Presentation on China\'s Fashion Industry- Trends and Opportunities in the Next Decade

1. Transforming “Soft” Culture to “Hard” Economy-
Opportunities across China’s Creative & Fashion Industry
The Industry must not only groom “World-class” Fashion Brands ... but also through strategic
partnerships develop innovative platforms to transform China’s Fashion Industry to be
globally competitive and sustainable in the long-term
Feb 2012
BY KC YOON
Email: Kcyoon.glg@gmail.com
Mob: 18675573803
http://cn.linkedin.com/in/kcyoon
GLOBAL CHINA CAPITAL

2. PART 1-
China’s Creative & Culture
Economy
Significant Potential in
China’s Creative & Culture
Industry
Impacted by Internal +
External Drivers
2

3. External Digitization – Increasing Available Content Convergence – Increasing Accessibility
Digitization of Traditional Content McKinsey’s table showing penetration of digital devices
In China upto 2015
Growing Chinese Consumption Focus on Building Creative & Culture Industry
Internal
• China expected to be world’s largest • Multiple moves to encourage Creative
luxury market in 2014; second largest Industry- de-regulation; seeding of
consumer market globally by 2020 investment funds; etc
Creative & Culture Industries undergoing “digital” evolution as
economies migrate from manufacturing to knowledge-based..
3

4. From 12 BC- Over
1000 years of 38 sites identified
mythology as World Heritage
recorded in by UNESCO with 27
literature, poems & Cultural sites
songs
Since 2800 BC -4000 28 officially
years of history - 25 recognized written
major dynasties and languages, 22
over 100s of ethnic minority plus
emperors
100 spoken dialects
SHANGHAI BLOCKBUSTER
TANG MOVIE
The first luxury “RED CLIFF”
lifestyle fashion A recent USD 80m
brand to emerge movie directed by
Founded in 1994, China’s 1st Already grossed over USD120m in
from China International clothing brand -
Director John Woo Asia alone part 1 of the 2 part movie..
Inspired by traditional Han
Chinese clothing combined with “..you can’t beat Red Cliff as the most
the modernity and dynamism of fabulous and classiest movie this
the 21st century. summer” The Observer UK 2009
…Deep foundation for creation of new media & cultural activities,
design inspirations, etc..
4
Shanghai Tang is an international clothing chain

5. USD 80 Billion ++
Fashion
• Luxury Products- Jeweler, Accessories,
Leather Goods, etc.
• Apparel brands- casual wear, sports,
Formal, niche wear, etc.
• Footwear brands
Chinese Govt in 12th Five Year Plan has made deliberate focus on
Culture sector as a “Pillar” industry
5

6. PART 2-
China’s Fashion Industry
Fashion Sector within
Creative Industry..
Growth Accelerated Pulled by
Overall Creative Industry..
6

7. Expansion to Maturity
Early Stage Market Growth Market
Year 2010- 2020 &
Late 1980s to 2000 Year 2000-2010
beyond
Key Events Global 12th 5 YR Plan
Asia Financial WTO-
Impacting Crisis Financial endorse
effective 2004
Industry Crisis Culture Ind.
Beginnings of Domestic &
Grow th of Foreign
Fashion Brands Domestic Entry of HK-Casual (some)Foreign Sports &
Brands-Fast Fashion +
Sports brand Wear Brands Casual Wear Brands hit
in Market LiNing Mass Market
Luxury
YR 1990: YR 2000: YR 2010: YR 2020:
Growing
recognition &
strength of
domestic luxury
brands!
Recent market
entrants still
finding growth
opportunities!
New domestic
brands growing
through internet
retail channels
All signs suggests that the market is poised for another stage of
evolution – MASSIVE EXPANSION!
7

8. Massive Opportunity!!
Next Evolutionary Phase will
see China’s Fashion
Industry- Becoming a Global
Player
8

9. Focus of 12th Globally ..Culture
Industry i.e. media &
Five Year Plan entertainment have
on Grooming of been major drivers for
“Culture” expansion & spread of
Industry fashion & brands
Acquisition of Significant
Investments in Foreign Brand
Stakes in Domestic Apparel
Significant (Follie Follie- fashion accessory)
Brands
Investments by
USD 115M
“Insiders
i.e.( PE +
Wealthy Family 15% equity
Offices)
Acceleration of Culture Industry will have significant impact on
China’s Fashion Industry…expanding role in economy..
9

10. Men’s & Women’s
Apparel
BCG Report 2011
Other Fashion Spend :
2010: per capita fashion
• Significant Market
spend :
opportunities for shoes,
• China- RMB 1,150
accessories, child wear,
• USA- RMB 5,770
etc. (not included in
• UK- RMB 5,020
projected market size)
Opportunity still to capture market share & gain attractive returns
from investments in China’s Fashion Industry
10

11. Slowing Developed Market Economy-
Growing Fashion Consumption
Foreign Luxury +Fashion Brands ”
Young brands continue to grow; existing
Undergoing Consolidation with Potential
brands expanding brand portfolio
for Acquisition
Comfortable Zen-style
Teen and
clothes catering to the
Young Casual
average middle-class
Fashion brands
lady 25-45years
Luxury
brands
Leading casualwear brand
extending to build a fast-
fashion brand
Fashion Sportswear and
menswear catering to 20-
Surf and Action 40year old consumers in
wear brands 2nd/3rd tier cities
Potential for investments & partnerships with both foreign and
domestic brands
11

12. BCG Consumer Needs Analysis: Global Fashion Group VF Corp’s 2015 Strategy:
Increasing wealth of urban female consumers Targets 28% CAGR growth from Asia driven by
create new demands for diverse occasion-based China & Revenues from China to reach
fashion needs- USD 1 Billion
Opportunity for foreign brands to meet emerging needs of
Chinese female consumers – Topshop, Jcrew, Express, Outdoor sports and action brands to drive growth- North
Ann-Taylor, Banana Republic.. Face, Vans, Lees….
Market remains attractive for strong brands that can identify and
meet consumers needs…
12

13. Chinese Fashion Consumers!
Growing & wealthy consumer
pool ..influenced by
availability of internet but
widely distributed..
13

14. Distribution of Wealthy Households
2015: 300M+ M iddle-
class households
Consumer Spend
Breakdown
Large Wealthy
Consumer Base
Trading Up!
2015: 100M+ Luxury
consumers
Age Profiles of Wealthy Consumers
Young wealthy
Young wealthy
consumers
consumers
2025: 1 Billion Urban
Consumers + >200 Cities
of 1M+ Population
Apparel spend share
Diverse consumer
Diverse consumer
Base & new retail
Base & new retail
locations
locations
Expanding consumer base (both wealth & geographically) creates
opportunities for both trading-up as well as mass-market brands
14

15. Internet Users Number and Penetration
2015: Over 800M internet
users + 300M Online
Shoppers
Key Brand-building &
Sales channel Share of Online Shopping Spend
2015: Online retail to
reach 7% of all retail
~RMB 1.8 trillion
Significant share
Of sales
Online Shoppers Number and Penetration
Apparel largest category
of online shopping
(12-15%)
Success of online-only
Apparel brands e.g.
VANCL
Dynamism of China’s internet – provides opportunities for new
channels & online-focused brands
15

16. Increased Market Complexity
Brands.
– a Challenge for Brands
World-class Talent, Skills
Required to be Competitive-
Technology +Retail
Management + Branding +
Marketing ..
16

17. Potential Range of Actions that can Address
Issues
Limited Brand Building
Establishing Fashion Cluster to Attract
& Management
Partnership with Leading Investment
M entoring by Experienced Industry
Experience
Global/Foreign Fashion brand
Partnership with established
Long-term
Skills & Share Resources
Competitiveness &
Leaders/Professionals
Value Brand
(PE) Funds
Limited Retail
Management Skills and
Talent
Scaling + Sustaining
Profits as Cost
increases
Limited Funds &
Resources to grow
Market (global)
Global Branding
Attracts
Consumers
Combination of strategic & cross industry partnerships between
various fashion industry players could offer solution
17

18. PART 3-
Investment Opportunities
Value-
Potential Value-Creation
Platforms and Opportunities
Range of Investment
Opportunities in the Fashion
Industry
18

19. 1 Brand Investment Platform
A
Opportunity Potential Players Value-add to Fashion Industry
• Foreign- PE • Capital & global fashion
Forming PE Fund Funds/Global Fashion- network access for
focused Funds domestic brands to go • Investment targets
• Outbound USD Fund global
Opportunities in Creative Industry centered on Education, Beauty &
to acquire foreign • Fashion house in-house
- luxury brands
brands for China - Outdoor/sportswear
Healthily Lifestyle, Travel, Fashion, Sports Entertainment, Leisure-
investment arms
- High-end RTW
• Most Domestic Co still
• RMB Fund to invest single –brand- grow - fast fashion
• Domestic Fashion Retail
in domestic brands portfolio in multi-brand - fashion accessories
Groups (HK/China-
based) strategy
“Platform already seeing major size USD 200M
transactions recently.. Investments in
domestic & foreign brands..over just the past 6
months..(M&A also active in global fashion
Creative Cluster and Retail Real Estate
brands)
Platform USD 58M

20. 1
A
Luxury Brands HK/China Contributes 30% of Close to 100 stores- the
global revenues with highest leading men’s luxury brand in
compstore growth China
Fast Fashion
Brands Expands to 42 cities in 2011 Expands to 59 stores in 2011
BESTSELLER
Fashion Group China
Casual Wear
Brands 4,000 stores in over 300
China has 3,000+ out of 4,200 cities- ONLY, VERO MODA, 2,000 global stores with 500
Global stores ; contributing JACK& JONES are leading cache-cache in China
30%+ of total operating income brands
Sports Brand
5,400 outlets across China
Foreign Brands with strong heritage, design and globally known
have penetrated the market successfully
20

21. 1
A
Company Brand Country Description Acquirer Amount
Feb 2011 Tectron Moonbasa China B2C Fung Capital USD5.8M
Mass market
Female Fashion
Feb 2011 Ferragamo Ferragamo Italy Luxury Brand Peter Wu - 8%
equity
Jun 2011 Miroglio Female Italy Female Fast Mandarin USD58M
Fast-fashion Fashion Capital
Partner
Sep 2011 Delvaux Delvaux Belgian Luxury Leather Fung Capital
Goods
Dec 2011 Trendy Orchily China Female Casual L Capital USD30M
International 5 Plus RTW
Oct 2011 Xinhe Anmani China Female Highend L Capital
RTW
Dec 2011 Li Ning Sports China Sportswear TPG/ USD110M
GIC
21

22. 1 Brand Investment Platform
B
Opportunity Potential Players Value-add to Fashion Industry
• Foreign/Domestic VC • Nurturing centers for
Forming Fashion Funds young designers &
Incubators brands • Investment Targets
• Fashion houses in-house
• Start-up Opportunities in Creative Industry
investment arms centered on Education, Beauty &
-Young designers
accelerators Healthily
and Lifestyle, Travel, Fashion, Sports Entertainment, brands
• Access to capital and - New Leisure-
incubation centres • Retail Malls & Dept stores backend support i.e.
for young fashion manufacturing/logistic
brands s- focus on design
Domestic governments –
provide co-funding
“Platform just beginning to gain appearance in
China (although prevalent in high-tech industries)
– globally successful models in Toronto, New
York and recently Singapore Cluster and Retail Real Estate
Creative
Platform

23. 2 Real Estate -Fashion Economic
A Cluster Platform
Opportunity Potential Players Value-add to Fashion Industry
Fashion Real Estate
Clusters • Infrastructure/Real
• World-class Estate Fund • World-class
Fashion Cluster to • Investment Targets
Fashion Design
• Global fashion attract global
shows OpportunitiesReal Estate Developers
•
in Creative Industry centered on Education, Beauty &
– Foreign City planners talent, businesses
Commercial & Retail
Real estate in
• Healthily Lifestyle, Travel, Fashion, Sports hub for
Shenzhen “Creative + domestic RE players and create Entertainment, Leisure-
identified fashion
City interaction &
• Internet+ cluster cities
innovation
ecommerce hub • City Government
• Fashion
Manufacturing h ub
China’s Fashion Clusters have emerged from
the textile manufacturing base- with cities like
Humen, Foshan, Shanghai having a base.
Global acknowledged fashionCluster and Retail Real Estate
Creative cluster cities –
Barcelona, Milan, New York. Planned
Platform
Fashion Cluster city will be the next step…

24. 2 Real Estate –Specialty & Luxury
B Retail Outlet Platform
Opportunity Potential Players Value-add to Fashion Industry
• Large Outlet Multi-brand
Developing Niche Retail Operators • Investment Targets
Retail Real Estate • World-class Fashion
• Real Estate Developers- Outlets to enhance
Domestic /Foreign- Retail Branded and Unique
• Luxury Designer shopping
Outlets
Opportunities in Developers Industry centered bringing
Outlet Creative experience
on Education, Beauty &
Outlets for Fashion
Specialty Retailing;
Healthily Lifestyle, Travel, Fashion, a unique Entertainment, Leisure-of
• Fashion Discount Sports located outskirts
Outlets • Real Estate Fund environment plus
multi-brands under population centers
• Mass-Market Mall
Outlets one roof
• City Government
China’s outlet centres exist in places like
Shanghai Quingpu, Beijing Scitech..
However global scale type outlet centers
being developed in Changsha (Globe
Outlet); Japanese Creative(Mitsui
developers Cluster and Retail Real Estate
Fudosan) also joining the outlet construction
Platform
excitement

25. 2
B
Europe’s Chic, Leisure cum Luxury
Designer Retail Outlet Chains Italian Village in China
19 Village-styled across
Europe retailing Italy’s Fingen Group
collection of Designer
brands; located outside
of large cities –
London,York, Milan,
Rome, Hambury- 75M
annual retail traffic
Europe’s leading Chic
shopping village
retailers- all at
scenic/historical
villages/towns –
carrying range of luxury
to highend brands June 2011- Italy’s leading luxury real-estate
developer and fashion retailer RDM (Fingen
Group) –opened of 1st of series of USD80M
Europe’s award Italian Villages for Discount luxury retailing in
wining FLashion China’s Wuqing (60,000sq m retail+
villages 2,000parking)-between Tianjin and Beijing.
4 to 5 more of these villages expected over
the next few years.
Differentiated Retail cum Leisure concepts targeted for families,
tourists usually at the fringes of population centers
25

26. 3 Fashion Capabilities Platform
Opportunity Potential Players Value-add to Fashion Industry
• Fashion Design, Retail
Investing in Fashion Consultancy, Branding &
marketing • Investment Targets
Capabilities • Access to core
• Retail management / supply components required - Fashion Design
• Manufacturing chain software playersIndustry centered on Education, Beauty &
Opportunities in Creative
supply chain
to build sustainable houses
globally competitive - Retail software
• Healthily Lifestyle, Travel, Fashion, Sports Entertainment, Leisure-
Retail Management fashion industry - Fashion education
• Design technology • Global Fashion
- Fashion ecommerce
• Fashion Education Academy/Schools
Despite rapid industry growth- core fashion &
retail management skills in the Chinese industry
still remains weak- especially in areas of
Branding, Retail management know-how &
technology + talent
26

27. Creation of Core Industry
Platforms ..
Address Identified
Weaknesses & Facilitate
Innovation + Global
Knowledge & Talent
Exchange ..
27

28. Access to
Global
Markets
VALUE-CREATION
Access to Access to
Domestic Global
Industry Domest Capital
Resource ic
Fashion
Industry
Access to
Global Access to
Fashion Global
Knowledge Talent
Brands Investment Platform
Real Estate –Cluster & Retail
Platform
Fashion Capabilities Platform
Platforms become fundamental base for the Globalisation of
China’s Fashion Industry
28
28

29. China
Fashion
China
Design
Fashion
Cluster
Manufacturing
(China)
Cluster
(China)
Outdoor & Luxury
surf wear Brand
cluster Cluster
Global Global
(USA) (Italy)
Fashion Fashion
City (Milan, City
Italy) (HK)
Global
Creative
City
(Singapore)
Access to Global Fashion knowledge, trends & talents major factor
in “value-chain” upgrade

30. 30