If any country was likely to be vulnerable to a collapse in sales from a global recession it was export-oriented China. The fact remains, however, that China’s textile and clothing industry is still in reasonable shape.
According to figures from the Chinese government Bureau of Statistics, clothing exports decreased 11% in value over the course of 2009, with footwear exports falling 5.7% and textiles 8.4%.
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Job losses caused by this decline have been immense and have been estimated at around 10m jobs by the International Textile, Garment and Leather Workers Federation (ITGLWF) – clearly the most significant unemployment numbers in the world, even though, as several analysts point out, it is a figure difficult to verify.
For many other Chinese manufacturers, cutting their labour force and waiting for international orders to rise, has been a common phenomenon. Qiu Yang, assistant of sales department at Shanghai Tianhong Knitting Hat Co Ltd, a hat and scarf manufacturer whose clients are mainly from the US, said its orders dropped a substantial 20% in 2009 from the previous year.
“We keep firing our workers,” she said. “What else can we do?” According to Ms Qiu, orders usually start to pile up from April to October, but that was not the case in 2009 or 2010. Yet, the company has no intention of seeking new clients at the moment.
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“We hope our clients’ business will recover soon, so we will get big orders again,” Ms Qui confessed.
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By GlobalDataShorter lead-times
But this actually may not happen, because the crisis has changed many of the rules in the fashion industry. For example, as the recovery beds in, foreign retail companies – having been burned commercially last year – are showing a greater awareness for the benefits of quick market access and short lead-times to meet their new demands.
Essentially retailers know the recovery is fragile, and do not want to gamble on a large contract with a four month delivery time.
Beth Hanson, a spokesperson for Target Corp, the Minnesota-based American retailer, said: “The resulting impact is that guests [customers] continue to focus on value and are shopping much closer to the moment of need,” adding it is vital to their sourcing team to choose the right suppliers to “meet our guests’ expectations.”
She continued: “We evaluate the mix of countries from which we source, and adjust for many factors, including production quality and capacity, speed to market and pricing.”
Having already survived previous economic collapses, Target is now choosing to only deal with suppliers who can provide flexibility and short lead-times, said Hanson.
And Target is not alone. According to Inditex Group, the Arteixo-based Spanish fashion retailer that runs the popular global clothing stores Zara and Bershka, Chinese manufacturers provide less than 12% of its products while over 60% are from vendors in Spain, Portugal, Morocco and Turkey. Inditex says sourcing in proximity is one of the key characteristics of its business model and it will not change in the near future.
However, as bad as this sounds for China, these figures could have been a lot worse.
China’s market share of global textile and clothing sales has been steadily increasing over the last 30 years, from a market share of just 4% in 1980 to 33.2 % in 2008 according to the WTO. And the wealth generated by this trade, along with the artificial weakness of the Chinese Yuan, has inevitably created a strong domestic market.
Both urban and rural disposable income has been steadily increasing in China over recent years, and although this increase flattened out last year thanks to the recession, domestic clothing sales increased by 20.8% in 2009 according to the Chinese Bureau of Statistics.
Local market buoyant and stable
This for market analysts illustrated what Chinese manufacturers have long been realising in the face of slumping overseas demand: that the local market is not only buoyant and stable, but capable of filling a significant revenue gap caused by a fall in exports.
Purse maker, Shanghai Qianpa Suitcases & Bags Co Ltd is just one Chinese manufacturer considering a new business strategy. Last year when its foreign clients, most of who were from Canada and the US, drastically cut back on long-term orders to reduce inventory exposure, the company saw an increase in the number of orders from their domestic clients.
“We were not affected that much and no one was fired,” Ryan Peng, a salesperson for Qianpa claimed to just-style.
Interestingly however, these domestic orders have still had international linkages, being mostly promotional gifts from the Chinese operations of multinational companies, such as Elle magazine, the Swiss pharmaceutical company Novartis and Folli Follie, the Greek jewellery retailer.
“This year, as the economy is slowly picking up, we are expecting more exports while still focusing on our Chinese clients,” said Peng.
According to Zheng Chen’ai, president of Wenzhou-based Ao Ben Ni China Garments Co Ltd: “It’s time for Chinese manufacturers to seek new business models rather than wait for foreign orders.”
Suit maker Ao Ben Ni is carrying out a new ambitious plan. Last year, when the orders from its major European clients started to slide away, the company quickly made deals with a number of domestic companies.
“Suits are not so popular in China as in Europe, but the market has started to grow, though not significantly,” Mr Zheng said. He is even looking at diversifying into imports – talking with an Italian client, trying to get exclusive authority to sell their Italian-brand suits in China.
And Chinese firms have not been alone in recognising the potential of a growing and ever more affluent middle class in China. Italy-based Benetton now has four stores in Beijing and five in Shanghai, while Sweden-based H&M has nine in Shanghai, five in Beijing and another dozen stores scattered through cities like Nanjing and Guangzhou.
Other global brands like Spanish-based Zara and Japan-based Uniqlo have also increased their presence in the Chinese market.
Luxury foreign brands
According a December 2009 market report by global traders Li and Fung, luxury foreign brands have also performed very strongly with groups such as Moët Hennessy – Louis Vuitton (LVMH Group), Richemont and the PPR Group an increasingly important presence in the country.
“As Chinese luxury consumers favour brands that can easily be recognised, super-brands such as Louis Vuitton, Chanel and Gucci have a stronghold. Besides, China’s luxury apparel market is predominately male-driven; male-oriented luxury players have extensive footprints in the country and enjoy tremendous success,” said the report.
All major global manufacturers have offices and in most cases logistical hubs in China, giving them the flexibility to respond to the Chinese market that less fortunate Chinese manufacturers have lacked regarding European and American markets.
Indeed, after H&M’s recent expansion into Asia, 66% of its products are now exported from Asian manufacturers, said a company spokesman.
And of course, if western retailers can be smart in building logistics and distribution hubs that are close to China’s growing retail market, the really smart Chinese players can do the same in Europe and the USA.
Ao Ben Ni’s Zheng recently visited the US to do some market research. To his surprise, debt-laden American men still want to spend money on suits. With this in mind, Mr Zheng said a new sales office would be set up in the US to help them reach local clients.
“We are also building a business to business (B2B) website, in the hope of selling our own suits. It’s time to change” from outsourcing to designing and manufacturing, he said.
By Lee Adendorff in Lucca, Italy; Wang Fangqing in Shanghai; and Paul Cochrane in Beirut.
