apparel in brazil, china, india how the world shops

The McKinsey Quarterly 2007 Number 468

70China: Small budgets, small wardrobes

74India: Shopping with the family

In emerging markets around the

world, the spending power of consumers

is rapidly changing the retail industry,

both globally and locally. Multinational

retailers seeking new sources of

growth are watching the mass markets

of Brazil, China, and India, whose

large populations and strong economic

growth have made them nearly

irresistible. As consumers have greater

disposable income, they increasingly

spend their money on items beyond the

basic necessities. One of the first

categories to feel this change is apparel.

To understand more fully what it would

take for retailers to succeed in

these markets, McKinsey conducted a

proprietary research project on

apparel-shopping attitudes and behavior

in Brazil, China, and India. Our sample

consisted solely of women,1 who

in many markets not only decide what

clothes to buy for themselves but

also influence clothing purchases for

their children and husbands. We

supplemented this quantitative research

with dozens of focus groups, store

visits, interviews, and shopping diaries.

“China: Small budgets, small wardrobes”

shows how that country’s fickle

consumers and strong local competitors

threaten to undermine the multinationals’

efforts. “India: Shopping with the

family” explains the different roles that

Indian women, men, and children play

in making decisions about apparel and

the way the market there is evolving.

“Brazil: Fashion conscious, credit ready”

describes the country’s enthusiastic

shoppers, as well as the efforts of banks

and retailers racing to meet their

credit needs.

How half the world shops: Apparel in Brazil, China, and India

Special report: Emerging-market consumers 69

76Brazil: Fashion conscious, credit ready

The authors wish to acknowledge the contribu-

tions of their colleagues Susan Breuer,

Claudio Lensing, Savita Pai, and Khiloni Westphely.

In memoriam

We dedicate this collection to the

memory of Alastair Ramsay, a partner

in McKinsey’s London office, who

founded and led this research project.

Alastair passed away in June 2007.

He inspired us with his commitment

to client service, as well as his warmth

and compassion as a leader.

1Wesurveyed6,000consumersoffood,apparel, andelectronicsinBrazil,China,India,and Russia,including900womenacrossBrazil,China, andIndia,specificallyonapparel.Inaddition wesurveyed1,600shoppersinFranceand theUnitedStatesforthepurposesofcomparison.

69


China’s clothing consumers are legion, but inexperienced about subcategories, quality, and features. Global retailers can help.

Wai-Chan Chan, Richard C. Cheung, and Anne Tse

Despite rapid growth, China’sapparelmarketpresentsglobalretailerswithsignificantchallenges.AMcKinseysurveyofChineseconsumersunder-scoresthedifficultymultinationalretailersmayfaceinapplyingtoChinatheirtried-and-trueformulasfordifferentiatingproductsandbrandsandsuggeststhattheyshouldadoptnewapproachesinareassuchasin-storesalesandadvertising.Moreover,thesurveyhighlightsimportantdifferencesbetweenaverageChineseapparelshoppersandthecountry’syoungadults—agroupthatoffersglobalretailerssomeintriguingpossibilities.

Thesefindingsemergedfromaresearcheffortthatcombinedaquantitativesurveyofurbanmass-marketconsumerswithqualitativeresearchtech-niques,includingshopperdiaries,storevisits,andfocusgroups.1Westudiedthemassmarketbecauseitincreasinglydrivestherapidgrowth(12per-centayear)ofChina’s$84billionretailapparelmarketandrepresentsasignificantopportunityforforeignretailerstoexpandbeyondthehigh-endconsumerstheyhaveservedsincetheearly1990s2China’sapparelmarketisnowtheworld’sthirdlargest—behindonlytheUnitedStates($232billion)andJapan($100billion)—andthefastest-growinginthe“BRIC”countries:Brazil,Russia,India,andChina.Seventypercent

China: Small budgets, small wardrobes

1Wesurveyedtheapparel-shoppingattitudesandbehaviorof300women,whoinChina(asinmanyother markets)notonlydecidewhatclothestobuyforthemselvesbutalsoinfluencetheclothingpurchasesoftheir childrenandhusbands.2Forresearchpurposes,wedefinedChinesehigh-end(orglobal)consumersasthosewithannualhousehold incomesgreaterthan$12,200(at2005exchangerates);mass-marketconsumers,incomesfrom$3,000to $12,200;andstrugglingconsumers,incomesbelow$3,000.Themassmarketcanbefurthersubdividedinto a“consuming”group(withincomesfrom$5,000to$12,200)andan“aspiring”one($3,000to$5,000).


ofapparelsalesinurbanChinatakeplaceinmodernformats(typi-cally,departmentstores,thoughmorespecializedshopshaverecentlybeguntoemerge).

OurresearchindicatesthatChina’smass-marketconsumershaverelativelysmall,undifferentiatedwardrobes.FortypercentoftheChineserespon-dents,forexample,reportwearingsimilarclothingatwork,formalsocialoccasions(suchasweddings),anddateswithfriendsorfamily,comparedwithonly8,13,and11percentofconsumersinBrazil,India,andRussia,respectively.Althoughhabitsarechanging,apparelretailersinChinamayfinditmorechallengingthantheydoinotheremergingmarketstoestablishthemselvesasspecialistsinclothingsubcategories,suchasladies’officeclothingorspecialtyoutdoorcasualclothing.

Moreover,Chineseconsumersofappareldon’tappeartoplaceapremiumonforeignbrands.Onlyone-quarteroftherespondentssaythatsuchbrandsofferbettervaluethanlocalonesdo,forinstance,andonly11per-centreportfrequentlytryingonforeignofferings.ThesefiguresstandinstarkcontrasttoourfindingsinIndia,whereabout50percentofrespon-dentssaythatinternationalbrandsaresuperiorinvalueorquality.What’smore,Chineseshoppersseemtorelymoreheavilyonpricetoformtheirperceptionsofaproduct’squalitythandoshopperselsewhere.WhereasnearlyhalfoftherespondentsinBrazil,India,andRussiabelievethattheycanquicklyassessthequalityofagarmentwithouttakingitscostintoaccount,only22percentofChineseconsumerssaythesame.

China’surbanyoungadults,from18to25yearsold—asegmentcomprisingabout15millionpeople—representanexceptiontothesetendencies.Manyyoungconsumersfavorinternationalbrands.Halfagreethat“foreignbrandsarehigherqualitythanlocalbrands,”comparedwithanaverageof15percentacrossallotheragecohorts.Similarly,36percentofChina’syoungadultssaytheyoftentryonforeignproductsandbrands,comparedwithanaverageofonly13percentofotherrespondents.Althoughyoungconsumersbehavedifferentlyfromolderonesinallofthecountrieswestudied,thedifferencesinChinawerebyfarthemostpronounced(Exhibit1).Thereyoungconsumersalsoshopforapparelmorefrequentlythandopeopleinotheragegroups,spendlargersumsonclothing,andaredisposedtospendevenmoreastheirincomesrise(Exhibit2).

Thesefindingshaveseveralimplicationsforglobalretailers.Clearly,targetingtheyoungisaripeopportunityandmayrequirefewerchangestotraditionalmerchandisingandmarketingapproachesthanservingolderconsumerswould.Toreachthisbrand-savvysegment,multinationalscancreatenew,nichebrandsthatconveyspecificpersonalitytraits—


forexample,irreverenceorcreativity.Retailerscanalsocreatelower-pricedextensionsofexistingbrands,asFrance’sEtamhaswithits“EtamWeekend”line.

Further,multinationalretailersshouldhelpshoppersbecomebetterinformedaboutclothingsubcategories,productquality,andinternationalbrands.Therecentstronggrowthofsportswearsubcategoriessuchashikingandmountain-climbinglifestyleapparelsuggeststhattheChineseconsumer’sdesiresarechangingandcouldchangefasterifnudged.Companiesthatseektoshapethemassmarket’sevolution—say,throughin-storesaleseffortsthathighlightproductfeatures,seminarstohelpconsumersdiscernproductqualityandcraftsmanship,oradvertisingfocusedonthebenefitsofparticularsubcategories—shouldhelpimprovecustomersatisfactionandloyalty.Esprit,basedinHongKong,hassuccessfullyextendeditsbrandintoanincreasinglydiverserangeofclothinglines(includingcasual,sporting,andwork)bycombiningin-storeelements(suchastailoreddisplayracks,lighting,andmusic)tocommunicatetheessenceofvarioussubcategories.

AsglobalretailerscontemplateChina’smassmarket,theymustrecog-nizethattheyfacemorepowerfullocalcompetitorstherethaninthehigherendofthemarket.Indeed,thecostadvantagesoflocalplayersandtheirincreasingabilitytolearnfromglobalretailers’storelayoutsandpromotionalcampaignswilllikelymakeitdifficulttoenterChina’s

Q4 2007China apparelExhibit 1 of 2Glance: The Chinese young-adult segment is important for foreign players.

e x h i b i t 1

Young shoppers

I trust brands from my own country.

Average score on scale of 1–6, where 1 equals ‘strongly disagree’ and 6 equals ‘strongly agree’

Foreign brands are higher quality than local brands.

Brazil

China

India

5.04.8

4.63.7

4.34.2

Young adults (aged 18–24)

All others

2.93.0

3.44.4

3.73.6

Russia 4.33.7

3.63.9

Source: 2006 McKinsey survey of apparel-shopping attitudes and behavior of 300 women in each country (in these markets, women are primary in�uence on clothing purchases for entire family)

Strongly agreeStrongly disagree1 6.0

Strongly agreeStrongly disagree1 6.0


massmarketwithapure-valueplay.Analternativeapproach,whichmultinationalssuchasZaraarestartingtouse,involvesidentifyingconsumerswillingtopaymoreforthelatestfashions.Bycreatinglow-costyettrendystand-aloneoutletsinupscalemallsorshoppingdistricts(asopposedtodepartmentstores),retailerscanappealsimultaneouslytomass-marketconsumerswithpremiumtastesandtohigher-endcus-tomersprowlingforbargains.SuchstrategiesholdgreatpromiseasChina’smassmarketgrowslargerandricher.Q

Q4 2007China apparelExhibit 2 of 2Glance: They likely spend more on apparel and are more willing to try foreign brands.

e x h i b i t 2

Devoted to clothing

How frequently did you shop and buy apparel in the past 6 months?

Average number of trips per half yearAge1

Age1

How much do you spend on apparel for yourself in a typical month?

Spending per month, renminbi2

Young adults are the heart of apparel consumption in China . . .

. . . and they also have a stronger intention to purchase.

18–24

45–55

35–44

25–34

4.5

2.3

2.8

3.8

104

51

70

102

Foreign brands are higher quality than local brands.

% who agree/strongly agree

I often try foreign products and brands.

18–24

45–54

35–44

25–34

50

12

17

16

36

16

55–64 13 21

7

6

On which category would you spend more money if your income increased?

% who would spend more on apparel

72

34

43

54

On which category would you never cut expenses under budget constraints?

% who would never cut apparel expenses

15

7

6

8

1For ages 18–24, n = 22; ages 25–34, n = 106; ages 35–44, n = 98; ages 45–54, n = 51; ages 55–64, n = 33; bases are weighted to adjust for each age group’s relative share in population.

21 renminbi = $0.13 in 2006.


Wai-Chan ChanandRichard CheungareprincipalsandAnne TseisanassociateprincipalinMcKinsey’sHongKongoffice.


Indians devote roughlythesameshareoftheirincometoapparelasdoChineseandBrazilians.Butthecountry’slowerpercapitaincomelevelsmeanoverallspendingonapparelissignificantlylower,andthehabitsofIndianshopperspresentintriguingchallengesformultinationalseyeingthemarket.1Forstarters,nearly40percentofthemass-marketIndianshoppers2wesurveyedsaidthattheirmostimportantshoppingoccasionsrevolvedaroundspecialevents,suchasweddingsandannualreligiousfestivals—afiguredramaticallyhigherthantheoneforshoppersintheotheremergingmarketswestudied.Furthermore,toagreaterextentthanelsewhere,shoppingisafamilyactivityinIndia:nearly70percentofitsshoppersalwaysgotostoreswithfamily,and74percent—morethantwicetheaverageofBrazil,China,andRussia—viewshoppingasthebestwaytospendtimewithfamily.Thepreferenceforfamily-orientedshop-pingisconsistentacrossagegroups,incomesegments,regions,andcitysizes.

Asinmanymarkets,inIndiawomenaretheprimarydecisionmakersinapparelpurchasesfortheentirefamily.ButIndia’smenalsohavean

India: Shopping with the family

The Indian apparel market has some distinctive features that mass-market retailers must accommodate.

Kartik N. Sheth and Ireena Vittal

1InIndia,lawsgoverningforeigninvestmentbyretailersareslowlyevolving.Currently,single-brandforeign retailersmayholdcontrollingstakes(upto51percent),butmultibrandforeigncompaniesareableto investonlyinthe“cash-n-carry”segment(upto100percent)orbuyastakeinapubliclylistedretailer(upto 26percent).Inacash-n-carryoperation,awholesalersellstooffices,hotels,andretailersthatbecome itsmembers.2InIndia,ratherthanusingonlyincomebandstodefinecategoriesofconsumers,weusedthesocioeconomic classcodesestablishedbytheMarketResearchSocietyofIndia.High-endor“global”consumersare thoseinsocioeconomicclass(SEC)A,mass-marketconsumersarethoseinSECsBandC,andstrugglingcon- sumersarerepresentedbySECsDandE.Inadditiontohouseholdincome,theclasscodesincorporate levelsofeducationandoccupation.


importantrole:indeed,halfofoursurveyrespondentssaidthattheirhus-bandshadamajorinfluenceonwhichstorestheyfrequented—apropor-tionfarhigherthantheoneforBrazil(3percent),China(8percent),andRussia(18percent).What’smore,Indiaisunusualinthatthemarketformen’sapparelislargerthanthewomen’smarket,wheretraditionalIndianapparelstilldominates.Mass-marketapparelretailersmustthereforefindformatsandmerchandisingapproachesthatwillattractshoppersseek-ingapparelnotonlyforspecialoccasionsbutalsoappealingtotheentirefamily.Q

I always go clothes shopping with friends or family.

Q4 2007India apparelExhibit 1 of 1Glance: Indian shoppers present an intriguing set of challenges.

e x h i b i t

A family affair

Most of the clothing I buy is for special events (eg, weddings, important festivals).

% of respondents who agree/ strongly agree

Estimated spending on clothing in last 6 months, €

% of respondents who agree/ strongly agree1

1Respondents in India were allowed to select more than 1 category of clothing (eg, home, work, special occasions).


Russia

Brazil

China

India

198

173

106

59

3

5

6

38

29

36

35

68

Kartik Sheth isaconsultantandIreena VittalisaprincipalinMcKinsey’sMumbaioffice.


Local stores dominate Brazil’s mass-market retailing. Is there room for the multinationals?

Manuela Artigas and Nicola Calicchio

Brazil’s apparel market—large,growing,andmostlyuntappedbymultinationalcompetitors—seemslikeabigretailer’sdream.AMcKinseysurveyofthecountry’sconsumers,however,underscoresthesignificantchallengesforglobalplayers.Theseissuesincludeproductdemandsthatdifferfromthoseintheirhomemarkets,astrongpreferenceforlocalfashions,andtheuniquecombinationofwidespreadconsumercredituseandanundevelopedconsumercreditmarket.

WereachedthoseconclusionsbycombiningaquantitativesurveyofBrazil’surbanmass-marketconsumerswithqualitativeresearchthatincludedshopperdiaries,storevisits,andfocusgroups.1Thesubjectofouranalysisistheworld’sfifth-largestapparelmarket,whichisgrowingat7percentayear.Althoughmultinationalretailers(suchasMango,MissSixty,andZara)havesucceededinservingthecountry’swealthyconsumersforseveralyears,veryfewglobalretailerscompeteinitsmassmarket.2Instead,informal

“mom-and-pop”stores(someofwhichskirttaxestoobtainacompetitiveedge)andlargelocalsingle-formatretailersdominateBrazil’smassmarket,ringingupmorethan60percentofthecountry’sapparelsales.3

Brazil: Fashion conscious, credit ready

1TosurveyBrazilianattitudestowardcredit,wedrewonalargersampleencompassing300apparel consumers,plus1,200foodshoppers.(FormoreontheresultsofourfoodresearchinBrazil,seeNicola Calicchio,TracyFrancis,andAlastairRamsay,“HowbigretailerscanserveBrazil’smass-market shoppers,”The McKinsey Quarterly,2007specialedition:ShapinganewagendaforLatinAmerica,pp.50–7.2Wedefinemass-marketconsumersinBrazilasthosewithannualhouseholdincomesfrom$3,000to $15,000ayear(at2005exchangerates).3Formoreoninformalretailersandmom-and-popstores,seeAlejandroDíaz,JorgeA.Lacayo,and LuisSalcedo,“Sellingto‘mom-and-pop’storesinLatinAmerica,”The McKinsey Quarterly,2007special edition:ShapinganewagendaforLatinAmerica,pp.70–81.


AsmultinationalapparelretailerscontemplateenteringBrazil’smassmarket,theymustcometogripswithaconsumerlandscapethatdiffersconsiderablyfromwhattheyfindinmostdevelopedandmanyemerg-ingmarkets.Forstarters,Brazil’sconsumersareextremelyfondofshop-pingforclothes:almost80percentofourrespondentslookforwardtoit,afiguremuchhigherthanthoseforChinaandRussia,thoughaboutthesameastheoneforIndia(Exhibit1).Inaddition,morethanhalfofBrazil’sshopperssaytheyusemostoftheclothingtheybuyforgoingoutwithfriendsandfamily;theproportiongivingthatanswerinChina,India,andRussiaismuchlower(Exhibit2).

Furthermore,Brazil’smass-marketapparelshoppersseemparticularlyconsciousoffashion;onlyinBrazildiditrankamongthetopthreeattri-butesatpreferredstores.Fashiontrendstherearestronglyshapedbylocalcelebrities(inparticular,prominentcharactersfrompopulartelevisionsoapoperas),andonlylocalretailers(withafewnoteworthyexceptions)consistentlyofferthemass-marketsegmentthesefashions.TodaymanyoftheselocalretailersandthelocalbrandstheysellarehighlyregardedbyBrazilianshoppers:81percentofourrespondentsagreewiththestate-ment,“Itrustlocalbrands,”comparedwithabitlessthanhalfofthosewesurveyedinChina,India,andRussia.Similarly,only11percentofBraziliansagreethat“foreignbrandsarehigherqualitythanlocalbrands”—aproportionmuchsmallerthanitisintheothercountrieswestudied,althoughshopperstherealsoexhibitsomedegreeofresistancetoforeignbrands(Exhibit3).Someofthemultinationalsthathavehadmoresuc-cessintheBrazilianmarket,suchastheEuropeanapparelretailerC&A,haveestablishedlocalidentities,forexample,byrunningcampaignsfeaturingBraziliansupermodels.

Finally,Braziliansarefarmoreopentousingcreditthanareconsumersintheothermarketswestudied.Morethan60per-centoftherespondentsinBrazilagreedwiththestatement,“Ithinkitisperfectlyallrighttoshopforproductsoncredit,”forexample,comparedwith30percentinIndia,24per-centinRussia,and13percentinChina.What’smore,65per-centoftheBrazilianshadboughtsomethingoncreditduringthepastsixmonths,compared

Q4 2007Brazil apparelExhibit 1 of 3Glance: Brazilians are extremely fond of apparel shopping.

e x h i b i t 1

Shop until you drop

% of respondents who look forward to shopping for clothes

India

Brazil

Russia

China

82

79

27

26

1RIC = Russia, India, China.


‘RIC’1 average = 45%


with25,9,and8percentoftheshoppersinRussia,China,andIndia,respectively.ThiscomfortwithdebthasfueledthespectacularexpansionofBrazil’screditindustry,whoserevenueshavegrownatratesexceeding26percentayearsince2001.4

Paradoxically,however,Brazil’scredit-reportingsystemisrelativelyundeveloped.Thecountry’sbanksgivethecreditprovidersinformation

1Figures do not sum to 100%, because respondents who answered “other" are not shown.2Respondents in India were allowed to choose more than 1 answer.3RIC = Russia, India, China.


Q4 2007Brazil apparelExhibit 2 of 3Glance: They shop most often for clothes to wear while going out.

e x h i b i t 2

For work or play

% of respondents who agree or strongly agree1

Brazil Russia India2 China ‘RIC’3average

. . . work

. . . home

. . . all-purpose use (eg, undergarments, socks)

. . . going out with my family and friends

Most of the clothing I buy is for . . .

. . . special occasions (eg, weddings, festivals)

54

17

8

8

5

32

27

16

13

3

23

10

26

25

38

24

25

22

13

27

20

21

17

166

Q4 2007Brazil apparelExhibit 3 of 3Glance: Brazilian respondents value local brands much more than do those in China, India, or Russia.

e x h i b i t 3

Local vs foreign brands

% respondents who agree or strongly agree

Difference

I often try foreign productsand brands

I trust local brands

Foreign brands are higher quality than local brands

‘RIC’1 averageBrazil

27

24

48

11

12

81

–16

–12

33

1RIC = Russia, India, China.


4AlexandreJ.Sawaya,“FinancingLatinAmerica’slow-incomeconsumers,”The McKinsey Quarterly,2007 specialedition:ShapinganewagendaforLatinAmerica,pp.58–69.


aboutconsumerswhohavedefaultedondebtsbutnotabouttheir“positive”credithistories(forinstance,repayingdebtontime).5Becauseoftheabsenceofcomprehensivecreditprofiles,general-purposecreditcardsarerareinBrazil,particularlyamongmass-marketconsumers.Still,theproclivityofBrazilianstobuyclothesoncreditmeansthatretailersfaceacompetitivedisadvantageiftheyrestricttheircustomerstocashpay-ments.Allmajorlocalandmultinationalapparelretailersthereforeoffercardswithlowinitialspendinglimitsthatincreaseasconsumersprovetheircreditworthiness.6Theseprivate-labelcards—offeredthroughretailer-ownedfinanceoperationsorjointventureswithbanks—nowfinancearound70percentoftotalsalesforBrazil’slargerapparelretailersandsome-timesgenerateprofitscomparabletothosethatretailersearnfromapparelpurchases.

MultinationalseyeingopportunitiesinBrazil’smassmarketforapparelwillthusneedtodevelopnewskills,sincetheywouldbecompetingagainstlocalretailersthatoftenarebettercreditunderwritersformass-marketcustomersthanarelargeretailbanks.(Localretailers,forinstance,havehigherpenetrationandlowerlossrates.)Multinationalswillalsohavetomanagetheirpromotionsdifferently.Indevelopedmarkets,promotionalcampaigns,forexample,tendtobeseasonalandproductspecific,butapparelretailersinBraziluseattractivecreditofferings,suchasinstallmentpayments,toenticecustomers.

TotakeadvantageofBrazil’suniquemarketcharacteristics,themulti-nationalswillhavetoconcentrateonhiringstronglocalmanagementteamsthatexcelbothatmerchandisingandathelpingtocraftcompetitivecreditofferings.Domesticretailers,fortheirpart,shouldcapitalizeontheirskilladvantagesbyexpandingbeyondthemajorcities,competinginnewformats,andtakingmarketsharefromtheinformalretailers—thuscapturingthelargegrowthopportunitiesbeforetheirmultinationalcompetitorscan.Q

Manuela ArtigasisanassociateprincipalandNicola CalicchioisadirectorinMcKinsey’sSãoPaulooffice.

5Thissituationcontrastsstarklywiththeoneinmostdevelopedcountries,wherelendershaveaccessto bothpositiveandnegativeinformation,andconsumerswithpositivehistoriescangetmorecreditandlower interestrates.Formoreonthistopic,seeAndreBailey,SuziChun,andJeffreyWong,“Wanted:Asian creditbureaus,”The McKinsey Quarterly,2003specialedition:Thevalueinorganization,pp.16–9.6Smaller,less-sophisticatedretailerswhocan’taffordtooffercreditcardsoftenallowshopperstopayfor purchasesininstallments,withpostdatedchecks.

PhotographsofIndianapparelandmodern-formatandtraditionalstores©DineshKhanna.PhotographsofapparelinBrazilandChina©GettyImages.

Copyright©2007McKinsey&Company.Allrightsreserved.

apparel in brazil, china, india how the world shops

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