Is China's Fashion Industry Recovering After COVID-19 Lockdowns Lifted? – WWD - WWD

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No one wants to miss the opportunities from China’s reopening. At the end of 2022, most COVID-19 restrictions were lifted, sparking a new phase of recovery as the Chinese economy, including the fashion industry, hopes to bottom out. Yet both consumer psychology and market demand have changed dramatically. When will business be back to normal and will Spring Festival travel now underway generate strong spending? Can the fashion market bounce back?

“Recovery” was a word repeatedly mentioned over the past three years. However, the full recovery — from consumption to the supply chain — may actually take three more years. What stage is the fashion consumer market represented by luxury goods in before the real recovery comes? Is the footwear supply chain in China, a major footwear manufacturer, ready for a rebound? What situations are local fashion companies in China facing?

Chinese New Year strongly boosts luxury consumption in many parts of the country. In fact, even with the weakened consumer market due to the pandemic in 2022, the luxury industry was hit the least. Despite price hikes, out-of-stocks and queues, the nation’s second- and third-tier markets were seeing a wave of luxury store openings and the accelerated arrival of fashion brands.

According to an analysis released by Barclays bank, the Chinese luxury market may recover faster than expected. Significant growth will emerge as soon as the second quarter of 2023 and an annual growth rate of 15 percent is possible, higher than that of the global luxury market average of 9 percent, the bank estimated.

A second-quarter increase is also expected in global textile and apparel demand. According to the 2022 Trade and Development Report published by the United Nations, global economic growth is expected to slow further to 2.2 percent in 2023. Demand for textile and apparel weakened as the economy entered a downward cycle. But the current situation provides an important window for textile companies to clear their excess inventories. As a result, an increase in downstream demand is expected to begin in the second quarter of 2023.

But what about the first quarter? How can firms stabilize quickly before they are able to return to growth? This is a must-answer question for every fashion company deeply involved in the Chinese market.

Can fashion retail bounce back during Chinese New Year?

With policy adjustments and consumer activations, a “recovery” is being seen in almost every business center in China with people hustling and bustling, and almost every city regaining its former vitality. Festive-themed events and art displays also attracted the crowds late last year, whether it was the Pixar-themed Christmas tree at Grand Gateway 66 in Shanghai or the fantasy journey to the forest and new beauty collection at IFS in Chengdu, where jumping colors brought a fairy-tale atmosphere to the winter.

Suzhou, a city once known as the “factory of the world,” is quietly changing. A new commercial complex is having its debut. Dong Jianfeng, general manager of the Suzhou Renheng Commercial Center, told WWD China: “It is time for the real economy to make precise planning for the real ‘recovery,’ to really get out of the haze of the pandemic and start a new stage of development.”

Yet there is no shortage of challenges. According to Xu Wenjun, the director of the TX Huaihai/Youth Power Center mall in Shanghai: “The overall policy adjustment for this recovery has really made us feel different from before. But likewise, the challenges that come with it are also completely different.”

Market confidence has been hit hard and many brands are facing economic pressure. Most companies are still in a wait-and-see and adjustment phase. Therefore, instead of focusing on the recovery, firms should focus more on the adjustment.

A spokesman for Yintai Commercial, which operates more than 100 department stores and shopping centers throughout China, expressed a similar view: “Policy changes will not necessarily bring a huge boost in a short period of time, but the real economy may face a round of elimination and reshuffling, ushering in the birth of ‘new species.'”

External facade of Chengdu IFS building.

In fact, almost all retail commercial entities have been continuously adjusting over the past three years in China. They are always under pressure and are highly attentive to the market and consumer sentiment. Take TX Huaihai as an example. As the first curated retail commercial space in China, the mall’s efforts to regain vitality revolve around the multicultural lifestyle that young consumers seek.

How can China’s supply chain, including footwear companies, find new growth?

China is a very important market for the producers and distributors of footwear worldwide. The shutdown of supply chains and sales networks during the pandemic seriously impacted international brands. With the rapid development of emerging markets in Asia-Pacific, part of the supply chain relocated.

But it is undeniable that the turmoil of the past three years has also provided relatively ample opportunity for small and medium-sized footwear brands. In a market where the whole industry is looking forward to recovery, will the Chinese supply chain represented by footwear see new momentum?

A spokesman for A.b. Poetique, a Chinese independent footwear designer brand, told WWD China that it is important to remain objective in the face of a possible recovery. He believes that China’s footwear market will see a wave of increased consumption after the New Year or at the beginning of April.

Maximus Lu, the owner of Tsubo, another high-end lifestyle and fashion footwear brand, believes that China has one of the most complete supply chain systems in the world, where it is possible to have a good design, a good sales system and have production done completely locally. From design to production to sales, it is an irreplaceable advantage to have a very complete and stable supply chain system in the same country.

But he also provided a more important insight: “In fact, the market is still uncertain, so you need to find the most suitable development path in your own field. Many brands are focusing on the ‘Chinese market’, but there are indeed many markets in China, such as the southeast and northwest. Each market has its own climate and culture…brands need to find the right region, right customers and the right climate for themselves and then expand step by step.”

In the process of expansion, brands need to pay extra attention to the sustainability of the supply chain, from raw materials to production models, specifically to wastewater treatment and waste recycling, and to the constant search for sustainable technological innovations. A healthy recovery, like long-term development, needs to be built on the basis of environmental protection and transparent and equal consumer interaction.

Are China’s local brands better positioned to seize the opportunity?

Up to now, Chinese communities have been relatively cautious about the trend of the global economy as well as the growth rate that the Chinese economy will achieve in 2023. How to find certainty amid uncertainty?

Private enterprises are regarded as the “roots of the Chinese economy.” It’s believed that “in terms of quantity, volume and quality, the private economy has grown and flourished into a pillar of the national economy in China, and should be called the ‘root economy’.” The majority of China’s local fashion enterprises are privately owned, which are the pillars of the industry and the “roots of the Chinese economy.” Will they have the opportunity to be one step ahead when the whole world is competing for the dividend of reopening?

At the end of 2022, the Chinese government issued the Outline of the Strategic Plan for Expanding Domestic Demand (2022-2034), emphasizing the need to firmly implement the strategy of expanding domestic demand and cultivating a complete domestic demand system, while the pace of recovery will gradually be accelerated with the shift in pandemic prevention and control policies. And a certain consumption rebound is expected in the large consumer market.

With 43 years of history, the Chinese jacket brand K-Boxing has made its positioning and advantages clearer and prepared a comprehensive development path based on this background — the value of high-end brands is reflected more in the exclusive experience of high-quality products and services than in price or channels. Despite the growth in online retail, K-Boxing is creating a model that meets its own characteristics, mainly offline retail with a high-end service experience. With seasonal stores on Tmall and TikTok being opened and emotional communication with consumers to drive online retailing, K-boxing realizes the link between online and offline sales. It shared with WWD China that this proportion would not change essentially, but the structure would continue to be optimized in 2023 and it would continue to improve, explore and innovate.

The Year of the Rabbit jacket design by K-Boxing.

While targeting the domestic market, a large number of Chinese brands are also striving to show their determination to explore the international markets by participating in international events such as the Winter Olympics and the Tokyo Olympics. For example, Hengyuanxiang participated in the Tokyo Olympics and Paralympics soon after the Beijing Winter Olympics.

The resilience of the fashion industry makes it more capable of breaking through in the face of crisis. But it is undeniable that the world landscape has changed dramatically. Even now, with all parties agreeing that China’s economy could see a rapid rebound and the industry will recover in a gradual manner, there is still a different voice: 2023 is the beginning of an era of greater uncertainty.

Editor’s note: China Insight is a monthly column from WWD’s sister publication WWD China analyzing developments in that important market.

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