Asia Gravitates to Cheap Chic

April 22, 2013, 2:29 p.m. ET

Asia Gravitates to Cheap Chic

By MARIKO SANCHANTA in Hong Kong and LAURIE BURKITT in Beijing

Move over, luxury brands. For the first time in Asia, inexpensive retailers such as Zara and Uniqlo chains are growing at a faster pace than their high-end counterparts, reflecting a shift in consumer tastes and the growing dominance of “fast fashion” globally.

As China’s middle class has grown, so too has the demand for brands and stores that reflect its budget. Chen Jing, a 20-year-old in Beijing who makes 3,000 yuan ($485) a month working at a restaurant, said she regularly shops at H&M and Inditex SA’s ITX.MC +0.05%Zara. “I shop for style and look for popular brands,” Ms. Chen said.

In terms of new entrants and brands to the retail market, midrange fashion retailers are now expanding at a faster rate in Asia than luxury brands, according to a report to be released this week by CBRE, a real-estate services firm.

“This is the first time this has happened,” said Sebastian Skiff, executive director of CBRE Retail in Asia. “It’s only natural that after being here for so long [the luxury retailers] are likely to grow at a slower pace.”H&M and Zara are known for cheap-chic fashion items like $20-$75 dresses and $10 accessories, in contrast to the high-end luxury items that cost hundreds, if not thousands, of dollars.

As a consumer market, Asia is more important than ever: It has leapfrogged the U.S. to become the world’s biggest retailing market, with regional retail sales rising to $3.8 trillion in 2011, or 41% of the global pie, from $3.2 trillion in 2006, or 31%, according to Canadean, a market-research firm.

Another notable trend is Asia’s embrace of homegrown brands. Fast Retailing Co.’s9983.TO -1.90% Japan-based Uniqlo is now the largest apparel chain in Asia, where it is opening an average of two new stores a week.

Korean lingerie brands such as “Sexy Cookie” and clothing chains such as “Love n Show” are quietly popping up throughout Asia—particularly Singapore and China—as the popularity of Korean pop culture and fashion spreads through the region.

Much of the retail expansion in previous years has focused on the luxury sector, driven by Chinese businessmen and government officials’ gift-giving habits and appetite of for expensive baubles. The number of luxury stores in China has nearly doubled over the past five years, according to estimates from brokerage CLSA Asia-Pacific Markets.

But some luxury companies such as LVMH Moët Hennessy Louis VuittonMC.FR -1.18% and brand Gucci, owned by PPR SA, PP.FR -0.81% say they are hitting the brakes on opening new stores in China.

Gucci said this year that it is slowing the pace of its store openings in the country, where it has 56 stores. A spokeswoman declined to offer more details. The focus is shifting to renovation and refurbishment of existing stores, she said.

Meanwhile, younger Chinese shoppers have more disposable income than their parents did years ago and are more willing to spend it on freshening up their wardrobes. Sales of clothing and apparel are projected to exceed 800 billion yuan, or about $130 billion, by 2015, nearly doubling from 460 billion yuan in 2011, according to Boston Consulting Group. China is poised to account for 30% of the global fashion market’s growth in the next five years, the firm estimates.

Shoppers like Shao Wenbi, a 24-year-old market researcher in Beijing, want the latest trends. Mr. Shao said he typically shops at Swedish chain Hennes & Mauritz AB’sHM-B.SK +0.97% H&M to buy casual wear or clothing for the office. “We’re all looking for what’s new,” Mr. Shao said, adding, “No one wants to look out-of-date.”

People in China no longer “need to drip in brands—they want a relative amount of uniqueness,” says Mr. Skiff of CBRE. “There is a lot of opportunity in China with value brands—and a lot of competition there.”

He added that the boom in technology and fashion blogs is fueling a desire for trend-based dressing, rather than focusing on luxury brands and logos.

Companies such as Gap Inc. GPS -0.92% are taking note. Executives of the San Francisco retailer recently announced plans to expand their operations in China, adding 35 new Gap branded stores to their existing 47. Executives also said they would consider adding company-operated Old Navy and Banana Republic stores in the world’s second-largest economy.

Gap’s China president, Jeff Kirwan, said the company is optimistic about growth in China, as Chinese consumers are eager to learn about global brands and have a strong appetite for American style. Chinese consumers today are also more progressive than their parents and “have had greater opportunities to travel internationally and are knowledgeable about brands, good customer service and inviting shopping environments,” Mr. Kirwan said.

German sportswear maker Adidas AG ADS.XE +0.13% has been rolling out more fashion options, like $3,100 fur-trimmed leather trench coats and high-heeled tennis shoes, to cater to the growing number of Chinese fashion divas. Adidas is stocking many of its China outlets with its lower-end NEO brand, making sure Chinese consumers get their fix of red skinny-fit jeans, fashion ponchos and button-down gingham shirts.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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