Asia Consumer Market
 

China Beauty Care Sector

Source: "Tapping into the Chinese consumer market" by Export Canada, 31 March 2008

Retail China Limited began its foray into China's expanding consumer market when co-owner Gervais Lavoie acquired the Chinese franchising rights to Quebec-based beauty-care company, Fruits and Passion.

As Lavois and Janet De Silva, company Chief Executive Officer, were overseeing Fruits and Passion's expansion—its 12th store opened in December 2007—they were regularly asked by retail developers if they had other brands. Lavoie and De Silva explored the possibility of applying their approach more broadly and Retail China was born.

A Chinese woman waits in front of a billboard advertising a foreign shampoo brand in Beijing. Many foreign companies, including Canada's Fruits & Passion, are competing for a share of the ever increasing market for personal care products in China. (AP Photo/Greg Baker)

De Silva says Retail China offers a low-risk way for mid-market brands to get established in the Chinese market. Retail China shoulders the financial risks in exchange for long-term rights.

"We've been very pleased with the response so far," says De Silva. "I think we are an appealing partner because international business people like to be able to talk with those who can navigate in China. Gervais has been here 31 years and speaks Mandarin—he is a Canadian with Chinese credibility. We also understand the sort of worries Canadian businesses may have."

De Silva is impressed with the support she has received from the Government of Canada. Through the Trade Commissioner Service in mainland China and in Hong Kong, Retail China has made valuable contacts with Canadian retail chains. And Export Development Canada "combed through its database to identify companies that would be worthwhile for us to approach."

While the market potential is staggering—by 2009, the number of middle-income consumer households is expected to triple to 105 million and reach 612 million by 2017—De Silva says it is important for retailers to recognize the difference between Chinese and North American consumers.

"The most fascinating aspect of the Chinese market is that it is comprised of first-generation consumers - they haven't had an international retail experience before," says De Silva. "With the exception of luxury-brand stores in major cities, the typical experience was an old-fashioned department store, where a customer approaches a clerk at a counter…it was neither engaging nor stimulating. Now they have large discretionary spending and what is known as "aspirational lifestyles"—they are pre-disposed to look at name-brand products."

De Silva says it is important that retail locations have integrity in the minds of consumers, so that they are confident in the product. "If you have a premium-priced product and the mall puts you in a space beside someone selling knock-offs, you are not going to do well. Savvy retail partners understand which brands create the best mix."

And, while brand protection is something that must be given serious consideration, De Silva says she has confidence in the Chinese legal system. "It will support international brands if companies make investments up front to protect themselves. Companies need to approach China like any other market—select their partners carefully and take steps to protect their products."

Just as Chinese consumers are not accustomed to a Western shopping experience, the labour pool has not been exposed to customer service principles. Whenever Retail China introduces a new brand, it immediately hires a brand manager. This person begins by spending time in the home market (Quebec in the case of Fruits and Passion) to gain a full appreciation of all aspects of the brand. On returning to China, the manager uses this understanding to ensure Chinese stores conform to the brand's look and feel and to train the staff who will work there.

Chinese consumers are looking for an international brand and Retail China provides it through labeling, brand protection and ensuring an international retail experience. According to De Silva, "there is a lot to think about because it's a first-generation consumer being targeted."

China Apparel Sector (Shirt)

Source: "Hong Kong shirt giant steps into the Mainland consumer market" by Hong Kong Trade Development Council (HKTDC), 28 March 2008

Esquel Group, shirt manufacturer for big name global brands like Hugo Boss, Lacoste and Marks & Spencer, is turning its attention to the Chinese mainland consumer market. It plans to open up to four stores in first-tier cities this year and 10 within the next three years to tap the demand for high-quality, own brand shirts.

The Hong Kong-based group is already exploring the market with a retail shop in Beijing called Pye, a luxury shirt brand for men and women. The aim is to offer dependable style with quality. Esquel is making the move in tandem with its new strategy to beef up manufacturing bases for its lower-cost shirts in regional locations such as Vietnam, to counter escalating costs in the Pearl River Delta (PRD).

The group's first retail offering on the Mainland is far from low end. On average, each Pye shirt retails in the Rmb800 range. Target customers are urban executives aged 25 or more, looking for quality but confident enough not to be overly concerned with global brand names.

Pye's line for women carries Asian styling accents. This fits with the sizing, fit and colour preferences of Mainland consumers, US and the EU. There are also plans to develop a new line for younger consumers, to expand its targeted approach.

Esquel, which is one of the leading cotton shirt manufacturers in the world, aims to distinguish itself from other OEM/ODM garment manufacturers in its innovative and technically advanced approach to manufacturing, along with an energetic approach to its social and environmental responsibilities.

Celebrating its 30th year, Esquel organised a timely conference in late February: "Achieving Sustainable Development of China's Textile Industry: The Role of Science, Technology and Innovation". The event was aimed at reflecting the group's concerns and strategy for success in the expected global economic slowdown.

Chairman Marjorie Yang urged the audience, made up of customers, suppliers, employees, government officials, NGOs and high profile industry speakers, to work together to achieve sustainable production. "A socially and environmentally responsible approach to business and to life is the road to success with the help of science and technology," she said. "The nature of textile production is a polluting industry; hence we must do our utmost to reduce pollution. There is no time to waste, we must do our best to operate environmentally-sound businesses and practise it with vigour to protect planet earth. In addition, it makes business sense and yields profits," she stressed.

Esquel said it invested over US$50 million in energy and waste-reduction projects in its plant in Gaoming, Guangzhou, installing its own waste water treatment and power plant. Along with state-of-the-art facilities and machinery, the factory maximises natural light in working areas while electric lighting is aimed at both efficiency and power saving. Recently, the group changed its factory lighting to Philips energy efficient tubes. In 2005, the goal was to reduce energy consumption by 30% within three years. By 2007, Esquel estimated it had reached two thirds of its target.

Esquel's in-house R&D department works with the Hong Kong Polytechnic University, the Xian Polytechnic University, Donghua University and the Research Centre at Zhejiang Science and Technology University. There are also alliances with the fabric innovation company Nano-Tex Corporation and the German chemicals manufacturer BASF, to seek the most innovative solutions. Functional products such as stain and oil repellent, wrinkle free and easy iron and stain release apparel were developed to consume less water and energy when washing and ironing.

Technology and responsibility in a consolidating world

John Cheh, CEO and vice-chairman of Esquel, said at the conference that 2007 was a bumper year for Esquel. Total revenue increased by 22%, with strong growth in all product categories. "Despite the weakening US market, we managed to receive full orders for the first half of 2008. This is due to our one-stop-shop service, an efficient operation backed by a total, vertically-integrated operation," said Cheh.

The value of an operation such as Esquel's is in its quality control from fibre to product development, finished product and distribution to the customer's shops, said Cheh.

"The past two years have been years of market consolidation. Buyers are consolidating and so are vendors. Buyers want to work with suppliers that operate [under] corporate social responsibility [criteria] and are environmentally sound. This trend is actually working to Esquel's favour because we have been practicing it all along; hence meeting these needs of the customers are not a problem," he added.

"We cannot hedge the changing world," Cheh continued. "We have to run faster and be ahead of others by being more efficient, be more automated and constantly offer new product development. The strategy is to be equipped with the latest technology to reduce production costs. [This involves] laser cutters, travellers to move the garments from one work station to another, RFID, water saving dyeing machines and drip irrigation. Developing processing that improves fabric and garment performance, such as 'wrinkle free', is also an important part of the strategy."

Cheh said forming partnerships between suppliers and retailers can help eliminate supply chain processes, cut production costs and share benefits with clients.

"The corporate culture at Esquel has always been nurturing and caring for employees. We hope the employees will find meaning in life while working with Esquel, hence [the group's slogan] Partner in Life", explained Cheh.

He said the new Mainland labour law affects the group very little because it has been practicing what the new law requires and more. Esquel believes the new labour law provides a level playing field.

"The recent snow storms [on the Chinese mainland] are a clear example of how [Esquel] looks after its workers who were not able to make the annual trip home for the Chinese New Year," Cheh said. "The dormitories were opened and available for them to stay; the kitchen was opened for them to make their dumplings just like at home, chefs were retained to cook for them and entertainment programmes were arranged as well. This extraordinary weather condition luckily had not affected them too much. Finished goods continued to be exported smoothly."

From OEM operator to multinational

Founded in 1978 by Yang Yuan Loong, Esquel began as a cut-and-sew OEM shirting operator, growing to become a vertically integrated multi-national group.

Becoming chairman in 1995, Marjorie Yang recognised that quality fabrics could only be made from quality fibre and yarn. She expanded Esquel's supply chain upstream to fibre production and geographically northward to Xinjiang Province in northwest China.

The cotton farm in Kashi has increased to 66,000 acres and ginning in Akesu to 10,000 tons of cotton per annum, with spinning mills in Turpan and Urumqi with 120,000 spindles. The group has become the largest non-domestic investor in the region.

Yang is also the founding chairman of the China Association of Enterprises with Foreign Investment (CAEFI), which covers all industries groups. She is especially active in the textile and clothing committee.

Besides China, Esquel's shirt production plants are also in Malaysia, Mauritius, Sri Lanka and Vietnam, while sales and merchandising offices are in London, Lindau in Germany, Tokyo, Beijing, Shanghai, Seattle, Columbus, Madison and New York.

With a workforce of 47,000, the group manufactures 65 million shirts a year, yielding US$650 million in revenues. Its products are WRAP, ISO9001, 14001, OHSMS18001 and 28001 certified.

Esquel's vertical integration includes cotton seed breeding, growing its own cotton, ginning, spinning, weaving, knitting, dyeing and finishing, apparel making, accessories, trims and packaging, as well as branding and retailing.

Knitted fabrics await market. On the Chinese mainland, the group ranks number one in woven and third in knitted shirt exports, serving international brand names such as Polo Ralph Lauren, Hugo Boss, Lacoste, Lands' End, Marks & Spencer, Brooks Brothers, Abercrombie & Fitch, Nautica, Nike, Next, Tommy Hilfiger, Aoyama, Ito Yokado, and Ted Baker.

The US is Esquel's biggest market, representing 58% of its revenues, followed by the EU with 21%. But the growth rate is now higher in the EU, with the group increasing market share.