How 2020 Changed the World’s Biggest Fashion Market | China Decoded, BoF Professional

2020 has been full of surprises.

In China, last year’s Covid-19 outbreak went on to take over 4,600 lives. In its wake, the country’s financial and fashion markets have witnessed unprecedented volatility as well as unrivalled growth and resilience.

This time last year, BoF recapped the decade ending 2020, from trends that shaped consumer behaviour to missteps global brands made when traversing the world’s biggest fashion market. But for many, 2020 has felt like years in itself. Below are the forces that shaped China’s fashion, beauty and luxury sectors over the past 12 months and what to expect in the year ahead.

From record-breaking decline to rapid recovery

Following a 6.8 percent GDP drop in the first quarter of the year — the biggest contraction since quarterly GDP records began — China’s economy returned to growth between April and June, a “V-shaped” recovery few other economies have managed.

Chinese shoppers, incentivised by digital vouchers and other strategies, have since revisited physical stores and domestic travel hot spots, with pent-up demand post-lockdown culminating in sales-boosting revenge buying. Life in cities like Shanghai has returned to normalcy, where masks are few and far between; large-scale events like fashion shows, following a fully virtual Autumn/Winter 2020 season of Shanghai Fashion Week, are once again drawing hundreds of attendees.

The rebound wasn’t enjoyed equally. One of the few things that hasn’t recovered, to the chagrin of global duty-free companies and daigou agents, is international travel. On the flip side, China’s department stores largely survived, even as some of their counterparts in the UK and US shut down. The comparative strength of the Chinese market has experts forecasting that the M&A spree of the mid-2010s is set to resume.

Online shopping flourished, with uptake accelerating across lower-tier cities; lockdowns and a pause on flights to destinations like Milan, Paris and London meant a further boost to online fashion and beauty sales, accelerating the repatriation of luxury spending to domestic stores.

With global brands relying on local channels to fuel growth and offset losses suffered in other markets, agile, digitally-savvy retailers and brands will go on to own 2021, meaning an already hyper-competitive space market is only getting more crowded.

Big tech’s blockbuster year

Like Amazon in the West and India’s Flipkart, China’s tech and retail giants had a good run in 2020.

Alibaba and JD.com grew their user bases, launched multiple record-breaking shopping festivals and upgraded their logistics networks while growing other business arms, like health and education, to become even more indispensable to almost 1.4 billion people. According to quarterly results, Alibaba and JD.com’s third quarter revenues increased 30 percent and 29.2 percent from 2019 respectively.

While the big e-tailers got bigger — the Alibaba-Farfetch-Richemont tie-up being a recent example — other tech firms bid on social e-commerce. Tencent’s WeChat, Bytedance-owned Douyin, Sina’s Weibo, Bilibili and Kuaishou are among those trying to chip away at Alibaba and JD.com’s dominance by peddling shopping functions to their highly engaged users. Livestreaming continued to drive sales, allowing brands like Burberry to market to home-bound shoppers and emerging designers to reach buyers over fashion week.

However, recent events cast a shadow over the year ahead. Last month, Alibaba affiliate Ant Group’s blockbuster $37 billion IPO was halted by regulators, followed by new live streaming rules that could limit spending by younger users. Meanwhile, Chinese apps became collateral following a border spat in India that resulted in more than 40 getting banned. While tech players can do little to avoid becoming ensnared in geopolitical conflicts in 2021, they will need to avoid raising regulatory eyebrows if they want to keep up the momentum.

Luxury doubled down on digital

According to Bain and Altagamma, luxury sales will have contracted 22 percent this year to 2014 levels. China’s recovery and digital acceleration have forced brands to explore new formats, channels and partnerships as sales lag behind elsewhere.

Beyond Farfetch and Richemont, the likes of Prada, Tiffany, Louis Vuitton and Valentino are counting on the Chinese market. Despite progress made on vaccines in the UK and US, uncertainty looms and it appears that a China-first luxury strategy isn’t going out of fashion anytime soon.

From exhibitions to live talks to video games, 2021 will see the top players experiment with new ways to sell their stories and products to consumers domestically. Beyond staging shows in Chinese cities and tapping into the KOLs of the moment, diligent brands will invest in channels over which they have more control and ownership, from clienteling to the private traffic messaging groups homegrown brands found success with this year. Top players will build up their data capabilities by monitoring behaviour and customer demographics — factors like age, location and digital platform — and creating a stronger omnichannel shopping experience to tie their China strategy together.

Trade tensions spiked

In addition to years-long animosity with Washington, 2020 saw relations with countries like India and Australia deteriorate. In fashion and beauty, local brands have been largely unaffected — many cater to local, rather than global, customers — but domestic tech firms and US apparel and footwear brands got caught in the crosshairs.

The year began with a trade “truce,” but Sino-US tensions soared amid the pandemic as leading officials in both superpowers blame the other side for the outbreak. They then spiked again after China expelled American journalists and the US imposed sanctions on China over human rights issues in Hong Kong and Xinjiang. President Donald Trump also tried to force the sale of Bytedance-owned TikTok.

Meanwhile, the escalation of a border spat with India led to over 40 Chinese apps being banned in the country, which had become a major growth driver for the likes of TikTok.

To be sure, the above has not made a material impact on China’s fashion sector. And despite the deterioration of relations with Australia in the latter half of 2020, trade between China and both the US and Australia broke records in November. Next year, eyes will be on trade in the Asia-Pacific region following the signing of the Regional Comprehensive Economic Partnership in November (expected to add 11.4 percent to China’s already significant exports) and Sino-US relations following the election of Joe Biden. Most expect that the incoming US President will keep the pressure on China during his term.

Supply under scrutiny

Though fashion manufacturing has been moving out of China (and into lower-cost Southeast Asian countries like Cambodia and Vietnam) for years, 2020 has accelerated this shift as brands dealt with the fallout of depending on a single country for their supply chain needs.

But that’s not the only reason global businesses are reevaluating where they source and manufacture products. Sino-American trade tensions saw Trump encourage American companies to re-shore their Chinese partnerships and reimpose tariffs on Chinese goods. Meanwhile, the US ban on cotton imports from China’s largest producer (citing the alleged use of forced Uighur labour) is creating pressure on global brands to clean up their supply chains.

Still, China’s manufacturing sector has made a swift recovery post-pandemic, with November factory activity expanding at its fastest pace in a decade, according to the Caixin/Markit manufacturing purchasing managers’ Index. In 2021 and beyond, more brands will make moves to reshore, but the country’s strong manufacturing infrastructure and assets will keep many tethered to China.

Homegrown players thrived

Despite a rocky start, many domestic brands in China have had a good year.

The pandemic spurred the rise of nationalism, which manifested not only on social media but in consumption as pro-China sentiment gave homegrown brands a much-needed boost. Major mass-market names from Peacebird to Li Ning saw their revenues soar; emerging designers received the full attention of local buyers at Shanghai Fashion Week, where the absence of global attendees didn’t make a dent on sales.

The C-beauty sector in particular gained ground. Billion-dollar businesses like digitally native beauty player Perfect Diary, Chando and Hedone stunned onlookers by rapidly growing highly engaged communities with new tactics like private traffic messaging. In November, Perfect Diary’s parent company Yatsen Holdings celebrated its US IPO, which saw shares soar 66 percent in their debut. While smart global brands will surely hone in on the Chinese market next year, they’ll face strong competition.

时尚与美容

FASHION & BEAUTY

Yuka Mannami and Fernanda Ly in Peacebird’s Autumn/Winter 2017 collection. Peacebird.

Peacebird’s Womenswear Business Surpasses 5 Billion Yuan in Annual Revenue

The Chinese mass market giant’s womenswear arm saw sales increase 28 percent year on year to hit approximately $763 million, a record high. Though 2020 has proven challenging for most brands, the brand drove growth by hosting 17 shopping festivals it live-streamed to customers; the highest-performing event recorded 670 million yuan (around $102 million) in sales. This year has also seen the business focus on data to revamp its product strategy: differentiating consumer groups, rethinking product design, improving sales integration and honing in on fast-selling hero products has proven successful. Post-’90s are at the core of Peacebird’s plan moving forward: the combination of A-list KOLs like celebrity Nana Ouyang and a multi-channel approach to social media is already helping the brand reach a broader group of young shoppers. (Texnet)

China Nearly Doubled Its Overall Share of the Global Luxury Market in 2020

Growth for the mainland Chinese luxury market is expected to climb by 48 percent to reach almost 346 billion yuan (around $52 billion) by the end of the year, according to Bain’s annual China luxury report released today in partnership with Tmall Luxury Division. Despite a global luxury slump, this meteoric growth, driven in part by the repatriation of luxury spending and acceleration of e-commerce adoption, is forecasted to continue through 2025. But growth hasn’t occurred evenly. China’s north and northeast regions underperformed in contrast to the south, east and southwest; categories like leather goods and jewellery led the way, followed by ready-to-wear clothing and shoes, beauty and timepieces. It’s also worth noting that repatriation has only managed to offset around half of the heavy losses luxury brands are feeling in Europe and elsewhere; tourist consumption, which has fallen by an estimated 70 percent is far from fully recovered. (BoF)

The C-Beauty Player Betting on Brick-and-Mortar

Despite the digital-first strategy being touted by the likes of Perfect Diary, Chinese beauty company Kans is focusing on its physical retail touchpoints. The brand, which develops products inspired by Japanese beauty technology, is launching an exclusive capsule collection for shoppers visiting its offline stores that features ingredients like royal jelly, collagen and gold. The key, however, lies in how Kans will use online channels to increase in-store foot traffic: the brand’s plans include amping up marketing strategies via KOLs and product placement in TV dramas, as well as gaining exposure through social media platforms like Kuaishou, Douyin, Bilibili and Xiaohongshu. In turn, investing in the in-store experience (like staff training and the provision of spa services) will also serve to build loyalty and strengthen its overall retail game plan. (Jiemian)

科技与创新

TECH & INNOVATION

Baidu, Alibaba, Tencent and Xiaomi. Shutterstock.

Beijing Fines Alibaba, Tencent Unit Under Anti-Monopoly Laws

China’s antitrust watchdog fined Alibaba and a Tencent subsidiary over a pair of years-old acquisitions and said it’s reviewing an impending Tencent-led merger, signalling Beijing’s intention to tighten oversight of internet sector deals. The State Administration for Market Regulation said Monday it’s reviewing the combination of DouYu International Holdings Ltd. with Huya Inc., which could create a Chinese game streaming leader akin to Amazon’s Twitch. It fined Alibaba 500,000 yuan ($76,500) for failing to seek approval before increasing its stake in department store chain Intime Retail Group Co. to 73.79 percent in 2017, according to a statement. The penalties come after regulators last month declared their intention to increase scrutiny of China’s largest tech corporations with new anti-monopoly rules. (Bloomberg)

China’s Internet Regulator Targets Forced Data Collection

It’s not only Alibaba and Tencent that are facing tougher scrutiny. This week, China’s cybersecurity watchdog started seeking comment on the range of user information that apps are allowed to collect by releasing a number of draft rules. This comes in the wake of a proposed data protection law that was announced in October and is currently under review. Local platforms often bar access to their apps when users decline to provide personal information; the draft rules released this week aim to curb the practice by defining the types of data collection that are “legal, proper and necessary.” They don’t, however, give details on how they will be enforced or how offenders will be penalised. (Techcrunch)

消费与零售

CONSUMER & RETAIL

The Wanda Plaza mall in Nanchang. Shutterstock.

Chinese Retailer Suning Pledges Shares to Alibaba To Secure Loan

Suning Holding Group’s shareholders have pledged all of the company’s equity, worth one billion yuan, to Alibaba’s Taobao division in order to secure a loan. Suning is one of China’s biggest retail chains, in addition to owning 37 department stores it acquired from Wanda Group last year and concept stores under its Jiwu brand. After taking a loan against its equity, Suning could be taken over by Taobao or be sold if the company fails to pay back the sum. A Suning representative has told local media outlets that the share pledge won’t change its e-commerce and retail strategy. The news points to China’s uneven recovery post-Covid-19 and highlights the market consolidation that could occur in the wake of the crisis. (BoF)

China Reports Consumer Deflation for the First Time Since 2009

China’s consumer inflation dropped into negative territory for the first time in 11 years. Its consumer price index (CPI) dropped to minus 0.5 percent in November year-on-year, down from 0.5 percent growth in October; prices were driven down by a rebound in pork supply. Deflation is often associated with periods of stagnant economic growth and has been known to dampen spending. However, experts say that the data doesn’t necessarily point to a slowdown in China’s economic rebound from Covid-19 and that the drop in prices will be temporary. Lower prices can also be traced to weak global demand. (Bloomberg)

How J-Beauty’s Cosme Is Coping Without Chinese Tourists

Anyone who has been shopping for beauty products in Japan will recognise Cosme, the customer review site that crowns the best Japanese drugstore beauty products from sunscreens to smudge-proof eyeliners by way of its eye-catching stickers. The pandemic dealt it a hard blow — Chinese tourists are traditionally enthusiastic patrons of Japanese beauty chains like Matsumoto Kiyoshi. But Cosme may have found a solution through a deal announced this week between parent company iStyle and Tmall: the partnership will see Cosme open a flagship on the e-commerce marketplace; the site will ship products directly to China from Alibaba’s Japanese warehouse facilities, with the two parties splitting shipping costs and tariffs. Some 300 brands are expected to sign up. (Nikkei Asia)

政治、经济、社会

POLITICS, ECONOMY, SOCIETY

Farmers picking cotton in a field in Hami in China’s northwestern Xinjiang region. Getty Images.

New Report Warns Forced Labour May Impact Majority of Xinjiang Cotton Production

More than half a million people from ethnic minority groups in the region have been coerced into cotton picking, according to a new report from Washington-based think tank the Center for Global Policy, which suggests the impact on the cotton supply chain of China’s controversial labour transfer scheme runs deeper than previously thought. Xinjiang accounts for 20 percent of global cotton supply and is currently the focus of international scrutiny over the alleged coercion of ethnic minorities into forced labour. Earlier this month, the US banned cotton imports from the Xinjiang Production and Construction Corps, a paramilitary organisation that counts as one of China’s largest cotton producers. The Chinese Ministry of Foreign Affairs has said the allegations are “completely fabricated.”(BoF)

OECD: China will Lead Economic Growth in 2021

China is forecast to be the first major economy to recover from the global pandemic recession, with Europe lagging behind, according to the Organisation for Economic Cooperation and Development (OECD). The OECD predicts that China will see its gross domestic product grow 9.7 percent in the fourth quarter of 2021 compared to the same time in 2019, followed by South Korea, Indonesia, Turkey, Russia and the US. Argentina is expected to fare worst, with the UK coming second owing to a forecasted GDP drop of 6.4 percent over the two-year period. On the upside, a vaccine could speed things up globally: the OECD believes that rapid deployment could push global growth up to 5 percent in 2021 and 5.5 percent the following year. (Pymnts)

China Decoded wants to hear from you. Send tips, suggestions, complaints and compliments to our Shanghai-based Asia Correspondent [email protected].