Is There Any Price Competition In The Chinese Market?

Early in the morning, Ma Jian would make a special hairstyle with wax, and choose one of the most happy small ones.

After a few times in front of the mirror, after confirming the satisfaction, it was just 8 o'clock in the morning. All the H&M colleagues were in place.

Two months ago, Ma Jian left H&M flagship store in Nanjing East Road, Shanghai, and came to Bao Le Hui.

The center is preparing for the new store, which is the second branch of H&M in Baoshan District, Shanghai.

"Local friends in Baoshan said," I hope H&M fashion.

"Shop nearby," Ma Jian said as he tidied up the new style on the clothes rack and circled around the different display areas and cashiers.

It is a daily exercise to examine the display, decoration and cleanliness with customers' eyes. He is especially careful when he opens a new store.

At 9 o'clock in the morning, Ma Jian convened more than 10 colleagues in the shop to hold a party (according to the tradition of H&M, all the employees would have a meeting before the new store opened).

At the 45 minute party, Ma Jian stood among his colleagues and gave the lead to motivate everyone: "we are H&M, who is the first? We are the first; whose career? Our business..."

In the past 3 and a half years since joining H&M (Hennes&Mauritz), Ma Jian has had the opportunity to independently assume the new store manager for the first time.

After the 11 point of the ribbon cutting ceremony, he stood at the door and gazed at the customers for a while. He turned around and told reporters, "for the first time, there is a sense of pleasure in creating a new store."

H&M general manager of Greater China Magnus Olsson

For Magnus Olsson, general manager of H&M Greater China, the sense of freshness of shop may have already faded.

In 2015, H&M brand added 73 stores in mainland China, with an average of 5 days. As of May 1, 2016, the H&M brand has 322 stores in mainland China.

In 2016, H&M Group expects to add 425 new stores worldwide, that is, an average of 9 days to open 10 stores.

"H&M believes that talents are the cornerstone of the company, and they want to empower each employee to take corresponding responsibilities, because they work hard every day to make H&M the way it is today."

Magnus Olsson said that in order to catch up with the pace of expansion, the Greater China region (mainland and Hong Kong, Macao and Taiwan) will be recruiting 7000 employees in 2016.

In 2015, the employees of H&M Greater China were about 10100 people, with 7000 new employees. This is a great leap forward of H&M. Where is its confidence?

Only fast does not break, cost consciousness runs through all the time.

Every day before 9 a.m., Magnus Olsson will arrive at the Hongkong office early.

Since joining in 1994, he has served the fast fashion brand for more than 20 years. In January 2015, he became the general manager of H&M Greater China, co ordinate the business of mainland China, Hongkong, Taiwan and Macao. Last year, he led H&M into the new Taiwan and Macao market. As of November 2015, H&M group had 386 stores in Greater China.

"H&M has a very fast pace of work and does have pressure, but" fast "is what we want," Magnus Olsson, located in the headquarters of H&M Greater China in Hongkong port city, pointed to the new summer products of the showroom. "Shops will add new products almost every day. What customers see in the store today will be very different from those in 4 weeks, which is the strength of H&M."

H&M group has more than 330 designers worldwide. In order to grasp the latest trend, they go all over the world for inspiration.

The new design will be delivered on behalf of the industrial and commercial production. Some of the products will be displayed in exhibition rooms in Hongkong, Taiwan, Shanghai and Beijing.

H&M stores

H&M internal staff told reporters: "H&M all clothing categories adopt the same trend and color system. A large design concept will be equipped with a special team, composed of designers, buyers, assistants, typing agents, department managers and controllers. Some product planning may start one and a half years ahead of schedule."

All fast fashion brands are well versed in its "quick fix".

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Taking Zara as an example, the annual output of new products is about 10000, with an average of 200 new products updated every week. A study shows that the customers of ordinary fashion brands come to shop 3.5 times a year, and Zara reaches 17 times.

"The frequency of Zara replacement products is 11 days, the update speed is fast, the style is fashionable, more expensive than the similar brand, the customer is also many."

Wang Yong, an investment manager of a large commercial complex in Shanghai, told reporters.

It also pursues the speed of product renewal and attracts the attention of young people with "freshness". However, part of the supply chain strategies based on cost control are different from H&M and Zara.

Zara stores

Zara has an independent supply chain system. There are 22 factories in the world, 50% of which are finished by their own factories, and the remaining 50% are outsourced to 400 suppliers, and a large number of them are concentrated in Europe.

Zara is especially fast in pursuit of logistics. It takes a lot of air freight charter flights, usually only 24 hours in Europe, 48 hours in the United States, and 48-72 hours in Japan.

Most of the production of H&M is outsourcing, and more choice is to cooperate with agent processing companies.

Magnus Olsson told reporters that H&M has more than 800 suppliers in the world, about 80% of its products are purchased in Asia, and the size of China's suppliers is considerable. Some of them are H&M gold and diamond partners.

Because the list of suppliers can be dynamically adjusted, the flexible collaboration system gives H&M a greater degree of selectivity, and can get the best price at the right time. For example, a clothing or shoes, H&M can select experienced suppliers according to the ideal price, and the pricing strategy can be more flexible.

Most of the products were sent to the logistics center of each country directly after they were sent from the workshop, but unlike Zara, in 2015, about 90% of H&M's products were pported to the logistics center from the origin by sea or by train.

In the interview, Magnus Olsson has repeatedly stressed the importance of cost control.

In 1947, when Erling Persson founded H&M in Sweden, it was based on a simple idea: quickly selling a lot of clothes at a very favorable price, "providing fashion and quality in a sustainable way and at a preferential price", and also become the core concept of H&M brand.

"H&M carries out the cost consciousness in every link, carries out mass purchase in the world, selects suitable procurement locations, coordinates efficient logistics and operation systems, and has no intermediaries, which are jointly completed by suppliers and H&M."

Magnus Olsson said they were "proud but never satisfied" with this.

In 2015, H&M's gross profit margin was close to 50% and its net interest rate was 10%.

China's mainland is the fifth largest market in the world.

The Shanghai Joy City complex officially opened in 2010. It has gathered the most representative fast fashion brands H&M, Gap, UNIQLO, MUJI, etc., which account for 8% of the shopping center's total area, but contribute nearly 15% of the sales volume. These brands are at least 1.2-1.5 times the level of other retailers.

In the office of the business management center, Jianping, general manager of Joy City, frankly told reporters: "every shopping center that locates young people must introduce fast fashion brand, which is the standard."

Wang Yong, who is responsible for investment promotion, explained: "after 80 and 90, the consumption concept is pursuing individuality, willing to buy clothes suitable for oneself, not the more expensive the better.

Fast fashion brands are cost-effective, fashionable and fast changing, and are suitable for their needs.

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Jianping has noticed that after 2006, the 80's consumer groups have gradually become the main body. The commercial real estate is starting to warm up. The owners are in the rush for fast fashion brands. The development speed of each brand is obviously increasing.

H&M stores

Lin Jianrui, general manager of Cade East China region, describes the relationship between Cade and fast fashion brands with "win win": "fast fashion brands have a large consumer market, and new products are fast, cheap, keep up with fashion trends, quickly absorb powder, and meet the needs of young and fashionable consumers."

Take Hongkou square as an example, 1 shopping centers and 2 grade A offices are gathered around a number of well-known universities in Shanghai. White-collar workers and student groups gather here. All the fast fashion brands are gathered here. The parent company Inditex of Zara also has sub brands of Pull, Bear and Stradivarius.

The business operation data of East China business show that as of the first quarter of 2016, the overall passenger flow grew by more than 5% over the same period last year, and the growth rate of the market grew by about 5% over the same period.

"New shops should be opened in places with large traffic volume and wide market, and even a lot of competitors and retailers should be selected. The more retail outlets, the greater the volume of traffic. H&M wants the best place to do the best business."

Magnus Olsson explains business in this way.

Ma Jian told reporters that because of the different positioning, each H&M store's configuration and service requirements are slightly different. For example, Shanghai Nanjing West Road store is the flagship store in the world, "more high fashion, level higher"; Nanjing East Road store is a large passenger shop, located in a very busy commercial Street, and the service and display requirements are exceptionally high.

However, "in every business circle, H&M is required to become a more important shop."

In 2016, the total retail sales of consumer goods in China is expected to grow by 10.5%, and the growth rate has already declined. However, the optimism of Magnus Olsson has not changed. Over the past 3 years, China and the United States have been the engines of H&M growth, pushing its global store growth rate to remain 10%-15%.

Reporters combed the annual report found that since 2010, the number of H&M brand shops has been expanding rapidly. In 2010, the H&M brand opened 2000th stores in Japan. After 3 years, 3000th stores in mainland China, just in the past April, it has reached 4000 new stores in India, and the number has doubled in 6 years.

The expansion of H&M group, which has many brands such as H&M, Cos, Monki, and so on, is particularly impressive.

According to the financial report, H&M entered Shanghai in 2007. In the 2010 fiscal year (up to November 30th of the same year), the number of shops in mainland China of H&M group was 47, and its sales revenue was 2 billion 527 million kronor. In the 2015 fiscal year, it increased to 10 billion 559 million Swedish Krona (about 8 billion RMB). The number of stores in the whole brand increased to 353, and in the past 3 years, it has been steadily expanding at the speed of 80 per year.

In 2015, the mainland of China successfully surpassed Sweden, the birthplace of H&M, and became the fifth largest market in the world, second only to Germany, the United States and Britain.

 

H&M store customers are checking out.

According to the 2015 China commercial real estate development trend report, in 2014, the fast fashion brand opened 274 new stores in China, and the H&M group opened 86, nearly 1/3.

Magnus Olsson does not hide the confidence of the future: "as long as consumers like H&M, they can maintain a high level of profitability, and from first tier cities to three tier cities, H&M will continue to open stores."

Public figures show that the number of Zara brands in Hua men stores has been less than H&M, and since 2013, the growth rate of its stores has remained between 6%-8%.

In expansion, only UNIQLO can compete with H&M.

According to official data of XXX group, as of February 29th this year, it has 436 stores in mainland China, compared with 1 years ago, a total of 96 growth, and founder Liu well is clearly stated in the 2015 annual report: "Greater China will open 100 new stores every year until 1000."

In the first half of fiscal year 2016, the sales profit of fast selling group declined by 33.8%. Ryui Masa even gave the evaluation of "the performance of this phase is not qualified, only 30 points". However, he still insisted on the number of stores in Hua Tuo. "In China, the population of some 200 cities is over 1 million. If there are 10 stores in each city, there will be 2000 stores."

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Interestingly, in the Greater China region, the operating income of UNIQLO in fiscal year 2015 is about 18 billion yuan, the official network disclosed the size of the employees is 16800 people, H&M group's business income is about 9 billion yuan, only about half of it, if its 7000 expansion plan, once implemented, the scale of revenue will be expected to reduce the distance from UNIQLO.

Dividends are near, and secondary markets have opportunities.

In fact, fast fashion business is not always smooth.

For example, the US brand Gap, which is famous for its simple style, has not done well in the past few years. As a former sales champion, the revenue of Gap group in the first quarter of 2016 dropped to 3 billion 440 million US dollars, down nearly 6% from last year. After that, Gap formally proposed a plan to close over 1/4 stores worldwide.

Data show that at present, the number of Gap global stores is 3700. Not long ago, Gap has announced the closure of 75 Old Navy and Banana Republic stores outside North America.

Some commentaries have pointed out that Gap has not yet established enough differentiated brand characteristics after entering the Chinese market compared to the Zara that won the speed, the H&M that won the price and the uniformed Bank of high quality basic products.

In the fiercely competitive Chinese market, Gap's existing style is not suitable for Asian style. At the same time, from design to store, Gap needs more cycles than H&M and Zara.

Gap stores

Data show that in 2012-2014 years, Gap adult clothing for men and women accounted for about 0.1% of China's overall clothing market, ranking 48 in the brand, and the growth rate was far less than that of the incumbent leaders.

And publicly available data show that in 2016, Gap still planned to open 40 stores in China, while Gap group did not receive an interview with reporters to confirm it.

It is no longer easy for new participants to enter the Chinese market successfully.

Take the German fast fashion brand Tom Tailor as an example, the brand has opened 437 self run brand stores and 197 franchised stores in 35 countries.

Since December 2015, Tom Tailor has opened new stores in Shanghai, Changsha Wangfujing and Beijing Renaissance, which is the third attempt of the brand to enter China, while Forever 21, Top shop and other brands are still in the test period.

Wei Jianping believes that the competition between fast fashion brands is becoming increasingly fierce, and the opportunity for new brands to break through is likely to be in the secondary market.

"Over the past 5 years, fast fashion brands have opened up fast, and leaders have completed their layout in the second tier cities. However, fast fashion brands need to be careful to enter the three or four tier cities. These areas are still dominated by traditional department stores, and fast fashion brands are not familiar with local consumer behavior.

In the next few years, the speed of fast fashion brands will gradually slow down.

Similar to H&M's development strategy, UNIQLO is trying to brand its three or four tier cities. UNIQLO official told reporters: "UNIQLO has penetrated into the first tier and provincial capital cities with high brand recognition and recognition. UNIQLO is expanding the two or three line city in China and will continue to expand the three or four tier cities."

The long-term goal of its disclosure is that the total number of stores in Greater China will reach 3000.

Perhaps the fast growth dividend has come to an end.

Take H&M as an example, if RMB denominated, its operating income in mainland China increased by 16% in the 2015 fiscal year, while the number of new stores increased by 83 in the same period, an increase of 28.5% over the same period.

Xun marketing group said in its annual report that sales growth in the same store in mainland China in fiscal year 2015 is strong. Even so, UNIQLO has closed 10 stores. This is a subtle sign.

For Zara, H&M and other fast fashion giants, the challenge is far from over.

Data show that in 2015, the average selling price of Zara in India dropped by 10% to 12%, so as to compete with H&M, a fast fashion retailer.

The price of H&M in India market is about 150 rupees, while Zara starts at 2200 rupees.

Is there any price competition in the Chinese market? Reporters randomly visited several stores in Shanghai, and found that H&M, UNIQLO and other fast fashion brands did show a discount. Some of the styles were sold at a discount of 7-9 fold. The relevant salesperson told reporters: "they are all regular discounts, and do not deliberately lower prices."

Jianping has expressed the same view: "there is no sign of price war among merchants."

"If it happens (price war), H&M will have a better understanding of the situation.

We are highly organized and know what we are doing. I believe H&M is very advantageous in the market position.

Magnus Olsson responded to reporters.

At the moment, Ma Jian is not worried about this problem. He is more concerned about how to motivate his colleagues. H&M advocates personality system. Salesmen can choose their favorite brands at work. "The most important thing is to inspire and inspire our customers."

Ma Jian said.

(interviewee's request, Wang Yong is a pseudonym)