt and supply chains upended by log jams. Meanwhile, e-tailers Alibaba, JD.com and others are dealing with a number of obstacles, from sluggish growth to regulatory scrutiny. (Technode)
Hong Kong Retailers Remain Resilient
According to Hong Kong’s census and statistics department, the city’s April retail sales reached a value of $30.2 billion HKD, a 11.7 percent rise year-on-year. The improvement has been credited to its stabilisation of Covid-19 following a surge in cases in March, as well as government-issued consumer vouchers. And though the erstwhile shopping hub has yet to fully recover from the impact of pro-democracy protests and the pandemic (crucially, travel has yet to resume between Hong Kong and the Chinese mainland, with visitors from other countries still required to quarantine upon arrival), brands are still investing in it. Lanvin has unveiled two new stores in Harbour City and IFC mall respectively, and both Tiffany and Rimoir are slated to host exhibitions in the city. For high end malls, which since 2019 saw a string of luxury tenants shutter their flagships and boutiques, things are finally picking up. Causeway Bay’s Times Square reported occupancy rates recovering to 11 percent, while sales at Pacific Place rose by 27 percent in the second half of 2021. (Jiemian)
POLITICS, ECONOMY, SOCIETY
Lockdown Fears Hold Despite Low Infection Rates
Though mainland China and Hong Kong are posting infection rates of below 200 and 2,000 respectively, which are among the world’s lowest, lockdowns and other antivirus measures continue to loom. Earlier this month, Shanghai was locked down over the weekend to facilitate mass testing in response to a rebound in cases, just weeks after the shopping hub’s post-lockdown reopening. Meanwhile, authorities in Beijing say the city is in a “race against time” to curb a sharp rise in cases, just weeks after drinking and dining establishments reopened on June 6. In Hong Kong, the 25th anniversary of the city’s handover is near. Chinese President Xi Jinping is rumoured to be visiting for the occasion, as school children have been asked to enter quarantine with their teachers at a hotel before welcoming special guests at the airport on June 30. (Bloomberg)
Beijing Moves to Extend Military Operations in Taiwan
China’s President Xi Jinping has signed orders greenlighting military trials outside Chinese borders, further raising tensions with Taiwan, which Beijing sees as a part of Chinese territory. State-backed newspaper the Global Times wrote that the outlines set a legal basis for the People’s Liberation Army to “safeguard China’s national security” and “prevent spillover effects from regional instabilities,” and analysts have mirrored Putin’s language around the Russian invasion of Ukraine. On June 13, China’s foreign ministry said the country “has sovereignty, sovereign rights and jurisdiction over the Taiwan Strait” — comments Taiwan’s foreign ministry spokeswoman labelled a “fallacy.” (The Guardian)
Pop Star Kris Wu Tried in China for Alleged Rape
The former K-pop boy band member and face of luxury brands from Burberry to Louis Vuitton faced several criminal charges at a closed trial in Beijing. Wu, a Chinese-Canadian entertainer popular in China, has been in police custody since last August after a teenager accused him of having sex with her while she was under the influence of alcohol, and was tried on charges of rape in addition to “assembling a crowd to engage in sexual promiscuity,” with a verdict and sentence to be issued. The news came just after netizens were shocked by an unrelated incident, whereby graphic footage was captured of men physically assaulting four women in a restaurant in Tangshan. Police have since arrested nine people on suspicion of violent assault, and the incident has resulted in a surge of discourse around misogyny and violence against women in the mainland. (AP News)
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