Textile Consumer

Winter 2008
Textile Consumer
Chinese Consumer Apparel Purchases

Chinese Consumer Apparel Purchases

China is the world’s leading textile and apparel producer, but as China’s economy rapidly develops, all eyes are focused on the other end of the cotton supply chain—Chinese consumers. China’s middle class (with household incomes of $8,300 to $68,800) has grown 22% in the last two years, to reach 80 million, and is expected to increase nearly tenfold by 2020 (according to Euromonitor, July 2007). As the disposable income of Chinese consumers grows, increased competition within the apparel market offers new opportunities for retailers, both domestic and international. While domestic retailers have a home-court advantage in understanding consumers and the market, international retailers face stiffer challenges. To adapt to this new market, retailers need to ask some key questions: What is the current state of the Chinese apparel market? What types of clothing do Chinese consumers buy? How do Chinese and American consumers differ in their apparel shopping habits? Here are some answers.

Chinese Apparel Sales Are Growing Rapidly

In the past two years, Chinese apparel sales grew faster than any other segment of China’s apparel supply chain. It is therefore no surprise that 92% of Chinese consumers purchased apparel last year. However, this figure is still far behind the $369 billion spent by U.S. consumers (according to the Bureau of Economic Analysis).

Chinese Consumers Have Smaller Closets

Chinese consumers purchase and own significantly fewer apparel items than U.S. consumers. Nonetheless, the types of apparel items they purchase are fairly similar. Tops and intimate apparel account for the largest share of purchases in both China and the U.S., and shares of skirts and dresses and athletic apparel also are similar. However, a major difference in purchasing patterns is seen in bottomswear:Chinese consumers dedicate 15% of their apparel purchases to slacks and only 7% to denim jeans, while Americans split their purchases evenly between these two categories. Yet denim jeans are increasingly popular in China, especially among younger shoppers. Although jeans claim a smaller share of the apparel market in China than in the U.S., the trend in both countries is for younger consumers to own more pairs of jeans than their elders. In China, denim jeans’ share of apparel purchases is 8% among consumers aged 15 to 29, compared with 6% among those aged 30 to 54.

Half of Purchases Are From Department Stores

China’s retail market is sophisticated and offers consumers many retail choices. However, the Chinese retail structure differs sharply from that of the U.S. apparel market, reflecting cultural differences and differences in product offerings. One difference is China’s abundance of informal stores, such as clothing markets and small independently owned specialty shops, which account for 22% of apparel purchases. A second difference is the popularity of department stores, which claim over half of Chinese apparel purchases, compared with just 9% of U.S. purchases. In the U.S., mass merchants are the most popular retail channel, with a 31% share.

Brand Consciousness Is On the Rise

As international brands expand into Asia, Chinese consumers have become more brand conscious. Cotton Incorporated’s research shows that when shopping for apparel, 38% of Chinese consumers prefer domestic brands and 22% prefer western brands. According to The McKinsey Quarterly (November 2007), only a quarter of Chinese consumers believe that foreign brands offer better value than domestic brands, but Chinese consumers nonetheless purchased a wide variety of brands—on average, about 600 different brands a month, including those from China, Hong Kong, Japan, Europe, and the U.S.

Athletic, denim, and luxury brands are the most popular in China. Chinese consumers enjoy luxury items and now make 10% of all global purchases of luxury goods. Writing in the International Herald Tribune, Ann Mah noted, “In China today, you are what you wear.” Chinese consumers regard spending on luxury apparel as an investment that will confer status, allow personal expression, and set them apart from other consumers.

Cotton Apparel Has Appeal

China is the world’s number-one producer of cotton, and Chinese consumers also like to wear cotton apparel. According to Cotton Incorporated’s attitudinal research, nearly 70% of Chinese consumers believe it is important for their clothing to be made of natural fibers such as cotton. This attitude is reflected in 2007 purchases, as nearly two-thirds of apparel items purchased were cotton dominant. Chinese men are more cotton-conscious than Chinese women; in 2007, 70% of their apparel purchases were cotton-dominant, compared with 62% of women’s purchases. Cotton-dominant items were most prevalent in jeans (96%), sleepwear (83%), and tops (80%).

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Trends in Japan’s Apparel Market

As the world’s second-largest economy and textile and apparel importer, Japan has a major impact on world demand for many goods and services. In particular, Japan’s influence as a key apparel consumer and fashion innovator is undeniable. Japan ranks behind only the United States in total apparel spending and in retail demand for cotton.

Imports Dominate

In recent decades, imports have come to dominate retail sales of apparel to Japanese consumers. Total apparel imports grew an average 7.5% per year over the last two decades. As imports outpaced demand, import penetration naturally climbed, and as import penetration of Japanese retail apparel sales increased, the share of imported apparel from the largest supplier, China, climbed in step. China’s share of Japan’s apparel import volume was less than 40% in the late 1980s, but reached an unprecedented 92% by 2007, as China benefited from both proximity and lower average unit costs than the rest of the world.

Cotton’s Share Rises

Cotton’s share of the Japanese apparel market has seen impressive gains over the last decade, reflecting Japan’s role as a leader in global fashion trends. The yen value of cotton-dominant apparel imports has risen faster than the value of total apparel imports, reflecting Japanese consumers’ growing affinity for cotton. Over the past decade, the share of cotton-dominant apparel imports climbed from 40% to 48%, mirroring the trend towards increasing cotton share seen in the U.S.

In wovens, the share of cotton-dominant apparel rose steadily from its 1996 low of 40% to 45% by 2007, propelled by gains in cotton bottoms, including jeans, and in women’s and girls’ imports. Cotton’s share of knit apparel, a larger category than wovens, climbed from a 1998 low of 37% to over 50% by 2007, led by gains in cotton sleepwear, imports of which were up 234% from a decade ago.

These gains in cotton’s share are reflected in consumer trends recorded by Cotton Incorporated’s Global Lifestyle Monitor™. When Japanese shoppers were asked which fiber is best suited for today’s current fashions, 51% picked cotton, a 5.6 percentage point increase from 1999, when they were first asked this question.

Knits Gain on Wovens

Since the early 1990s, Japanese consumers, like their U.S. counterparts, have come to prefer the comfort and stretch of knits over woven apparel. Knits’ share of cotton apparel imports climbed from a low of 48% in 1990 to an all-time high of over 55% in 2007. In the U.S., knits’ share followed a similar trajectory over the same period, rising from 37% to over 50%. Although both knit and woven cotton apparel imports into Japan climbed over this period, knits clearly saw faster growth in demand. In both the Japanese and U.S. markets, growth in cotton’s share of knits and in knits’ share of total apparel imports has combined to boost cotton’s presence in imports and at retail.

Apparel Imports Buck the Price Deflation Trend

The similarities between the Japanese and U.S. apparel markets are by no means universal. Bucking the trend of apparel price deflation witnessed in other large markets, such as the E.U. and the U.S., the cost of apparel imports into Japan has steadily increased in recent years. Costs have gone up for both knits and wovens and for both males’ and females’ apparel. Imported cotton apparel, in particular, has enjoyed rising prices, as the average cost per kilo has risen from 1,760 yen in 2000 to 2,230 yen in 2007, for a 26.7% gain, compared with 20.4% for total apparel imports. Imported clothes for women and girls cost more than those for men and boys; the price premium has ranged from 3% to 24% over the past two decades.

The distribution of Japanese cotton apparel imports between males’ and females’ items mirrors that seen in the U.S. Cotton apparel is dominated by females’ clothing, by a margin of 57% to 43% on a volume basis and 61% to 39% on a yen basis. Measured by both volume and yen, the share of females’ cotton apparel imports has expanded over the last two decades in both knits and wovens.

Trends in Retail Apparel Spending

Estimated per-capita spending on apparel by Japanese consumers in 2007 reached 155,200 yen, or about $1,458 at current exchange rates, up 1.2% from 2006. At Japan’s two largest retail channels, department stores and supermarkets (comparable to U.S. mass merchants), 2007 apparel sales reached 6.2 trillion yen, or about $58 billion. Based on a population of 127 million, 2007 percapita apparel spending at these two channels was roughly 48,800 yen, or about $459.

Between these two major retail channels, department stores continue to claim the larger share of apparel sales—they have led supermarkets for over three decades and now enjoy a two-thirds share. This pattern marks another contrast with the U.S. apparel market, where mass merchants’ share is about three times that of department stores.

At both of Japan’s major retail channels, females’ share of apparel sales has grown steadily over the past three decades, a trend seen also in U.S. and E.U. retail markets, as well as in imports. Women’s and children’s combined share of retail apparel sales (excluding accessories) rose from less than 54% in 1980 to nearly 70% by 2007, with men’s and other (e.g., unisex) clothing accounting for the remainder.

The Big Picture

In the wake of the overinvestment that drove Japan’s rapid economic growth into the late 1980s, the economy and consumer spending sputtered along through most of the 1990s before entering the current six-year recovery. Although apparel spending is down from its peak in the early 1990s, Japanese consumers continue to spend on clothes at one of the world’s highest per-capita rates. Over the past two decades, apparel imports have climbed to unprecedented levels, led by surging volume from China—and cotton’s share of imports has grown, along with Japanese shoppers’ belief that cotton is the best fiber for today’s fashions. In contrast to the trend of apparel price deflation seen in other markets, the average unit costs of imported apparel— especially cotton apparel—have risen in recent years. Together, the growing presence of cotton imports in the apparel market and consumers’ large apparel budgets suggest that, even with rising prices, cotton is likely to remain the fabric of the Japanese apparel shoppers’ lives.

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