“Doing Business In Greater China Has Become Very Expensive”
Abercrombie & Fitch opened its inaugural Hong Kong flagship on August 11, 2012
Abercrombie & Fitch, Jack Wills, and COS are just a few of numerous mid- to high-end Western brands to open stores (and offices) in Hong Kong last year, with iconic British brand Topshop slated to follow suit this May – albeit without the Topman section. But for newcomers, will 2013 prove to be one year too late?
Whether hoping to tap into the local market or merely establish the brand in consumers’ minds before expanding into mainland China, large retail groups and smaller brands alike typically invest heavily in expensive retail spaces (in Causeway Bay, Pacific Place or even worse, on Pedder Street) and large-scale PR campaigns.
It’s no secret that they won’t recoup their costs anytime soon — some actually never planned to. Yet hopeful brands continue to flock to the city, to the great joy of real estate companies, media groups and PR firms.
From production to marketing, doing business in Greater China has become very expensive. The cost of finding and retaining quality personnel, manufacturing locally (at a certain standard of quality and ethics) or importing goods into the Mainland, and securing the best retail spaces are all on the rise.
Spiraling costs would not be too much of an issue if they were balanced with higher sales and/or comfortable margins. Yet competition is fierce among brands, to the point where collections seem to always be on sale. The growth of domestic consumption is slow and the current RMB-USD exchange rate doesn’t help much, pushing top spenders to shop abroad rather than at home.
COS launched in Hong Kong last year
Most of the fashion brands that are successful in the Chinese market today actually launched their China operations years ago: Zara in 2006, French group Etam in 1994, Montagut in the 1980s — and the window of opportunity may well be closing, at least temporarily.
Other countries in Southeast Asia have long been overlooked in favor of China owing to its compelling double-digit growth figures. Yet Indonesia, Malaysia and the Philippines are booming. For example, Indonesia boasts a population of over 200 million and an annual GDP growth of 6.2 percent. GDP per capita is expected to increase from US$5,000 to $6,482 by 2016. (China was around $9,100 (PPP) in 2012.)
With strong economic development and increasing access to credit for consumers, the retail market is growing in leaps and bounds. It might be time for Western brands to also turn their eyes to these markets.
Cedric Delzenne is the founder of Shop des Créateurs, the first online sales & marketing agency for emerging fashion designers, carefully handpicked from around the world. With a top-notch e-commerce platform and genuine expertise in social media and PR, the Shop helps up-and-coming labels turn the Internet into a brand-building and a revenue-generating tool.
Currently supporting over 50 brands from Asia, Europe and the US, the Shop also organizes and sponsors creative events and design competitions in Hong Kong and beyond.
(Opinions expressed by columnists do not necessarily reflect the views of the Jing Daily editorial team.)