Download - Fashion Market in China
INTERNAL
Fashion Market in China Sami Muneer, SAP
© SAP AG 2010. All rights reserved. / Page 2
China Luxury Market • Growth, Demographics, Archetypes
The Retail Challenge in China The Role of the Internet in Luxury
Shopping in China Ecommerce Players So What?
© SAP AG 2010. All rights reserved. / Page 3
Growth of the China Luxury Market
© SAP AG 2010. All rights reserved. / Page 4
Luxury Segment* is Growing Driven by 3 Factors
1. Wealth Increase Within largest cities Rapid urbanization in new areas
2. First-hand Experience
Overseas travel Local stores
3. Access to Information Internet: social forums, editorials
Source: McKinsey, 2011 World Luxury Association Blue Book
15% online purchase in 2011 ($2.5B)
© SAP AG 2010. All rights reserved. / Page 5
Driven by Wealthy and Upper Middle Class Spending is Concentrated in Top 5M Households
80 B
50%
2010 2015
> 1 MM (700K households; 20% growth)
180 B
Luxury Goods Consumption by Income Class* (RMB, US$ = 6.3RMB)
Ø 200K- 1MM (4MM households; 15% growth)
Ø 100K-200K (13 MM household; fastest growth)
12%
33%
40%
22%
26%
Source: McKinsey, BCG *% don’t add to 100% due to other small segments
Very Wealthy Own assets greater than 10MM RMB Well-traveled
Wealthy
Growing number residents in lower-tier cities
Upper Middle Class Stretch budgets for occasional purchase
© SAP AG 2010. All rights reserved. / Page 6
But the Very Wealthy Travel and Spend There 60% of Luxury Spend is Overseas
Luxury Goods Spend Bln RMB, 2010 (% CAGR)
40% China
(27% CAGR)
35% HK & Macau
(45% CAGR)
25% Overseas
(38% CAGR)
Drivers for Overseas Spend • Higher prices on mainland
• Increased overseas travel by the wealthy
• RMB appreciation
212 Bln Total
Source: McKinsey, 2011 World Luxury Association Blue Book, Bain Survey of 2000 consumers
© SAP AG 2010. All rights reserved. / Page 7
Most Local Spend is on Accessories, Cosmetics 70% of Mainland Purchase
Source: Bain & Co.
© SAP AG 2010. All rights reserved. / Page 8
Growth of the China Luxury Market 1. Market is growing 2. Most shopping by the wealthy is
overseas 3. 70% of luxury shopping on
mainland is accessories, cosmetics
© SAP AG 2010. All rights reserved. / Page 9
Demographics and Archetypes
© SAP AG 2010. All rights reserved. / Page 10
China’s Luxury Consumer is Young Almost Half under 35
73% 50% 60% 55%
China: % of luxury shoppers under 45 (and under 35)
US: % of luxury shoppers under 45 (and under 35)
Under 35
Trading Up: 35% traded up to more expensive brands last 2 years Seeking New Experiences: Spending on luxury services (spas, wellness, etc.) growing faster than that on luxury goods
© SAP AG 2010. All rights reserved. / Page 11
2 Categories of the Young Population Impulsive “Yu Guang Zu” and Tech Savvy
China Population Structure in 2010
400M
M
25% Ages 15-24
35% Ages 25-34
60% of consumers buying foreign brand perfumes are under 34
Source: Accenture
© SAP AG 2010. All rights reserved. / Page 12
Growth of Mid and High-End Brands Influence of The Post-1980’s and Post-1990s
Post 1980s Born after “Cultural Revolution” Good jobs Sense of optimism
Post 1990s Fast growth Fashion and Tech-Savvy More outdoor activities requiring “right” outfits
© SAP AG 2010. All rights reserved. / Page 13
Emergence of 3 New Archetypes Differing Emphasis on Luxury
% luxury households
Source: McKinsey, BCG
40%
22%
% luxury consumption
51%
45%
3% 1%
10%
65%
5%
20% Role Models: Shape fashion trends
Fanatics: Strong influence on consumers; online influence
Core Buyers: Spends 12-20% of income on luxury goods (US$ 3K – 9K annually)
Middle Class Aspirants: Infrequent buyers, cautious spenders
Household Distribution and Luxury Goods Consumption by Archetype
Emergence of 3 New Archetypes Differing Emphasis on Luxury
© SAP AG 2010. All rights reserved. / Page 14
Role Models (20% Spend) Rich, Young and Fashionable
Socio-Income Profile: Corporate executives or self-employed Lives in Shanghai and Beijing Studied or worked overseas
Buying Behavior: 10% of disposable income on luxury Most buying for at least 5 years Spontaneous
Why they Buy: Feel unique rather than display wealth To indulge themselves
What they Care About: Good service in stores is important Prefers to shop outside China
© SAP AG 2010. All rights reserved. / Page 15
Fashion Fanatics (5% Spend) Not Rich, But Researches and Spends More
Socio-Income Profile: Earns $15K – 30K Incomes rising steadily
Buying Behavior: 40% of disposable income on luxury Spends most free time on fashion trends Will buy on credit to be on cutting edge
Why they Buy: Social acknowledgement of purchase Strong influence on others, sharing purchases and opinions online
What they Care About: Planning and research: window shopping, online, editorials, celebrities, friends Cares less about store service
© SAP AG 2010. All rights reserved. / Page 16
Middle Class Aspirants (10% Spend) Occasional and Cautious Shopper
Socio-Income Profile: Earns $9K – 30K Mid-level position in local or multinational Lives in Tier 2 or Tier 3 cities
Buying Behavior: 9% of disposable income on luxury Less knowledge & experience Considerable research (2-3 months)
Why they Buy: Aspire to higher social circles; feel successful Stand out from the crowd
What they Care About: Price (hence fine with local brands)
© SAP AG 2010. All rights reserved. / Page 17
Top 5 Brands Account for 50% Sales Many Consumers Not Aware of Other Brands
© SAP AG 2010. All rights reserved. / Page 18
Demographics and Archetypes 1. Young consumers are vital and
relate to more and varied (price) brands
2. Role Models primary shop overseas
3. Fashion Fanatics should be targeted for adoption/promotion – they will attract the Aspirants
© SAP AG 2010. All rights reserved. / Page 19
The Retail Challenge
© SAP AG 2010. All rights reserved. / Page 20
36 Cities Constitute 75% of Luxury Market But This Will Change with Emerging Cities
75%
75% of luxury market captured by top 36 cities
25% Other 620 cities
Top 36 cities
Breakdown within the top 36 cities
28% 2 mega cities
32% 25 developed
cities2
40% 9 large markets1
1. Chongqing, Dongguan, Foshan, Guangzhou, Hangzhou, Nanjing, Shenzen, Tianjin, Wenzhou 2. Includes cities as Xian, Taiyuan, Yantao Source: McKinsey, BCG, Reuters
TOD
AY
BU
T IN
CO
ME
DIS
TRIB
UTI
ON
W
ILL
CH
AN
GE
0
20
40
60
80
100
120
2010 2020
Distribution of Upper Middle Class
Top 100 Cities
Next 300 Cities
85% 65%
10% 30%
© SAP AG 2010. All rights reserved. / Page 21
Retail Stores Need to Catch Up Particularly Difficult for Those W/ No Presence
45
20
57
38
50
8
Japan
China Difference in Retail Presence between China
and Japan Hermes Louis Vuitton Chanel
‘00s
20
‘00s
70
‘000s
5
USA
China Difference in Retail Presence between China
and USA Benetton Zara Gap
Example Brands with No
Presence
© SAP AG 2010. All rights reserved. / Page 22
But Brands Need to Strike a Balance Between Growth and Exclusive Experience
Source: Bain & Co.
© SAP AG 2010. All rights reserved. / Page 23
The Brand Experience Matters The Brands Differentiate on This Factor
Commercial
Premium Market
Upper Premium Market
Designer
Haute Couture
Marco Polo
Ralph Lauren, Boss, Seven
Akris, Burberry
Armani, Gucci, Prada
Dior, Gaultier
Luxury Market
Source: h&p
© SAP AG 2010. All rights reserved. / Page 24
Difference in Exclusivity and Presentation Such Focus is Slowing Store Growth in China
© SAP AG 2010. All rights reserved. / Page 25
Exceptional Service In-Store Matters Primary Driver for Buying Decision in China
44% In-Store
14% Word-of-Mouth
21% Internet
13% Traditional
Media
7% Direct Marketing
Activities In-Store • Evaluated product
• Spoke to salesperson
• Window shopping
• Read catalog
Relative Importance in Buying Decision for Luxury Apparel
Source: McKinsey, BCG
© SAP AG 2010. All rights reserved. / Page 26
Need to Position to Emerging Emotional States in China And be Perceived as Such
Pursue Success and Status Professional Achievement, Social Status
60-70% of consumers relate More pronounced in high-tier cities
Balanced Lifestyle/ Laid-Back Spend more on leisure and fun, “enjoy life”
More pronounced in lower-tier cities
Be Classic (Female) or Blend In (Male)
Be comfortable More males skew toward laid-back
Be Trendy (Female) or Stand Out (Male) Visible and Edgy
More females skew toward being expressive
More in high-tier cities
© SAP AG 2010. All rights reserved. / Page 27
The Retail Challenge 1. Brands need insight of consumers
in emerging cities 2. Particularly difficult for many
brands not yet in market (note: not haute couture)
3. Need to position and be perceived to right emotional state
4. Underscores need of influencers to shape perception
© SAP AG 2010. All rights reserved. / Page 28
The Role of Internet
© SAP AG 2010. All rights reserved. / Page 29
Role of Internet in Creating Awareness Unique Circumstances
21% Internet
52% Saw an ad 43%
Checked reviews online
10% Brand’s website
• 25% of e-commerce demand for products not found in physical stores
• Country size limits the coverage of physical retailers.
• For many consumers, especially younger ones, first contact with a brand or type of product is online
• Most shoppers start their search within Taobao (80% of 2010 volume)
• Taobao.com blocks the spider of the top search engine, Baidu.com
• Shoppers do not rely on search engine as in other countries
• Beyond discounts • Uniqueness, convenience, fun of the
discovery process
Factors driving first awareness of brand online
© SAP AG 2010. All rights reserved. / Page 30
BUT
Frequent Online Research but Fewer will Buy Rather Buy In-Store
Source: KPMG study of 1300 respondents
They search often Frequency of online search for luxury
brands
Most will not buy online Intent of purchase
43% Will NOT buy
22% Will consider
buying
Better deal Easier for comparisons Less time consuming
Authenticity concerns After-sales service, returns Payment security
Note: online purchase higher for other items
© SAP AG 2010. All rights reserved. / Page 31
Importance of Social Reviews Due to Distrust of Merchants
0 10 20 30 40 50 60
43%
Read or posted
reviews
20%
52%
19%
Visits official brand
websites
US, Europe
China
Source: McKinsey, BCG
Due to consumer wariness and distrust of merchants
Importance of social reviews and “opinion leaders” • Bulletin-board services
(BBS) • Social networking sites e.g.
RenRen, Youku, Kaixin • 3rd party review sites on
Sina • Media firms (CIC) that
aggregate comments • Brand sites with BBS
© SAP AG 2010. All rights reserved. / Page 32
Consumer-Generated Content Effective In Influencing Brand Choice
Source: KPMG study of 1300 respondents
© SAP AG 2010. All rights reserved. / Page 33
Digital Platforms Getting Crowded But Emphasis on Social Media Attributes
Burberry on Kaixin Coach on Ren-Ren
Lancome App on iPhone
Bottega Veneta on Weibo
© SAP AG 2010. All rights reserved. / Page 34
Mobile Apps in Infancy For Search and Shopping of Lifestyle Purchases
Source: KPMG, AdChina
0
20
40
60
80
100
120
% consumers using mobile to
search
% consumers using mobile to
shop
17% 5%
© SAP AG 2010. All rights reserved. / Page 35
The Role of Internet 1. Chinese spend considerable time
on research 2. They depend on social influencers
for brand awareness, education 3. But will not necessarily purchase
high-end luxury items online 4. Mobile is in its infancy for luxury
shopping 5. Social app attributes are key
© SAP AG 2010. All rights reserved. / Page 36
The Role of Chinese E-Commerce Players
© SAP AG 2010. All rights reserved. / Page 37
Fashion Brands Differ in their Online Sites On Presentation, Vividness and Information
Brands Tier
Online Shopping
Store availability
Vividness Interactiv
e social share/likes
Facebook page
own online community
Catalog (pricing info) Zoom-in Design
Christian Dior 1 No Yes No Yes No No
Gaultier 1 Yes No No Yes No Yes
Chanel 1 No Yes No Yes No No
Versace 1 No Yes Yes Yes No No
Armani 2 Yes Yes Yes Yes No Yes
Gucci 2 Yes Yes Yes Yes Personal Likes Yes
Prada 2 Yes Yes No Yes No Yes
Fendi 2 Yes Yes Yes Yes Personal Likes No
Dolce & Gabbanna 2 Yes Yes Yes Yes No Yes
Burberry 3 Yes Yes Yes Yes No Yes
Louis Vuitton 3 Yes Yes Yes Yes No Yes
Boss 3 Yes Yes Yes Yes No Yes
Calvin Klein 3 Yes Yes Yes Yes No Yes
Ralph Lauren 3 Yes Yes Yes Yes No Yes
© SAP AG 2010. All rights reserved. / Page 38
Yet E-tailers Attract Consumers in China Brands Creating Stores on Sites as Taobao
Own Site
Partner
Taobao
Glamour Sales Penetration
Description
Purpose/ Operations
Major brands as Armani, Bally
$60Bln transactions 500k+ members
Own ecommerce site, add-ons to
corporate
Brand site with own domain
name + “Powered by Yoox”
Brands establishing
official sites for presentation
Promotions targeting price-
conscious
Marketing and consumer education
Yoox offers ecommerce
solution; same price, products
Event-driven promotions and limited inventory
MONO BRAND MULTI-BRAND
LEADING CHANNEL
© SAP AG 2010. All rights reserved. / Page 39
The Top 2 has 40% Market Share Taobao Mall and 360Buy
© SAP AG 2010. All rights reserved. / Page 40
And They Are Sticky Leading to Growth of over 30% for Leaders
Other luxury segment players include: • VIP Store: 500 luxury brand partnerships • 360 Fashion: social media news, new brands, integration to social platforms
© SAP AG 2010. All rights reserved. / Page 41
Examples of companies tremendously successful in China
Aut
os
Con
sum
er
Goo
ds
Ret
ail
Ele
ctro
nics
Global Internet Players Have Failed While Other Global Brands have Succeeded
Internet companies struggled in China
failed to
failed to
BUT
failed to
failed to
© SAP AG 2010. All rights reserved. / Page 42
Different Social Networks
© SAP AG 2010. All rights reserved. / Page 43
The Role of Chinese E-Commerce Players 1. Multi-label e-tailers are primary
access points to consumers 2. They are sticky and growing 3. While foreign companies in other
industries have succeeded in China, internet companies have failed
© SAP AG 2010. All rights reserved. / Page 44
Summary SO WHAT?
© SAP AG 2010. All rights reserved. / Page 45
Focus on the Entire Evaluation Process Takes 2-3 Months for Chinese Consumer
Touc
h Po
ints
Time
Awareness
Info Search
Evaluation of Alternatives
Price, Avail. & Purchase
Post- Evaluation
Mono-label Stores: Armani, Burberry High-End Retailer: Neiman Marcus E-Tailers
Brand Advertising Endorsements (celebrities) Editorial Stylists Social (friends, family) Window shopping In-Store experiences
Focus and Motivate Key Influencers;
Sensorial-rich
mediated environment
© SAP AG 2010. All rights reserved. / Page 46
Examples of Growing Sites Awareness ! Decision
Net-A-Porter: Comprehensive • Catalogs and shopping by designer, • What’s new, • Editorial • Many countries
Asos: Engaging (1.6M fb likes) • Virtual wardrobes with tags to share, competitions • daily deals, marketplace for vintage • editorial; community reviews • inventory check from other sites, own labels • Mobile, iPad, PC
© SAP AG 2010. All rights reserved. / Page 47
New Start-Ups Focused on Influencers: Stylists
Boutine: New Incentive Model • Financial ncentives for “stylists” to sell items via
virtual catalogs • Focused on emerging designers who post items
Stylist Pick: Professional Stylists • Popular stylist consultants and handbag/shoes • Fixed price • Own label
© SAP AG 2010. All rights reserved. / Page 48
Summary Target and Position to Consider
Young Consumers
Multi-Tier Brands
Brand Education of Middle Class
Tier-2 and Tier-3 Cities Engagement
TEST NON-CHINESE MARKETS
FIRST
Social Guidance:
Awareness ! Purchase
Influencers as Fashion Fanatics
TARGET POSITION
© 2011 SAP AG. All rights reserved. 49 Internal
No part of this publication may be reproduced or transmitted in any form or for any purpose without the express permission of SAP AG. The information contained herein may be changed without prior notice. Some software products marketed by SAP AG and its distributors contain proprietary software components of other software vendors. Microsoft, Windows, Excel, Outlook, and PowerPoint are registered trademarks of Microsoft Corporation. IBM, DB2, DB2 Universal Database, System i, System i5, System p, System p5, System x, System z, System z10, System z9, z10, z9, iSeries, pSeries, xSeries, zSeries, eServer, z/VM, z/OS, i5/OS, S/390, OS/390, OS/400, AS/400, S/390 Parallel Enterprise Server, PowerVM, Power Architecture, POWER6+, POWER6, POWER5+, POWER5, POWER, OpenPower, PowerPC, BatchPipes, BladeCenter, System Storage, GPFS, HACMP, RETAIN, DB2 Connect, RACF, Redbooks, OS/2, Parallel Sysplex, MVS/ESA, AIX, Intelligent Miner, WebSphere, Netfinity, Tivoli and Informix are trademarks or registered trademarks of IBM Corporation. Linux is the registered trademark of Linus Torvalds in the U.S. and other countries. Adobe, the Adobe logo, Acrobat, PostScript, and Reader are either trademarks or registered trademarks of Adobe Systems Incorporated in the United States and/or other countries. Oracle is a registered trademark of Oracle Corporation. UNIX, X/Open, OSF/1, and Motif are registered trademarks of the Open Group. Citrix, ICA, Program Neighborhood, MetaFrame, WinFrame, VideoFrame, and MultiWin are trademarks or registered trademarks of Citrix Systems, Inc. HTML, XML, XHTML and W3C are trademarks or registered trademarks of W3C®, World Wide Web Consortium, Massachusetts Institute of Technology. Java is a registered trademark of Sun Microsystems, Inc.
JavaScript is a registered trademark of Sun Microsystems, Inc., used under license for technology invented and implemented by Netscape. SAP, R/3, SAP NetWeaver, Duet, PartnerEdge, ByDesign, SAP BusinessObjects Explorer, StreamWork, and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in Germany and other countries.
© 2011 SAP AG. All rights reserved
Business Objects and the Business Objects logo, BusinessObjects, Crystal Reports, Crystal Decisions, Web Intelligence, Xcelsius, and other Business Objects products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of Business Objects Software Ltd. Business Objects is an SAP company.
Sybase and Adaptive Server, iAnywhere, Sybase 365, SQL Anywhere, and other Sybase products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of Sybase, Inc. Sybase is an SAP company. All other product and service names mentioned are the trademarks of their respective companies. Data contained in this document serves informational purposes only. National product specifications may vary. The information in this document is proprietary to SAP. No part of this document may be reproduced, copied, or transmitted in any form or for any purpose without the express prior written permission of SAP AG. This document is a preliminary version and not subject to your license agreement or any other agreement with SAP. This document contains only intended strategies, developments, and functionalities of the SAP® product and is not intended to be binding upon SAP to any particular course of business, product strategy, and/or development. Please note that this document is subject to change and may be changed by SAP at any time without notice. SAP assumes no responsibility for errors or omissions in this document. SAP does not warrant the accuracy or completeness of the information, text, graphics, links, or other items contained within this material. This document is provided without a warranty of any kind, either express or implied, including but not limited to the implied warranties of merchantability, fitness for a particular purpose, or non-infringement. SAP shall have no liability for damages of any kind including without limitation direct, special, indirect, or consequential damages that may result from the use of these materials. This limitation shall not apply in cases of intent or gross negligence. The statutory liability for personal injury and defective products is not affected. SAP has no control over the information that you may access through the use of hot links contained in these materials and does not endorse your use of third-party Web pages nor provide any warranty whatsoever relating to third-party Web pages.