A GAP store in Shanghai. Although quickly growing, the Chinese market is still at an early stage of expansion offering attractive opportunities for foreign apparel brands. (Gao Erqiang/China Daily)
In the busy shopping area of Solana in Beijing's Chaoyang district, young women and men dressed in the latest fashion wander around the mix of foreign clothing stores carrying their latest purchases.
In this trendy commercial landscape, similar to that of other big metropolis like New York or London, it is easy to see why China has emerged as one of the biggest markets for consumer products, particularly for clothing.
The surge of avid fashion-conscious consumers and weak performances of the world's largest fashion retailers in their home markets in the United States and Europe, have triggered a rapid expansion of big names in China. Although quickly growing, the Chinese market is still at an early stage of expansion offering attractive opportunities for foreign apparel brands.
Magnus Olsson, country manager at Hennes & Mauritz AB for the Chinese market, said: "In 2015, China and the US will once again be our biggest expansion markets."
Stockholm-based H&M will continue to expand this year its higher-end brand COS (short for Collection of Style) in several locations, including a new store in the commercial area of Sanlitun in Beijing. The Swedish company plans to open 400 new stores globally this year, with China and the US hosting the highest number of store openings.
H&M, which first entered the Chinese market in 2007, opened 69 new stores last year in China, taking the total to 271.
Meanwhile, San Francisco-based GAP Inc is shifting its focus to the global market and particularly to China to reduce its dependence on North America, where it is struggling to win back consumers.
"For 2015, we plan to continue our global growth, including opening additional stores in Asia with a focus on GAP China, Old Navy China, and Old Navy Japan," GAP revealed in June.
Susan Anderson, a senior research analyst at FBR Capital Markets & Co, said: "GAP will open 115 stores this year with a focus on China, sports brand Athleta, and Global GAP outlets."
GAP has more than 100 stores with the Gap brand and about 10 stores with the Old Navy brand in China, according to Anderson.
Spanish Industria de Diseno Textil SA, known as Inditex and owner of the Zara brand, has 501 stores in China, its second-largest market after Spain.
Paul Rossington, consumer and retail analyst at global lender HSBC Plc, said: "China accounted for about 40 percent of Inditex new store openings over the last couple of years."
Even if the Chinese market is increasingly important and a top priority for fashion retailers, it is still far from becoming their first source of revenue.
"Inditex and H&M China currently represent only a limited percentage of their total global sales," said Rossington. "As of June, our analysis suggests that Inditex and H&M derived about 8 percent and 5 percent from China, respectively."
This reflects that there is still room for more openings to reap further gains in the Chinese market.
Jessie Qian, partner and head of consumer markets at KPMG China, noted: "Many of our clients are looking at more investments in China. The country is still expecting a lot of middle-class income increases in the next four-five years."
Additionally, their flexible approach to online shopping has been crucial for their success.
The e-commerce sector in China is a segment of the retail market that is unusually large, affecting the way brands plan their online shopping strategy.
The expansion of brick-and-mortar stores has been crucial to build brand awareness but has been insufficient to satisfy the massive demand for affordable fashion.
"If you look at the retail industry in China, physical outlets might only grow in single digits each year according to industry estimates. However, e-commerce outpaces that growth, almost doubling that number," said Qian.
Online stores help retailers to reach new audiences, especially those living outside major cities who long for fashionable garments just as much as their peers in Beijing and Shanghai.
Tom Gadsby, retail analyst at United Kingdom-based equity research firm Liberum, said: "A combination of brick and mortar stores and a strong online presence is likely to be the long-term winner."
For the remainder of the year, Inditex says it will continue to focus on its online strategy.
Pablo Isla, chairman and chief executive officer of Inditex, said: "A step in this direction is the launch of Zara online sales in Taiwan, Hong Kong and Macao in the autumn/winter season."
Its casual brand Pull & Bear will also start selling online in China from Sept 8.
