1

The China Fashion MarketAn analysis of opportunities for Finnish Fashion BrandsClient: Finpro

Date: 29, October 2015

2Table of ContentsAbout Mark Greiz……………………………………………………….

PART 1 GEOGRAPHICS AND ECONOMY

China Map……………………………………………………

Population………………………………………………….…. Administrative Levels………………………………….…..… Tier System…………………………………………………….. GDP…………………………………………………................ Economy……………………………………………...………. Income per capita………………………………………….. Income distribution………………………………………….. Retail growth rate………………………………………….…

PART 2 APPAREL MARKETMarket Overview…………………………………………….. Expenditure on clothing………………………….………… Category size…………………………………………………. Women’s wear top brands….....………………………….. Men’s Wear top brands…………………………….…….…Men’s Wear opportunities………………………………….. Chinese sports and casual wear brands........................ Up and Coming Chinese fashion designers…...……..…Children’s wear………………………………………………

SECTION I THE CHINA MARKET

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12-13

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3Table of Contents

PART 2 APPAREL MARKET (Cont’d)Foreign Brands……………………………………………….. Fast fashion brands………………………….………………New Market entrants……………………………………….. Luxury market………………….....…………………………..

PART 3 DISTRIBUTION CHANNELS Department stores………………………………..….……… Shopping Malls……………………………………………Specialty stores……………………………..................... Multi brand stores……………………………………...…Street Style…….……………………………………….….. Sizing………………………………………………………... Online Sales overview……………………………………Online Sales Fashion………………………………...……Online Sales Platforms……………………………………Online Shopping Habits…………………………………. Key Consumer Segments……………………………….. Chinese dream…………………………………………….

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4Table of Contents

PART 1 Common Distribution ModelsCommon modes of Market entry…………………….……

Distribution models……………………………….………..…

Distributors & 3P Showrooms …………………..………..…Finland co-op showroom……………………….………….. Finland Style Branding……………………………….…..…. Co-Branding………………………….……………................

PART 2 E-commerceOverview…………………………………………………….… Export via overseas website…………………………….……Export via third party platform………………………….…China based company site….....……………………….…..Finland Style APP…………………………………….……....…

PART 3 High intensity ModelsFranchising………..…………………………........................... Department stores………………………………............……Co. owned Store…………………………………………...…Direct Investment Models…………………………………....

PART 4 Trade Shows……………………………………………….…..

SECTION II MARKET ENTRY & OPPORTUNITIES

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5Table of Contents

PART 1 Digital MarketingOverview…………………………………………………………

Social Media………………………………………………….…. KOL PR Practices………………………………….…………..… Video sharing…………………………………………………….. SEO…………………………………………………...................... Digital Optimization ……………………………………………..

PART 2 BrandingOverview………………………………………………………… Youth marketing………………………………………………. Marketing to Men……………………………………………..Marketing to Women…………………………………………Localization……………………………………………………..

PART 1 SUMARY & RECOMMENDATIONSKey findings……………………………………………………… Market entry recommendations…………………………..…Trademark registration………………………………………..

PART 2 APPENDIXVisuals and mock-ups………………………………………….

SECTION III MARKETING

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162-170

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196-197198-200201

202-222

SECTION IV SUMMARY

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6

Twenty years experience

in Asia.

ABOUTMARK GREIZ

Speak Mandarin and Japanese

Featured in print, TV and

Radio

Lecturer:Fashion Institute of Technology

Lim College

Academy of Art U.

IFA Paris-Shanghai

Focus on:Fashion

Cosmetics

Athletic wear

Health and fitness

Home textiles

Cosmetics

Accessories

Hospitality

Working relationships with:The China Fashion Association

Moen Design

Shanghai Fan Ze Lai Decoration

V. Show Group

and key OEM and private

label manufacturers for apparel,

home textiles, cosmetics andaccessories and packaging.

7

China’s Apparel MarketIs the most exciting

in the world.

8Market Overview

Form

aliz

ed d

istr

ibution

Top 20 growth cities for women’s apparel sales 2010-2025

11 out of top 20 growth cities are from the China Market

Source: McKinsey & Co.

9Market Overview

Form

aliz

ed d

istr

ibution

10Market Overview

Total retail sales of clothing, shoes, hats

and textiles 2009 - 2013

Approximately $185 Billion

Source: Li & Fung

11Category Size

Retail sales of selected apparel

categories in China

Category 2014 Market Size CAGR (2013) CAGR 3 YR

Women’s 8% 5%

Men’s CNY 521 billion* 7% 4%

Children’s CNY 25 Billion* 12% 11%

CNY 750 Billion*

USD 118 Billion

USD 82 Billion

USD 4

*

12Ladies WearTop 10 Brands

Brand Share (%) Origin

Vero Moda 3.82 Denmark

Only 3.78 Denmark

Girdear 2.37 Taiwan

Ochirly 1.66 Hong

Kong

Juzui 1.61 China

Marisfrolg 1.52 China

Elegant

Prosper

1.51 China

La

Chapelle

1.46 China

E-land 1.36 Korea

Amass 1.34 Taiwan

13Men’s WearTop 10 Brands shirts and suits

Brand Origin

Youngor China

Shanshan China

Goldlion China

Romon China

Vicutu China

Joeone China

Baoxiniao China

Pierre Cardin France

Hongdou China

Selon Hong Kong

14Men’s WearOpportunities

Men are looking for unique looks

Men want to improve their personal style

Increasing demand in Men’s grooming,

health and fitness categories

Increased jobs in creative industries

Men are increasing competitive

Opportunities exist in Tier 1 & key Tier 2 cities

for imported Men’s wear and niche

brands

15

Chinese BrandsUp and Coming

RanFan

Simon Gao

Helen Lee

TANGY

Jiwenbo

HeYan

Stella Lam

White Collar

Boundless

Masha Ma

Jefen

Uma Wang

Black Spoon

C. J. Yao

M.O.F

16

In general, domestic brands

dominate the mass market

while foreign brands are usually

more popular in the mid- to

high-end market and tier-1 and

tier-2 cities.

Foreign Brands

17

China is the largest international

market for ZARA and Uniqlo

China is the largest international

market in Asia for H&M and C&A.

Fast fashion Brands

18New Market Entrants

41% 33%

39%35%

24% 28%Recent entries include:

Abercrombie & Fitch (US)

Old Navy (US)Forever 21 (US)

New Look (UK)

Topshop (UK)

Maje (France)

Sandro (France)

Kooples (France)

Paula Ka (France)

Bruno Magli (Italy)

Gu (Japan)

✜✜✜

✜✜

As established brands further develop Tier

2 and tier 3 cities, a continual stream of

new brands enter the market.

✜

✜✜

✜

✜

✜

19Luxury Market overview

41% 33%

39%35%

24% 28%

Mainland China Luxury Spending

20

Distribution Channels

21Department Stores

41% 33%

39%35%

24% 28%

o Account for 36% of apparel distribution

o Top 40 department stores groups total approx 3900 stores

o Main channel for mid-to high-end apparel

o Around 50% of the total revenue of department stores come from apparel

sales.

o Many department store adopt the concessionary operating model.

o Commission rates are around 17 - 20%.

o Department stores are very promotionally driven with the stores controlling the

weekly sales product promotions and special holidays such as Chinese new year,

golden week, etc in which most brands need to participate.

22Shopping Malls

41% 33%

39%35%

24% 28%

o Most specialty

brands will be

present in both malls

as standalone stores

and department

stores as shop-in

-shops because this is

essential to extend

their reach across all

cities.

o In 2013 China built

half half of the brand

new mall space in

the world.

o Between 2011-2014

in Chengdu 3

million square meters

of mall space was

complete.

o More new mall

space was built in

Chengdu in 2013

than in all of Europe

including Russia

(422,000 Sq meters)

23Specialty Stores

41% 33%

39%35%

24% 28%

o Account for 30% of

apparel distribution

o 12% YOY growth in

2013

o Number of outlets ofapparel specialty

retailers nearly 600,000

o Most brands operate a

combination of self

-operated and

franchised stores.

o Company owned (tier 1

and 2) and franchise

(smaller tier 2 and tier 3)

o Better control over

merchandising, store

interior, promotions and

marketing strategy.

24Multi Brand Boutiques

41% 33%

39%35%

24% 28%

o Growth of multi brand

concepts

o Industrial, Alter, Xinlelu,

STARS, Spaceship,

Dongliang, Triple Major,

Maria Lusia, Tuan Tuan,

Dressing for Fun,

Galatea Wan,

mianhua tian, Project

Aegis, BNC, Arrtco, 01

Men

o Offers unique, niche,

avant garde local and

international brands.

There are over 900

multi brand buyer

outlets in China with

an annual revenue

over 6 billion RMB.

25Multi Brand Boutiques

41% 33%

39%35%

24% 28%

Store sizes range from

100 sq meters to 8000 sq

meters (The Fashion Door

Guangzhou).

Average store revenue is

US$1,000,000 per year

with top earners at over

UD$7,000,000 per year.

By 2020 the number of

Multi brand boutiques

is planned to exceed

5,000 stores with an

annual revenue of more

than 60 billion RMB.

26Multi-brand Stores

41% 33%

39%35%

24% 28%

Kun Man Ma

Junya Watanabe,

Christopher Kane

Roland Moure

mugler

Viktoria Chan

Berenik

House of V

Norwegian Rain

jacquemus

Undercover

Band of Outsiders

Patricia Motta

Ristro

Gabriel Lab

27Street Style

41% 33%

39%35%

24% 28%

Opening up of society

Exposed to new ideas

Want to express individual style

Traveling

Taking risks

Creative industries

According to

research 75%

of Chinese

consumers are

willing to try

new brands

28

618 million

Internet Users

The number of Chinese using the Internet grew 8.5% and Mobile Internet users grew

even faster, by 19.0% over the prior year

Internet Users 2013MOBILE AND

500 million

Mobile users

29

Online Sales2014

o Online retail sales in China totaled $458

billion in 2014

o U.S. online sales were $297 billion.

o In 2014, Chinese e-commerce contributed

to 19.4% of GDP growth and 33.5% of total

retail growth

30Online

41% 33%

39%35%

24% 28%o Online retailing is the fastest growing retail

channel for apparel in China.

o Approx $ 75 billion in 2013

o Approx 27% of total apparel spending

o Approx 27% of total online spending

Apparel

31Online

41% 33%

39%35%

24% 28%

0 %

10 %

20 %

30 %

40 %

50 %

60 %

70 %

80 %

90 %

100 %

2011 2012 2013 2014

B2C

C2C

Proportion of online sales to platform

32Online

41% 33%

39%35%

24% 28%

B2C and C2C

C2C: Taobao

B2C Platforms:

Tmall, JD, Dangdang,

Yihaodian, Jingdong

B2C Self operated

sites:

Vancl, Coach

In 2011 approx 6% of

online sales trasaction

value was from B2C

self-operated sites. In

2013 approx 28%

33

0 20 40 60 80 100

Shop Online Weekly

Made first online

purchase < 4 years ago

Buy products on social

media

Shop on mobile phones

Shop on tablets

China

China

0 10 20 30 40

Shop online weekly

Made first online

purchase < 4 years ago

Buy products on social

media

Shop on mobile phones

Shop on Tablets

US

US

OnlineShopping habits

Source: PwC’s Global Total Retail Survey Feb 2014

34

China Market EntryAnd opportunities

SECTION II

35

Lorem Ipsum has two main statistical methodologies are

used in data analysis which summarizes data.

Lorem Ipsum has two main statistical methodologies are

used in data analysis which summarizes data.

Distribution ModelsChina Major Apparel

Retailers

Brand OwnersAgents/

Showrooms

Distributors

Sub-distributors

Wholesalers

Retailers(Dept Stores)

Customers

Brand Owners

Brand Owners

Brand Owners

Distributors

Sub-distributors

Wholesalers

Retailers(Dept Stores) Customers

Retailers(Multi-brand

stores)

Showrooms Customers

Retailers(Multi-brand &

Dept stores)

Customers

Brand Owners Customers

M.1

M.2

M.3

M.4

M.5

36

Showrooms

Wholesale buyers and vendors get

together to do substantial business at the

recent addition of multi-brand

showrooms in China’s fashion capitals.

Services vary showroom to showroom

but include:

o Fashion sales agency

o Liaison with distributors, retail property

developers, multi-brand stores and online

shops

o Retail consultancy

o Buying services

o PR

o Brand Management

37

Showrooms

NC Space, VDS

Showroom, Project Crossover, Mi, AMF， WH

Showroom, SOMI, DFO

(Danube Fashion Office)

NHEW Showroom.

38

FINLAND STYLESTUDIO

Inspiration

Creativity

Networking

Building a home in the china market

Will act as a tool to promote Finnish

fashion to the Chinese consumer,

retailers, co-branding partners, investors, distributors and the media.

39

FINLAND STYLE

Collaborative showroom just

for Finnish brands

Buyers from all over China and

Asia can access the latest

collections and order throughout

the year

Retain full control of your

marketing and sales strategy

Control sales directly with retailers

Establish enduring relationships

with buyers

STUDIO SHOWROOM

Can be launched as a partnership

enterprise or JV by select Finnish

brands or by Finatex or another

government agency.

40FINLAND STYLESTUDIO POP UP TOUR

Pop up store tour in key

Tier 1 and Tier 2 cities

To build awareness for

Finnish brands, webstore

and to build

followers to weibo.

Shopping centers

Outside dept stores

Pedestrian malls

Creative parks

Fashion and

entertainment

hubs (Xintiandi,

Sanlitun)

41FINLAND STYLEBRANDING

42

China Market EntryAnd opportunitiesE-commerce

43

Three OptionsExporting direct from

overseas website

Via third party platform in

China

Via China hosted e-commerce site

E-Commerce

44

Advantages

Does not require ICP License

Does not require company

set up

Low financial risk

Easier to manage

Exporting direct from overseas website

45

ConcernsCulture

Is your site localized for China

Local contact

Do you have effective customer support?

Customer service contact in China

Payment/Price

Can you accept Union Pay and Alipay

Price Escalation-duties, express shipping

Delivery/order fulfillment

From Finland?

From warehouse in China?

From Regional warehouse?

Return procedures

Promotion/Performance

Building awareness of your site

Site download speeds

SEO on Baidu

Exporting direct from overseas website

46

Taobao

China’s largest e-commerce site

C2C and B2C

Hosts more than 6.2 million online

stores

Nearly 800 million product listings

Over 50,000 items sold on their

website every minute

Over 2500 items of clothes sold

online every minute

E-Commerce salesVia third party platform in China

47

Taobao

Companies with no legal entity in

China can set up a store on TaoBao.

Requires a Chinese bank account and

a Chinese Resident Identity Card.

Need to partner with a Chinese

national

Not recommended as a means of

market entry for foreign fashion brandso Fake brands

o Grey market products

o Less reputable stores

o Less protection than Tmall (no

mandatory 7 day return policy)

E-Commerce salesVia third party platform in China

48

Tmall

Global retailers from fast fashion to

luxury are opening on Tmall.

Companies set up their own virtual

store

Seller pays a deposit to list and Tmall

collect 5% commission on each sale

WFOE’s are required to set up an

official virtual store

Tmall gives sellers access to backend

tools and analytics that are not

available for Taobao sellers.

E-Commerce salesVia third party platform in China

Highly recommended to open on Tmall after there

is experience and brand recognition in China

49

Tmall Global - tmall.hk

Overseas companies without China

business licenses can apply to Tmall

Global.

Orders can be fulfilled and shipped

from outside of China, and customer

payments are settled in the home

currency.

Companies are required to provide a

China-based product return

arrangement and Chinese-language

customer service support.

E-Commerce salesVia cross border third party platform in China

50

Other sites

Shangpin

Xiu.xom

Yoox.cn

Moonbasa

Higo APP

E-Commerce salesVia third party platform in China

51

Single or Multi

Brand

WFOE’s are needed to

establish e-commerce sites

in China

Must have applicable ICP

and business licenses

Essential for long term China

strategy

E-Commerce salesVia company owned site in China

52

China Market EntryAnd opportunitiesTrade shows

53

Trade Shows

Asia's largest fashion trade fair. New section named 'International Fashion Journey’

aims at connecting Chinese industry professionals to the latest brands emerging

from Europe and Asia. Different areas showcase influential Chinese fashion labels,

menswear labels, bespoke, casual and sportswear brands, women's wear labels,

fashion accessories brands, young designers, leather, fur, outdoor labels children's

wear and the newest fashion technological systems. Oct 18-20, 2015 & March 16-

20 2016

China International Fashion Fair

54

Trade Shows

MODE SHANGHAI is the official trade show of Shanghai Fashion Week. It

connects global fashion, apparel and accessory collections with Asian

buyers from department stores, shopping malls, select shops and

distributors. Oct 15-Oct 18

Mode Shanghai

55

Digital Strategy

Localization of site features:

• Content, hosting location,

load time, navigation,

visual design, models,

Live Chat, Integration of

Social Media.

E-Commerce:

• Adoption, functionality,

Tmall brand shop

presence & sophistication.

Pricing, loyalty programs,

sales.

Website &

E-commerceSocial Media

Sina Weibo, WeChat, Youku:

• Brand presence,

community size,

content and

functionality, frequency of

posting, engagement,

active fans, rewarding fans,

contests, m-commerce

integration.

Tips for a successful

Digital Marketing

Search, Digital media, PR:

• Baidu SEO and SEM

• Brand, product reviews and

popularity on Haibao, Yoka,

Xbiao etc.

• Blogger posts and reviews

• Youku vlogger marketing

• Advertising-banners

Mobile

Smart phone and Tablet

webpages and APP’s:

• Adoption, functionality,

sophistication, transaction

capability

• Mobile optimized webpage

is a critical reason for

consumers when choosing

an online shop.

56

SUMMARYSECTION IV

57

FISC SHOWROOM INDIVIDUAL BRANDS (B)

Brands enter market alone.

Find showrooms to carry line

Trade show participation

Actively support showroom through:

• Local account manager

• Aggressive digital and marketing

strategy

• Merchandising, marketing and

promotional support to boutique

owners to differentiate brand at

point of sale, educate in-store staff

and encourage inventory turns.

• Localized product collections

• Investigate potential of shop in shop

in dept store either brand owned

or distributor financed or JV.

• Investigate potential e-commerce site

and Tmall

Brands enter market alone.

• Find showrooms to carry line

• Localized website

Minimal investment in other marketing

Advantages: lower financial risk

Disadvantages: low potential for

penetration, lack of brand awareness,

Low sales may encourage stores to drop

brand, Low sales may encourage brand

to leave market, no personal

relationships with buyers, low market

knowledge etc.

Open Showroom in Shanghai or Beijing.

Showroom has own e-commerce website,

APP and social media.

Individual brands are encouraged to have

their own localized website and social

media

Focus is to generate sales into multi brand

boutiques and dept stores, B2C

ecommerce and showroom sale events

1 account/showroom manager, 1 social

media marketing manager, 1

reception/accounting

Future plan to open multi brand boutique

RECOMMENDATIONS

INDIVIDUAL BRANDS (A)

MARKET ENTRY

Advantages: Full control over marketing,

medium financial risk, ability to develop china

centric strategy, economies scale, buzz worthy,

ability to localize products and co-brand

MINIMAL PRESENCE

#1#2 #3

Delay entry into China market

• Conduct research, focus groups

• Localize website

#4