CHINA APPAREL MARKET UPDATE 2019 PART 2deliver packages to track the shipment in real time, thereby...

CHINA APPAREL MARKET UPDATE 2019

Asia Distribution and RetailAugust 2019

PART 2: KEY TRENDS AND DEVEL0PMENTS- Illustrated with case studies

TABLE OF CONTENTS

Social media –a new powerful retail channel

Cross-sector expansion continues

Fashion’s sharing economy catches on quickly

Embracing “New Retail”

C2M model prevails

Off-price retail grows fast

“Plus-size” fashion market gets bigger

M&A continues at elevated levels

P.03

Key TakeawaysDigital transformation in supply chain

P.04 P.12 P.19 P.26

P.33 P.38 P.43 P.48 P.55

KEY TAKEAWAYS

1

Embracing digital transformation in supply chain

• Supply chain digital transformation enables apparel retailers to shorten replenishment times, optimize deliveries, match supply with demand and ultimately boost value and revenue

• Apparel players are embracing a data-driven approach in their manufacturing processes, tying their business decision to analytics insights

Social media – a new powerful sales channel

• Every stage in consumers’ shopping journey, from product discovery to placing orders to product reviews can now be done on smart devices via social media platforms/ apps

• The convenience and reach of social media has made it a new powerful channel for brands to connect with customers and sell their products

Pursuing cross-sector growth

• Cross-sector collaborations and partnerships are becoming more prevalent in the apparel market

• Major apparel players have expanded beyond the fashion sector to pursue cross-sector growth, which enables them to reach out to new customers and seek new business opportunities

Online clothing rental services on the growth

• Clothing rental and resale of used clothing is increasingly popular among Chinese consumers, especially the younger generation

• Such clothing rental trend has led to the rapid growth of online clothing rental services in the country and the rise of some local online fashion rental platforms

Embarking on in-store digital upgrading

• Apparel retailers have caught up with the “New Retail” trend by pairing up with e-commerce players for digital upgrading or leveraging advanced digital tools to redefine the way they engage with customers and provide better shopping experience for them

Rapid development of C2M customization

• The advent of smart technologies has made it easier for apparel players to tailor products and services to the needs of individual customers

• The rapid development of C2M customization service model has marked an important breakthrough in mass customization

Off-price retail – a win-win solution for brands and customers

• More apparel players are partnering with off-price retailers online and offline to get rid of their leftover inventory

• Featuring best deals on quality products, off-price retailers are becoming increasingly appealing to consumers

Rising demand for chic plus-size clothing

• Considering the growing demand for more fashionable options in larger sizes, some plus-size retailers are investing in plus-size collections or offering stylish clothing in a broader range of sizes to satisfy plus-size customers’ rising demand for trendy clothing and capture new customers

Creating synergy and value in M&A

• Increasing numbers of major local apparel companies have conducted mergers and acquisitions with their foreign counterparts to boost their market share and brand influence, expand market presence and enhance their supply chain capabilities

DIGITAL TRANSFORMATION IN SUPPLY CHAIN

Enhancing overall performance by shortening replenishment times, optimizing deliveries, matching supply with demand and ultimately boosting value and revenue

Embracing digital transformation in supply chain

5

From manufacturing to logistics to marketing and retailing,stakeholders along the apparel supply chain are stepping upefforts to embrace digital transformation in a bid to keep pacewith changing market demands and rising consumerexpectations. Implementing supply chain digital transformationenables apparel retailers to shorten replenishment times,optimize deliveries, match supply with demand and ultimatelyboost value and revenue.

(Photo source: Fung Business Intelligence)

The apparel market needs to evolve swiftly to respond to increasing consumers’ demand for immediacy and constantnewness. This requires a highly digitalized manufacturing processes supported by strong IT systems and connecteddevices and platforms. Realizing the importance of optimizing supply chain efficiency, some apparel players areembracing a data-driven approach in their manufacturing processes, tying their business decision to analytics insights.

6

Case: Handu’s data-driven system optimizes production

Digital transformation in supply chain – manufacturing

Backed by strong IT systems including Order Management System (OMS), Warehouse Management System(WMS) and Enterprise Resource Planning (ERP), China’s online fast fashion retailer Handu is able to collectand analyse real-time selling data of every single item and respond quickly to dynamic market demandwith prompt follow-up actions – placing replenishment orders and modifying product designs. Sales of eachitem and customers’ preferences and feedback are all recorded in the system and such data are turned intoactionable insights used for analysis and demand forecast.

In addition, the company also shares some data and insights with its key vendors to synchronizemanufacturing activities with retailing. For example, factories and suppliers of fabric can forecast demandbased on data provided by Handu, benefiting major stakeholders across the entire supply chain.

Handu’s data-driven manufacturing approach has greatly elevated its supply chain agility and resiliency,giving a significant competitive advantage to the company. In the 2018 11.11 Global Shopping Festival,Handu recorded over 100 million yuan in sales on Tmall within the first 10 minutes and 35 seconds of the24-hour spending spree.

Handu’s head office in Jinan city, Shandong province(Photo source: Fung Business Intelligence)

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence

7

Case: Red Factory’s optimized IT system facilitates production management and achieves agility

Digital transformation in supply chain – manufacturing

The emergence of Internet celebrity fashion shops/brands has led to a growing need formicro/agile supply chain, which can handle orders in small quantities and of great variety ofstyles in a very short lead time with zero inventory.

To meet the requirement for fast production of a large amount of small-batch orders, Red Factory,an S2b (supply chain to small business) platform providing supply chain solutions to Internetcelebrities and online apparel shops, has developed an optimized IT system to facilitate order/production management and achieve speed and agility.

With a strong IT team supported by staff previously working for tech companies such as Baidu andAlibaba, Red Factory has developed its own ERP system which is connected to WeChat for easycommunication and data sharing along the supply chain. Performing three major functions –interacting with customers, prototyping/ sample making and production management, theoptimized IT system analyzes orders and automatically matches orders with the appropriatefactories/ production lines; it also centralizes and stores all the data and information related to theorders. Through the system, every single merchandiser in Red Factory can handle 20-30 orderssimultaneously.

Red Factory’s production base (Photo source: Fung Business Intelligence)


To satisfy the growing needs of consumers for faster and more reliable delivery services, major players in the apparelmarket are building smart logistics network and adopting advanced technologies in warehousing and logisticsoperations. The deployment of smart logistics tools also facilitates further digital transformation and upgrading of theapparel industry.

8

Case: Alibaba’s e-commerce platform Tmall and logistics arm Cainiao

Digital transformation in supply chain – logistics

In recent years, many international and local fashion players have launched their online stores on Alibaba’se-commerce platform Tmall to cash in on the booming e-commerce market in China.

As the backbone of Tmall’s success, Alibaba’s logistics arm Cainiao is optimizing its logistics performancewith advanced digital technologies including cloud computing and artificial intelligence (AI). For example,the company has made use of cloud computing for real-time logistics data sharing and intelligent algorithmsfor efficiency improvement including volume forecasting; it has also built a “logistics cloud” supported byAlibaba Cloud laaS platform for package tracking at every stage of the supply chain, enabling the threeprimary stakeholders – the package recipients, business owners who ship items and freight companies whodeliver packages to track the shipment in real time, thereby maximizing logistics transparency.

Besides, Cainiao has also adopted various advanced technologies including the Internet of Things (IoT), AI-backed tools and robotics in their warehouses and domestic fulfillment centers to track supply anddemand and improve order fulfillment. Backed by Cainiao’s vast logistics network which offers same-dayand next-day delivery services across 1,600-plus counties, Tmall handled and fulfilled over 1 billion ordersduring the 2018 11.11 Global Shopping Festival, setting a new record for logistics volume.

Tmall Double Eleven Gala 2018(Photo source: CNA.com)


9

Case: ERKE’s smart logistics system

Digital transformation in supply chain – logistics

Domestic sportswear brand ERKE has set up a smart logistics systempowered by Warehouse Management System (WMS) and Warehouse ControlSystem (WCS), which enables the company to process and utilize real-timedata and direct real time activities within warehouses and distributioncenters, ensuring a higher throughput of goods and ultra-fast delivery.

Backed by its smart logistics hub and some 7,000 brick-and-mortar stores,ERKE is able to offer 2-hour delivery in selected areas, greatly enhancingcustomer shopping experience. The company’s upgraded logistics system hasalso brought significant membership growth; the number of its subscribershas surged more than 99%, with members’ repeat purchase rate and averageorder value rising 58% and 15% respectively.

ERKE’s official online store(Photo source: ERKE.com)


With more and more shoppers going online, many apparel players are using digital marketing tools to interact withcustomers in a more innovative and creative way, hoping to boost traffic and further increase sales.

10

Case: JNBY sets up an official account on WeChat

Digital transformation in supply chain – marketing

JNBY has opened an official account on WeChat and WeChat Mini Program to engage with customersand market their products. The company has significantly increased its sales with its digital marketingefforts. In 1H18, online sales accounted for 8.5% of the company’s total revenue, with the online salesgrowth jumping 45.1% yoy, much higher than the offline sales growth of 23.6% yoy.

Uniqlo has upgraded its store on WeChat Mini Program, which allows customers to directly placeorder on the Mini Program store. The upgraded Mini Program store has a “scan and order” functionwhere customers can scan the code on the tag to see product details and order via the app; customerscan also use the “VR”360° function to view product with virtual reality technology. Apart fromleveraging WeChat to market their products, Uniqlo also paired up with Shanghai Transport RadioStation FM105.7 to jointly launch a fashion living streaming event at Uniqlo’s Shanghai flagship store inMay 2019. A famous radio presenter in Shanghai and experts from different fields were invited to theevent and shared their summer fashion tips with consumers.

Case: Uniqlo upgrades its store on WeChat Mini Program

JNBY’s WeChat Mini Program

Uniqlo allows customers to directly place order on the Mini Program store

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence (Photo source: Ebrun.com)

(Photo source: JNBY’s WeChat Mini Program)

Technologies such as AI, augmented reality (AR) and virtual reality (VR) enable apparel brands to provide compelling and enjoyable in-store shopping experience, meeting the expectations of increasingly tech-savvy Chinese customers.

11

Case: C&A opens first new concept store in Nanjing

Digital transformation in supply chain – retailing

In May 2018, international fast fashion brand C&A opened its first new concept store for China inNanjing. With the use of “black technologies”, all the screens and sound systems in-store can becontrolled through a cloud platform at the back-end management system. The store is also equippedwith a magnetic anti-theft system, in which all the anti-theft product tags are embedded with RFID chipsfor data collection. C&A also uses Beacon technology and the shake feature in WeChat to detectcustomer's shopping route inside the store, which helps the brand to better understand customer’sportrait through connecting their CRM and POS systems with customer’s user ID in WeChat.

In October 2018, Hodo Group and JD.com jointly launched the “Hodo-JD.com Experiential Store” atHuiju Wuxi Shopping Center in Wuxi. The store – offering mainly Hongdou’s apparel items and homeproducts, as well as JD.com’s private labels such as Jingzao and Jingxuan – intends to bring a new,modern and high-quality shopping experience to its consumers by introducing a unique consumptionscene and adopting various “black technologies” such as smart mirrors with styling recommendationand personal guide function.

Case: Hodo Group launches “Hodo-JD.com Experiential Store”

C&A’s first new concept store in Nanjing(Photo source: Fashionnetwork.com)

The “Hodo-JD.com Experiential Store”(Photo source: Linkshop.com)


SOCIAL MEDIA – A NEW POWERFUL RETAIL CHANNEL

A powerful way for apparel players to connect with customers

Social media – a new powerful sales channel

13

In recent years, the rise of social commerce – which combinesproduct sales with recommendations of users/ key opinion leaders(KOLs) in social networks – has taken the e-commerce scene bystorm. Every stage in consumers’ shopping journey, from productdiscovery to placing orders to product reviews can be completed onsmart devices via various social media platforms and apps. Theconvenience and reach of social media has made it a new powerfulchannel for apparel retailers and brands to connect with customersand market their products.

(Photo source: Unsplash.com)

38.6%

33.9%

27.0%

26.9%

22.9%

17.9%

15.9%

11.1%

8.5%

6.4%

4.8%

Apparel and bags

Home products

Toiletries

Food and beverages

Cosmetics

Digital products

Healthcare products

Sports and outdoor products

Baby and maternity products

Fresh food

Others

14

Young consumers tend to research products on social media platforms

1,133 million 807.9 million 486 million

Source: Respective company websites; compiled by Fung Business Intelligence

Number of monthly active users, 1H19

What content do you like to read the most on social-commerce platforms?

iiMedia Research, April 2019 (n=1322)

Driven by the higher penetration of mobile devices and improvedlogistics infrastructures in lower-tier cities in recent years, social mediaplatforms have been growing exponentially. Increasing numbers ofapparel brands and retailers are turning to monetize the huge traffic onsocial media platforms by tapping social-commerce – they allow users toshare deals on social media platforms and bring others into the fold.Compared with traditional online shopping sites, social commerceplatforms enable brands and retailers to draw higher traffic at relativelylower costs.

Social commerce is trending in China, especially amongyounger consumers, who tend to use social mediaplatforms to discover brands and review products. Ridingon the trend, some apparel brands and retailers have setup their own app, WeChat official account, WeChat MiniProgram, etc., in addition to their own websites, toextend their reach to customers; some of them chooseto partner with KOLs / Internet celebrities to sell viasocial media.


15

Case: Bestseller

Apparel retailers set up own app and leverage WeChat Mini Program

Hoping to push forward its O2O initiatives and improve consumerexperience in multiple channels, Bestseller developed WeChat MiniPrograms for its brands – Vero Moda and Jack&Jones, withembedded functions such as “scan and go” and “shopping cart”.Sales associates in offline stores (“shopping guides”) can launch theirown “page” on the Mini Program for customers to follow. Throughtheir own page, they can recommend products, share styling tips andpromotion information with customers and even provide one on oneservices to them. According to Bestseller, the Mini Program racked uparound 100 million yuan in sales in 2018, of which 75% came fromshopping guides' sharing with their own circle of friends.

Vero Moda’s Mini Program, June 2019

“Scan and go”

Shopping cart

Follow offline shopping guides

WeChat store

Log in page for shopping guides

Membership center


16

Case: Bestseller (Cont’d)

Apparel retailers set up own app and leverage WeChat Mini Program

Besides, Bestseller also launched mini games on WeChat to attractnew customers, especially the young generation. For example, inApril 2018, Bestseller launched a mini game for consumers to battlefor the best-looking outfits in cartoon style with their friends on socialmedia platforms; winners can get coupons when purchasing inJack&Jones and Vero Moda stores. This event generated 800,000 yuanoffline sales within two weeks.

Bestseller’s mini game on WeChat, April 2018


(Photo source: 91ud.com)

Case: Mogujie

Apparel retailers leverage content-based social-commerce platforms

Some apparel brands and retailers choose to leverage content-basedsocial-commerce platforms to reach more consumers as largenumbers of consumers search for product reviews and styling tips onthese platforms. One prominent example is Mogujie.

Mogujie has evolved from a consumer sharing community to afashion e-commerce platform. Users – individuals or KOLs – can allpost fashion reviews and styling tips on the platform to share withother users and lure them to purchase. They can post their outfits,tag the brands and comment on the products, and post links to theproduct page.

Many lesser-known brands and individual KOL-designed brands areespecially active on Mogujie. Jienilu, 小甜心_呢, yoke_瑜儿 aresome of the examples.

Mogu’s Mini Program, June 2019

Livestreaming zone

Mogujie store on WeChat

Short-videos

On-air livestreams

Discovery

My followings

Trending

17Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence

Case: Mogujie (Cont’d)

Apparel retailers leverage content-based social-commerce platforms

Mogujie has also launched a livestreaming platform for hosts. Thelivestreaming feature is designed to provide a more interestingshopping journey for customers. Users can view the livestreamingwhen looking for advice on what to wear, or just for entertainmentduring their free time.

The Interactive experience enables them to discover new looks andfind clothes that fit their style. They can also communicate withlivestreaming hosts directly via the online chat room. By enablingtransactions during livestreaming shows, Mogujie makes shoppingeasier and more convenient for customers, effectively gettingcustomers to make impulse purchases and spend more.

According to Mogujie, live video broadcasting business grewstrongly with associated GMV increasing 138.1% yoy for FY19 ended31 March 2019. It could be inferred that the GMV from live videobroadcasting for FY19 is around 4 billion yuan, constituting 23.3% ofthe total GMV, remarkably higher than 1.4% of FY17 and 11.8% ofFY18.

18

Mogu’s Mini Program, June 2019

Items forpurchases

Follow the KOL

Add to cart

Purchase now

Chat room

Number of viewers


CROSS-SECTOR EXPANSION CONTINUES

Expanding beyond apparel products to seek new business growth

Pursuing cross-sector growth

20

Cross-sector collaborations and partnerships are becoming moreprevalent in the apparel market. Many major apparel players haveexpanded beyond the fashion sector to pursue cross-sectorgrowth, which enables them to reach out to new customers andseek new business opportunities, a key to driving sustainabledevelopment.


21

Case: Peacebird

Apparel players expand into household sector

In September 2018, Peacebird opened five lifestyle andhome product stores “Peacebird Livin” in Ningbo. As thefirst lifestyle and home products brand of Peacebird,Peacebird Livin’ offers a wide range of products, with a totalof 3,000 SKUs, including bedroom and living roomfurniture, kitchen appliances, sanitary ware, home textile,home décor and fragrances. Integrating fashion creativityand home life, Peacebird Livin aims to provide customerswith a comfortable, stylish and enjoyable shoppingenvironment.

Peacebird’s homepage pictures of Peacebird Livin(Photo source: Peacebird.com)


22

Case: HLA

Apparel players expand into digital payment sector

In May 2018, HLA invested around 500 million for a 64%stake in Shanghai-based third-party digital payment serviceprovider Handpay. With the third-party payment licensegranted by the Chinese government, Handpay focuses onproviding digital payment and e-commerce operationsolutions to banking and financial institutes. The investmentin Handpay enables HLA to penetrate into the digitalpayment industry and further strengthen its e-commercebusiness .


(Photo source: Handpay.com)

23

Case: Peacebird

Apparel players expand into commercial property sector

In April 2019, Peacebird and Shanshan Commerce Groupentered into a strategic partnership on outlet mallsdevelopment. The two companies will cooperate in variousareas including outlets’ store design and innovation(composite buildings), store effectiveness enhancement,and consumer interaction. Peacebird Group has sevenfashion brands targeting young consumers, which matchwell with the positioning of Shanshan’s outlet malls.

Peacebird and Shanshan Commerce Group entered into a strategic partnership on outlet malls development(Photo source: Linkshop.com)


24

Case: JNBY

Apparel players expand into hospitality sector

JNBY, after launching its home product brand JNBYHOME inMarch 2017, forayed into the hospitality sector in October2018. Through JNBYHOME, the company has paired up withlocal youth hostel Travelling to jointly work on a hotelconstruction project in Hangzhou. The two companieswould integrate their respective resources in brandoperations, customer base and traffic.

Concept image of the JNBYHOME plus Travelling With hotel project(Photo source: Socialbeta.com)


25

Case: JNBY

Apparel players expand into beauty sector

HLA launched its in-house cosmetics brand éOL in March2018. Available at Heilan Home’s lifestyle stores online andoffline, the brand features natural skincare and colorcosmetics products ranging from cleanser, moisturizer, eyecream, skincare mask to lip gross, makeup foundation,mascara, eyebrow pen, blush and BB cushion compact.

HLA’s in-house cosmetics brand éOL(Photo source: Xinhuanet.com)


FASHION’S SHARING ECONOMY CATCHES ON QUICKLY

Online clothing rental services come into vogue in China

Online clothing rental services on the growth

27

Fashion’s sharing economy is catching on quickly in China.Clothing rental and resale of used clothing is increasingly popularamong Chinese consumers, especially the younger generation,who are more concerned about sustainability and open to sharingclothes. They also have a stronger desire to constantly changetheir wardrobe to keep up with the fast-changing fashion trends.Such clothing rental trend has led to the rapid growth of onlineclothing rental services in the country and the rise of some localonline fashion rental platforms.

(Photo source: Pexels.com)

28

Source: Lloyd’s Innovation Report 2018, SCMP’s China Internet Report 2019; compiled by Fung Business Intelligence

Chinese consumers are catching up fast in the sharing economy

• Chinese consumers are more actively involved with and open to sharing platforms when compared with U.S. consumers

Chinese consumers vs. U.S. consumers’ attitudes toward sharing economy

60%

25%

68%

47%

8%

42%

Have used a sharing economy service/ product

Have provided a sharing service/

asset

Believe benefits outweigh the risks

Source: Allied Market Research, QuestMobile; compiled by Fung Business Intelligence

China, together with India, are leading in

renting clothes consumption in Asia

No. of online resale platform users in China

Up from 1.5 million in 2014 to

~38 million in 2017

China is

one of the countries in Asia

spending most on renting clothes

Spending on renting clothes in Asia

UP at a CAGR of 11.4%, 2017-2023(est.)

Major reasons driving Chinese customers towards clothing rental

Why renting clothes?

Desire to update everyday wardrobe to keep up with fast-changing fashion trends at lower costs

Looking for more temporary style solutions

Don’t want to spend too much on an item they would wear only once

Couldn’t afford full-time ownership of luxury fashion items

Having a chance to familiarize with various brands and collections

Avoid waste, appealing to the eco-conscious customers

Convenient, easy return

Try before purchasingSource: Fung Business Intelligence

29

(Photo source: unsplash.com )

30

Case: MsParis

Major fashion rental platforms in China

Company name: MsParis

Founded in 2014, based in Shanghai

~7 million registered users(as of January 2019)

488 yuan/ month (first month special for new member –199 yuan/ month)

> 500 brands from international luxury fashion houses to major high street brands

Key developments

In December 2018, the company launched a new offeringenabling customers to rent brand new clothes. After securingUS$18 million from a series A funding round in December2016, MsParis raised additional US$30 million from a series B+funding round joined by Alibaba’s Ant Financial in November2018.

Founded in 2014 in Shanghai, MsParis is one of the largestonline clothing rental platforms in China. Starting out fromoffering mainly gowns and luxury fashion items, the companyhas expanded into the market for everyday wear, carryingwomenswear from over 500 brands including internationalluxury fashion houses and major high street brands. Offeringmonthly membership plan at 488 yuan/ month, Ms Paris hadaround 7 million registered users as of January 2019.


Ms Paris’s mobile app, June 2019

31

Case: YCloset


Company name: YCloset

Founded in 2015, based in Beijing

>15 million registered users(as of September 2018)

499 yuan/ month (first month special for new member –299 yuan/ month)

Hundreds of international luxuryand affordable luxury brands

Key developments

In November 2018, the company completed a new funding round ledby Alibaba Group, which had also led a series C funding round for Y-Closet in 2017. Other investors of Y-Closet include SB China Capital,Sequoia, IDG Capital, ZhenFund and GSR Ventures.

It’s almost like a relationship. In the past, you could only ‘get married’ to an item of clothing; now you can have a date with a dress and see if it fits you.

(Doris Ke, marketing and PR director for YCloset)

Founded in 2015 in Beijing, YCloset is also one of the leading clothingrental platforms for womenswear in China. Housing hundreds of majorinternational and local fashion brands, the company carries over 1million items in stock, featuring formal and smart casual wear. Offeringmonthly membership plan at 499 yuan/ month, YCloset had over 15million registered users as of September 2018.


YCloset’s mobile app, June 2019

32

Case: Le Tote


Company name: Le Tote

Founded in 2012, based in San Francisco; entered China in January 2018

>500,000 registered users (as of October 2018)

599 yuan/ month (first month special for new member –399 yuan/ month); 1497 yuan/ quarter

> 150 designer and high-street fashion brands

Key developments

• The company launched two pop-up stores in Shenzhen andGuangzhou respectively in August and September 2018; thestores featured one-on-one exclusive styling service, styling andmakeup lectures, virtual fitting room, etc.

• Apart from launching its official app LeTote China, the companyhas also opened an official account on WeChat and usedWeChat’s payment system for transactions

Founded in 2012 in San Francisco, Le Tote expanded into China inJanuary 2018, marking the first U.S. online clothing rentalplatform launched in the country. Considering the popularity ofKorean fashion trends in China, the company offers about 50% U.S.and western brands along with 50% Korean and Chinese brands onits platform to appeal to local tastes. Charging 599 yuan/ month,Le Tote had over 500,000 registered users as of October 2018.


Le Tote’s mobile app, June 2019

EMBRACING “NEW RETAIL”

Embarking on digital upgrading to enhance in-store experience

Embarking on in-store digital upgrading

34

Deeper integration of offline and online commerce has becomemore prevalent in the “New Retail” era – mainly about leveragingtechnologies to create a more engaging shopping experience andfulfill the personalized needs of each customer at every touchpoint. Considering the blurring lines between online and offlinestores, many apparel retailers have caught up with the “NewRetail” trend by pairing up with e-commerce players for digitalupgrading or leveraging advanced digital tools to redefine theway they engage with customers and provide better experiencefor them.


35

The exclusive release of Adidas’ running shoe line –UltraBoost 19 – on Tmall

Adidas and Tmall announced their comprehensive strategic partnership in February 2019.The two companies will deepen collaboration in various areas, including new product launch,consumer operations and new product innovation. In addition, Adidas will undergo acomprehensive digital upgrade featuring new retail concepts through Alibaba’s businessoperating system, leveraging on Alibaba’s new retail scenes, including omni-channel retailing,smart stores, shopping guide and digitalized retail stores. Adidas hopes to synchronizeinventory across its online and offline stores and enhance retail operation efficiency.

GXG opens first new retail experiential store in Nanjing

GXG opened its first new retail experiential store in Nanjing before the 11.11 GlobalShopping Festival on 4 November 2018. The store adopts a lot of Tmall’s new retailtechnologies, including virtual fitting service and red envelopes collection and interactivegames. GXG‘s cooperation with Tmall involves membership, data, marketing, productplanning, supply chain, etc. In the 2018 11.11 Global Shopping Festival, GXG was one of themost popular brands on Tmall with sales on the platform topped 300 million yuan.

Selected examples of apparel players embracing “New Retail”


(Photo source: Alizila.com)

(Photo source: Yifu.net)

36

Metersbonwe’s new retail concept store in Shanghai Wanda Plaza

Metersbonwe paired up with Mobile Tmall app to test new retail models in Shanghaiin September 2018. Metersbonwe’s customers can place orders via Tmall app with theirsmartphones, or directly through sales associates at all the 22 Metersbonwe’s stores in thecity. Backed by Tmall’s big data analytics technologies and supply chain capabilities, theapparel retailer can conduct real-time inventory management and keep track of the stockacross its stores. After receiving orders from customers, Metersbonwe can instantly locate thenearest store carrying the items that the customers have ordered and deliver the order tocustomers within one hour through its logistics partner Fengniao Delivery.

Zara’s new retail flagship store in Shanghai Times Square

Zara, in tie-up with Tmall, launched a pop-up event featuring new retail concept at itsflagship store in Shanghai Times Square in September 2018. This is ZARA's first new retailcampaign in China. Offering ZARA's seasonal collections and special limited-edition products,the two-story store adopts a theme of “Wear Future” and aims to engage customers withinnovative digital services. Installed with advanced QR code scanners, the store makes use ofZara mobile app to provide an easier shopping experience for customers. With Zara mobileapp, visitors can scan the barcodes of their favorite items to check the product size andinventory in real time and opt for fitting, and then wait for a shop attendant to bring theclothes to a fitting room for them. Customers can also order items through the app.





37

Peacebird’s first new retail concept store in Joy City, Hangzhou

Peacebird opened its first new retail flagship store in Joy City, Hangzhou in September2018. This new retail flagship store offers a new consumption scene through adopting various“black technologies” including smart shopping guide and magic mirror. In addition, theflagship store has set up an experiential zone “Youth Lab” to create “Peacebird +”– aconsumption scene covering products from all categories of Peacebird. To bring morecreativity into its brand and boost engagement among young consumers, Youth Lab haspaired with local heritage brand Shanghai Phoenix Bicycles to launch co-brand clothingproducts featuring vintage looks and invited popular fashion stylists from time to time toshare styling tips with customers.

Semir’s new retail concept store backed by Tmalldigital technologies

Semir introduced its new retail concept with the technical support of Tmall in April 2018.More than helping Semir integrate its online and offline payment, Tmall also createdinteractive shopping experience for customers in Semir’s stores. Customers who use Tmall appto scan the QR code in any of the 500 Semir smart stores across the country can experienceAR video interactions and receive online coupons. Semir’s flagship store at Dragon Dream inZhongshan Park has also adopted the facial recognition technology supported by Tmall.



(Photo source: Soupu.com)

(Photo source: Tdcheml.com)

C2M MODEL PREVAILS

Taking customization to the next level

Rapid development of C2M customization

39

From AI to big data, the advent of smart technologies has made iteasier for apparel players to tailor products and services to theneeds of individual customers. Driven by the increasing demandfor individualized customization, the rapid development of C2Mcustomization service model has marked an importantbreakthrough in mass customization in the apparel industry,taking customization to the next level.


What is C2M model?

One of the e-commerce models featuring direct interactions between consumers and factory/ manufacturers, cutting out all the intermediaries

E-commerce model

Enables consumers to order customized and quality products at relatively lower costs

Products are made-to-order, thus keeping ‘zero’ inventory

ZeroInventory

Manufacturing process responds positively to end-user needs

• Key facts about C2M

End-userneeds

Source: Fung Business Intelligence

Customized

orders

41

Customized wardrobe for menswear

Case: Ybren.com

How it works

1. Make appointments online or by call for free on-site measure services

2. Meet with professional consultants at home and take body measurements for accurate fit

3. Pick favourite style and fabric to customize the clothes; professional consultants help define and finalize final style and details

4. Custom clothing delivered home around 10 days after placing the order, with one-year after-sales support

Price range T-shirts: 199 yuan – 1,080 yuanShirts: 199 yuan – 1,880 yuanPants: 299 yuan – 1,899 yuanSuits: 1,199 yuan – 2,299 yuan

(From the company’s website accessed in May 2019)

Founded in 2014 in Hangzhou, Ybren.com is a domesticmenswear C2M custom clothing company. It offers made-to-ordermen’s clothing including suits, T-shirts, shirts and pants through itsonline and offline channels. Operating an online platform plus 47brick-and-mortar stores, the company pairs up with local andforeign factories and has over 700 wardrobe consultants to offerdoor-to-door tailoring service across 140-plus cities in China,serving over 9 million customers.


Ybren’s online platform

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Mobile app for bespoke suit service

Case: Cotte Yolan How it works

1. Make appointments for on-site measure services or walk into the company’s service buses for express 3D measurement

2. Meet with personal wardrobe consultants and take measurement for accurate fit

3. Pick favourite style and fabric to customize the clothes; wardrobe consultants help define and finalize final style and details

4. Custom clothing delivered home around 7 days after placing the order, with 30-day after-sales guarantee

Price range Shirts: 399 yuan – 2,399 yuanVest: 780 yuan – 13,980 yuanPants: 1,000 yuan – 18,000 yuanOvercoat: 3,980 – 26,800 yuan Suits: 1,980 yuan – 38,800 yuan

(From the company’s website accessed in May 2019)

Founded in 2007, Cotte Yolan is a C2M custom clothing companylaunched by Qingdao-based formal wear manufacturer Kutesmart.Backed by Kutesmart’s 3,000-employee and a 3D printing smartfactory, Cotte Yolan incorporates 3D scanning technologies intotheir tailoring process, enabling the company to obtain accuratemeasurements and produce better-fitting clothing. Operating anonline platform plus 7 physical stores, the company partners withworld-renowned clothiers and offers custom suit service for menand women.


Cotte Yolan’s mobile app, June 2019

OFF-PRICE RETAIL GROWS FAST

Appealing to both apparel players and consumers

A win-win solution for brands and consumers

44

Excess inventory is a challenge for almost all apparel players inthe market. Increasing numbers of apparel brands and retailersare partnering with off-price retailers online and offline to get ridof their leftover inventory, contributing to the growth of off-pricefashion retailers. Featuring best deals on quality products, off-price retailers are becoming increasingly appealing to consumerstoday, who are now more quality-driven and demand productsthat are value for money.


45

S2B2C online distribution app for off-price apparel products

Case: Aikucun

Founded in 2017 in Shanghai, Aikucun is an online distribution app foroff-price apparel products. Through partnering with 5,000-plus apparelbrands worldwide, Aikucun has established an innovative supplier-to-business-to-customer (S2B2C) business model, which enables thecompany to connect brands (upstream suppliers) with product distributors(downstream businesses), who connect with customers via WeChat.

Currently, Aikucun works with over 1 million distributors, with more than40 million hot fashion items sold through the platform so far. As ofDecember 2018, Aikucun’s GMV topped 3 billion yuan, a drastic increasefrom 10 million yuan for the first month of its launch in September 2017.Aikucun has already raised around 1.5 billion yuan since its launch,including 100 million yuan from a Series A funding round led by Easternbell Capital in September 2017; US$110 million from a Series B+ fundinground joined by Sinovation Ventures, GGV Capital, BA Capital and UnitedMedia FoFs, among others. In November 2018, the company also set up a40,000-sqm supply chain management center in Zhenjiang with a view toreducing supply chain lead times and enhancing logistics efficiency.


(Photo source: Aikucun.com)

46

S2B2C online distribution app for off-price apparel products

Aikucun’s S2B2C model

1. Purchasing inventory – Aikucunpairs up with 5,000-plus apparel brands worldwide

2. Connecting brands with distributors (who could be people from different walks of life, such as shop owners, white-collar workers, college students and full-time mothers) –through Aikucun app, distributors receive information of brands and products available

3. Connecting with customers –distributors deliver product messages to customers – followers and friends on their WeChat accounts, while customers can place orders with the distributors

4. Delivering orders – after receiving orders from customers, distributors arrange order delivery with Aikucunand earn agency margin, running no risk of bearing inventory


1

2

3

4

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O2O discount fashion retailer

Case: Dadacang

Founded in 2019 in Shanghai, Dadacang is an O2O commerceplatform featuring discounted apparel items. As an O2O retailer,Dadacang reaches out to its customers online and offline throughDadacang mobile app, Dadacang WeChat Mini Program and its fourphysical stores in Jiangsu, Anhui and Shanghai. By tying up withover 5,000 domestic and foreign brands, the retailer offersdiscount of up to 70% - 90% off for millions of apparel items,covering menswear, womenswear, childrenswear, sportswear,footwear and accessories.

More than carrying fashion items, Dadacang also offers cosmetics,jewelry, consumer electronics, household and food products.According to the company’s website, brands currently inpartnership with Dadacang includes Adidas, Nike, Michael Kors,Kate Spade, Longchamp, Gerber, Semir, Metersbonwe, Swarovski,Pandora, L'Occitane, Philips and Zwilling J. A. Henckels, amongothers.

Dadacang’s Anhui branch

Dadacang’s Jiangsu branch Dadacang’s WeChat Mini Program

Dadacang’smobile app


Dadacang’s mobile app, July 2019

“PLUS-SIZE” FASHION MARKET GETS BIGGER

A growing plus-size population fuels demand for fashionable options in larger sizes

Rising demand for chic plus-size clothing

49

Despite a relatively low prevalence of obesity in China comparedwith many western countries, the sheer size of China’s populationprovides ample opportunities and potential for the plus-sizeclothing segment. Considering the growing demand for morefashionable options in larger sizes, some plus-size retailers areinvesting in plus-size collections or offering stylish clothing in abroader range of sizes in a bid to satisfy plus-size customers’rising demand for trendy clothing and capture new customers.

(Photo source: Unsplash.com)

Overweight population

Men> 43 million

Women > 46 million

• Currently home to nearly 1.4 billion people, China is the most populous country in the world. Despite the relatively low percentage of obese people, the huge population has easily made China one of the countries with the largest overweight population in the world – over 43 million men and 46 million women in China are overweight/ obese, or around 10.8% of men and 14.9% of women, according to a study by U.K. medial journal The Lancet.

50

Total population ~1.4 billion

= 10.8% of men in China

= 14.9% of women in China

Ample opportunities for plus-size clothing


51

Providing inclusive sizing to fulfil unmet consumer needs

Taking notice of the growth potential in the plus-size market, many apparel players have stepped uptheir efforts to address unmet consumer needs byadopting inclusive sizing spanning XXS to 3XL/4XLin their products.

For example, Nike’s China online store is offeringsize XXS to 2XL for their womenswear items andsize XXS to 4XL for their menswear items. Its Chinacounterparts including Anta, Li Ning and Xtep arealso offering plus-size clothing, such as 3XL forwomen and 4XL for men, with some menswearproducts by Li Ning even up to size 5XL.

Nike’s China online store offers womenswear in size 2XL

Li Ning’s online store carries menswear in size 5XL


(Photo source: Nike.cn)

(Photo source: Lingling.com)

Some plus-size retailers are offering stylish clothing in a broader range of sizes to meet consumers’ heightenedexpectation. Offering various plus-size clothing styles to fit customers with different body shapes, some best-selling plus-size brands are able to accumulate hundreds of thousands of followers and earn nearly 100 million yuan a year.

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Expanding product offerings to win over plus-size customers

Case: Muzi Lixiang

Founded in 2010 in Beijing, Muzi Lixiang is an online oversizewomenswear brand on Taobao. Targeting female customersweighing 200-270 pounds, the brand offers clothing itemssizing 2XL to 5XL, covering tops, dresses, pants, innerwearand accessories. To better understand and provide betterservices to its customers, all of Muzi Lixiang’s staff weigh atleast 200 pounds, including the founder of the brand Li Xiang,who also serves as the brand’s plus-size model and influencer.Muzi Lixiang had nearly 950,000 followers on Taobao as ofJuly 2019 and generated about 100 million yuan in sales in2018.

Price range (mainly summer items)Tops: ~60 yuan – 190 yuanDresses: ~90 yuan – 180 yuan Pants: ~60 yuan – 160 yuan Innerwear: ~20 yuan – 130 yuan Accessories: ~20 yuan – 70 yuan

(From Muzi Lixiang’s Taobao store accessed in July 2019) Muzi Lixiang’s online store on Taobao


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Plus-size brands featuring unique design

Case: Garden Lis

Founded in 2018 in Beijing, Garden Lis is a plus-size retailerfeaturing unique design plus-size clothing for women.Targeting female customers aged 25-35 weighing 170-240pounds, Garden Lis offers clothing items sizing XL to 5XL,covering tops, dresses, pants and innerwear. Currently, it has217 self-operated and franchise stores in China and marketsits products online through launching on Tmall, WeChat MiniProgram and Xiaohongshu.

Considering the higher demand for plus-size clothing inNorthern China, Garden Lis has already expanded intoQingdao and Inner Mongolia and planned to ramp up its storenetwork in the northern region, with a focus on second-tiercities. In May 2018, Garden Lis completed a multi-million-yuanfunding round led by local angel investor Tisiwi.

Garden Lis’s Tmall store

Price range (mainly summer items)Tops: ~80 yuan – 280 yuanDresses: ~120 yuan – 370 yuan Pants: ~100 yuan – 370 yuan Innerwear: ~30 yuan – 50 yuan

(From Garden Lis’s Tmall flagship store accessed in July 2019)


One of Garden Lis’s specialty stores in Qingdao(Photo source: 36kr.com)

54

Selected examples of plus-size menswear/ streetwear brands with over 100,000 followers on Taobao

胖胖哥

Panmax

Asura

纺布者

Jpkthepangstyle

IM铁人制品

半墨

Pmao

大依无忧

1,910,000 followers*

452,000 followers*

278,000 followers*

234,000 followers*

145,000 followers*

4,690,000 followers *

637,000 followers*

250,000 followers*

5,754,000 followers^

~20-160 yuanprice range

~100-1,000 yuanprice range






189,000 followers*



*Number of followers on Taobao as of July 2019~Price range from the brands’ Taobao stores accessed in July 2019


M&A CONTINUES AT ELEVATED LEVELS

Joining forces with foreign counterparts to create synergies and value

Creating synergy and value in M&A

56

Increasing numbers of major local apparel companies haveconducted mergers and acquisitions (M&A) with their foreigncounterparts as a way to boost their market share and brandinfluence, expand market presence and enhance their supplychain capabilities.


Acquirer Target Date Transaction amount

Details

Xtep E-Land Footwear USA Holdings Inc., the parent company of American footwear brands - K-Swiss, Palladium and Supra

May 2019 US$260 million Xtep announced that it has entered into a share acquisition agreement with E-Land World Company, Ltd. and E-Land USA Holdings Inc., subsidiaries of South Korea’s fashion giant E-Land Group, through its wholly-owned subsidiary. Xtep will acquire 100% stake of E-Land Footwear USA Holdings Inc., the parent company of footwear brands including K-Swiss, Palladium and Supra, for US$260 million in an all-cash deal (approximately 1.75 billion yuan). The acquisition will be funded by internal funds and is expected to be completed by the end of July 2019.

Koradior Keen Reach, a fashion group wholly owned by Hong Kong-based investment firm Apex Noble

March 2019

HK$2.4 billion China’s womenswear retailer Koradior announced plans to acquire the entire issued share capital and shareholder loans of fashion group Keen Reach from Hong Kong-based investment firm Apex Noble for a total consideration of approximately HK$2.4 billion, of which US$500 million will be paid in cash and approximately HK$1.9 billion will be financed by the issue and allotment of 199 million consideration shares at the issue price of HK$9.5 per share. As of March 2019, Keen Reach owned fashion brands Keen Reach and Extra Wisdom, along with high-end womenswear subsidiaries – Shenzhen Aoruina and Shenzhen Naersi.

57

Selected M&A cases in China’s apparel sector, 2018 – 2019



Details

Anta Amer Sports,a Finnish sporting goods company

March 2019 4.6 billion euros A consortium led by Anta Sports finished the acquisition of more than 90% of the issued and outstanding shares and voting rights of Finland’s Amer Sports for 4.6 billion euros.

FosunGroup

Tom Tailor, a German clothing brand

February 2019

N/A In February 2019, Fosun Group announced a takeover bid for German clothing brand Tom Tailor. Fosun raised its stake in Tom Tailor to 35.35% from 29% by acquiring new shares issued by the German company; the acquisition lifted Fosun’s stake over 30% threshold that triggered a mandatory takeover offer under German law.

Trendy (China) Group

Denham, a Dutch denim firm

January 2019

N/A Trendy (China) Group Co.,Ltd., the parent company of domestic apparel brand Ochirly, officially sealed an equity purchase agreement to acquire a majority stake in high-end denim firm Denham Group B.V. According to the agreement, Trendy Group will acquire all the stake of Denham Group B.V. held by Amlon Capital B.V. Following the acquisition, Denham’s founder Jason Denham will continue to hold stake in Denham and to be the chief creative officer of the brand, while Trendy Group’s senior vice president Andre Chen will serve as the new CEO of Denham.

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Details

La Chapelle Naf Naf SAS, a French fashion retailer

November 2018

35.3 million euros La Chapelle announced to indirectly acquire the remaining 60% stake in Naf Naf SAS, a fashion retailer under French fashion group Vivarte SAS, for 35.3 million euros (approximately 278 million yuan) through its wholly-owned subsidiary. The move came after LaChapelleacquired a 40% stake in Naf Naf SAS for 20.8 million euros (approximately 160 million yuan) in April 2018.

Semir JWU, LLC, the parent company of New York-based designer brand Jason Wu

September 2018

US$ 5 million Semir announced to subscribe for 7.1 million shares of Jason Wu’s parent company JWU, LLC. for a total of US$5 million (34.73 million yuan). Upon completion of the investment, Semirwill hold an 11% stake in JWU, LLC. Meanwhile, Semir will also establish a joint venture with JWU, LLC. It will invest 45 million yuan into the JV, which accounts for 75% of the registered capital. The JV will operate in China, Hong Kong and Macau for the brands including Jason Wu, Grey Jason Wu, and other related brands developed by JWU, LLC. in the future.

Semir Kidiliz Group, a French childrenswearfirm

May 2018 110 million euros Semir announced to acquire all the assets of French childrenswear group Kidiliz Group for 110 million euros through its wholly-owned subsidiary Semir International Group (Hong Kong) Co., Ltd. Upon completion of the transaction, Semir Group will take over the entire Kidiliz Group with the support of its management.

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Details

ShangdongRuyi Group

Aquascutum, a British trench coat maker

March 2018 US$117 million Shangdong Ruyi Group acquired British trench coat maker Aquascutum from Hong Kong’s YGM Trading for US$117 million. Ruyi Group said that acquisitions help the group to expand in the high-value-added part of the value chain by possessing more downstream retail resources. Previously, Ruyi Group acquired three emerging affordable luxury brands Sandro, Maje and Claudie Pietro.

FosunGroup

Wolford, an Austrian luxury lingerie brand

March 2018 55 million euros Fosun Group announced to acquire 2,543,700 shares of Austrian luxury lingerie brand Wolford for a total of 55 million euros (about 430 million yuan), which is equivalent to the total share capital of about 50.87% at a cost of about 32.56 million euros and provide up to 22 million euros as part of a capital increase.

ShangdongRuyi Group

Bally, a Swiss luxury brand

February 2018

N/A JAB Holding Co, the parent company of Swiss luxury brand Bally announced that Shandong Investment, the investment arm of Shandong Ruyi, agreed to acquire the majority stake of the Swiss luxury brand, and JAB will retain a minority interest in the company. Although the two sides have not disclosed any details of the deal, but insiders revealed that the transaction value will be about US$700 million. According to JAB, Shandong Ruyi will keep Bally's Swiss headquarters and the brand’s operation will remain independent.

ELLASSAY IRO, a French fashion brand

January 2018

1.2 million euros ELLASSAY announced that it has signed an Equity Purchase Agreement and an Exclusive Sales Agency Contract with IRO SAS, the major shareholder of French fashion brand IRO. ELLASSAY will acquire 80% of IRO’s stake by investing 1.2 million euros, and will have the exclusive sales right of IRO in China.

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MORE ABOUT CHINA APPAREL MARKET

For information about overview and competitive landscape of China’s apparel market

Please read Part 1

https://www.fbicgroup.com/sites/default/files/Apparel_Industry_Series_2019_Part1.pdf

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Though the Fung Business Intelligence endeavours to have information presented in this document as accurateand updated as possible, it accepts no responsibility for any error, omission or misrepresentation. Fung BusinessIntelligence and/or its associates accept no responsibility for any direct, indirect or consequential loss that mayarise from the use of information contained in this document.

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