Exit stage left

There were some unexpected findings in Taobao’s fashion trend report published earlier this year. First, there were more women looking for blazers and suits than men during the first quarter – with the iron-lady, oversized style being the most desirable. Second, lace and translucent items gained favour among men. Third, “loose” is the most searched keyword by women. Fourth, hanfu, the traditional Han Chinese costume, was among the top 10 most looked-up words for both sexes.

The report highlights the extent to which Big Data is giving e-commerce platforms an edge in grasping what consumers want. In a market where tastes rapidly evolve, that’s intelligence that foreign retailers need badly too. As WiC has reported frequently over the past decade many foreign brands have entered China only to misread local conditions and beat a hasty retreat.

Following in the forlorn footsteps of Marks & Spencer, TOPSHOP and New Look, Forever21 is also exiting the Greater China market after eight years in business. The news was little lamented, as Chinese customers had never been too impressed with the American fast-fashion brand.

The Los Angeles retailer – whose target buyers are in their late teens to mid-20s – has been pulling out of foreign markets like the UK, Germany and France since 2016. Its failure in China has its own unique reasons, though.

“While Forever 21 apparel is cheap by international standards, it competed directly with the millions of domestic, low-cost third-party sellers on China’s most popular e-commerce platform: Taobao,” wrote Franklin Chu, managing director of Shenzhen-based e-commerce consultancy Azoya, in Women’s Wear Daily, a trade journal. “These local competitors are better funded, have wide distribution networks, and can better tailor their products to local tastes.”

Examples include Handu Group and Huimei Group, which operate labels that sprouted on Taobao and have subsequently expanded with the backing of venture capitalists and private equity funds. Of all apparel categories, these so-called “Tao labels” saw the highest number of repeat purchases among Chinese shoppers last year, averaging 1.3 buys a month versus fast-fashion’s one per month, according to WE+, Tencent’s digital marketing unit.

The competition has been further intensified by Alibaba’s New Retail initiative, which helps various “Tao labels” establish offline presences through “Taostyle” stores. The first one was unveiled at the Hangzhou Kerry Centre shopping mall, which offers around 350 items from a rotating selection of brands.

Many of these smaller competitors are able to adjust their offerings more quickly to cater to the changing tastes of Chinese consumers, such as switching from jeans and T-shirts to pre-Qing Dynasty hanfu dresses. The so-called ‘hanfu movement’ has seen young people don traditional silky robes in large numbers. Hanfu lovers were at first mistaken for period drama actors. But a number of “Tao labels” have since come up with hanfu-style casual wear. Looking more fashionable, these products have been popularly received, Southern Metropolis Daily noted.

On Taobao there are already 815 hanfu sellers and sales of the garments reached Rmb1.09 billion ($157 million) last year.

Competition from the “Tao labels” is also hurting some of China’s more traditional high street clothes shops. Shanghai-based ladieswear retailer La Chapelle, for instance, closed 1,616 stores across China in the first quarter as its net profit slumped over 94% on the year to Rmb9.75 million, after posting its first annual loss last year. Year-to-date La Chapelle’s Hong Kong-listed shares are down 46% while its Shanghai-listed stock has lost 22%.

The dismal results are partly the result of provisioning for unsold inventories – but also blamed was a spike in borrowing costs brought on by its debt-fuelled expansion over the past few years.

La Chapelle derives the bulk of its income from smaller cities. It is popularly known as “the king of stores” because of the sheer size of its retail network – it was still operating 7,653 points of sales across China as of March even after the recent restructuring (in contrast, Zara’s owner, Inditex, had only 589 Chinese outlets at the start of the year).