UNIQLO Flare And GAP Are Fading. Is The Fast Fashion Market Really Hard To Do?

Industry perspective

China's fast fashion brands, and even the entire clothing consumer industry, are entering a new stage. For many brands, this is a new opportunity. After several years of brutal development of low base, China's clothing consumption industry has also reached a new stage of differentiation and development. Since 2015, the appearance of fast fashion clothing brands in China reflects the differentiation of fast fashion brands in China. It also confirms that China's fast fashion apparel industry has entered a new stage. The change of stage may be a crisis for some brands, but it is also an important opportunity for many other brands. China's fast fashion market has entered a more sophisticated stage of differentiation and development. To seize the new opportunities, we may not simply expand our experience in the past, but we need to have a better understanding of the local consumption culture and further integrate ourselves into the Chinese mainland from the aspects of products, channels and marketing.

Four fast fashion brands in China: it is not difficult, just split up. UNIQLO is advancing vigorously, ZARA is in the right place, GAP and H&M have obvious resistance. GAP China business has encountered obvious resistance, ZARA development is right and proper, but it is not as fast as before, and UNIQLO is riding a dust, and its business in China keeps on surging forward. The strong and strong GAP of UNIQLO is the epitome of a new era of differentiation in China's fast fashion industry. Obviously, UNIQLO is benefiting from the differentiation of China's fast fashion industry. UNIQLO knows more about the Chinese market, and is more grounded. It has won the share of the Chinese market in a high turnover, high exposure and cost-effective way. Many international fast fashion brands represented by GAP do not seem to keep up with the trains of change. These brands do not understand the Chinese market very well and operate in the past. When the development period of "flood irrigation" is over, they will encounter great pressure in adapting to the new differentiated market.

China's fast fashion clothing has gone through the barbaric development stage. The new stage of differentiation and development gives birth to opportunities. It is very important to understand the local business culture. Local brands have natural advantages. It is not that "China's fast fashion apparel market is not good enough", but in China, it has gone through a stage of barbaric development, to a new stage of differentiation and development, and to understand and adapt to the fast fashion clothing brand of China's consumer culture quickly and better. The rapid development of UNIQLO in recent years has set a positive example for all the fashion brands that want to develop in China. If you want to seize the new stage of fast fashion clothing development in China, it will be more in line with China's local business culture. In this regard, both domestic and foreign fast fashion brands have natural advantages, both in terms of understanding of business culture, degree of brand positioning and channel advantage. The development of fast fashion apparel has entered a new stage, and it is also an opportunity for China's local fashion fast fashion brands.

Investment suggestion: China's fast fashion differentiation stage is an opportunity for UNIQLO, and an opportunity for China's national brand: the success of UNIQLO is a clear reflection of the great opportunities of China's fast fashion industry in the new era of differentiation. UNIQLO in China, compared with other international fast fashion, the main advantage is that it understands Chinese consumption culture better, and has advantages in channels, products, marketing and many other aspects. This is the advantage of UNIQLO, and also the opportunity of China's brand. China's brand knows China's local consumer culture better, and the layout of its channels goes deep into all levels of cities in China. Since 2017, China's fast fashion apparel industry has entered a new stage of differentiation. It may bring many new opportunities for the rise of China's apparel industry in the future.

Recommended attention: Lining (02331), Anta sports (02020), Bosideng (03998), Semir clothing and other national brand clothing enterprises, Antarctica and other Chinese e-commerce brand enterprises.

Risk warning: consumption growth slows, market competition intensifies, and channel structure changes preface.

Preface

China's fast fashion brands, and even the entire clothing industry, are entering a new stage, and for many brands, this is an opportunity. Recently, the famous fast fashion clothing brand Forever21 decided to withdraw from the Chinese market. After several years of brutal development of low base, China's clothing consumption industry has also reached a new stage of differentiation and development. Since 2015, the appearance of fast fashion clothing brands in China reflects the differentiation of fast fashion brands in China. It also confirms that China's fast fashion apparel industry has entered a new stage. The change of stage may be a crisis for some brands, but it is also an important opportunity for many other brands.

The four fast fashion brands in China: UNIQLO are advancing vigorously, ZARA is in the right place, GAP and H&M have obvious resistance. This paper analyzes the development of four fast fashion brands ZARA, GAP, H&M and UNIQLO in China in recent years. It can be seen that the development of GAP in China has met with obvious resistance. The development of ZARA and H&M is right, but it is not as fast as before.

China's fast fashion clothing has gone through the barbaric development stage. The new stage of differentiation and development gives birth to opportunities. It is very important to understand the local business culture. Local brands have natural advantages. It is not that "China's fast fashion apparel market is not good enough", but in China, the garment industry has gone through a stage of barbaric development, to a new stage of differentiation and development, and to understand and adapt to the fast fashion clothing brand of China's consumer culture quickly and better. The rapid development of UNIQLO in recent years has set a positive example for all the fashion brands that want to develop in China. If you want to seize the new stage of fast fashion clothing development in China, it will be more in line with China's local business culture. In this regard, whether it is a commercial culture, the degree of brand positioning, or channel advantage, China's local fast fashion brands have natural advantages. Fast fashion apparel development has entered a new stage, and it is also an opportunity for Chinese local fashion fast fashion brands.

All the great consumer company must have been a company of some kind of business culture. If we talk about the most important commercial culture particularity of China, we think it is the four point: (1) the huge demand supported by the huge population, the complicated city level and the demand level, and the most popular e-commerce culture in the world, and at the present stage, it is still a developing country. Understanding and adapting to the characteristics of these commercial cultures is the basic characteristic of a great consumer company.

The most populous country needs enough. China is the most populous country in the world, with more than 1 billion 300 million of the population. The huge population ensures the foundation of China's consumption demand. China's consumer demand is sufficient. Numerous giants, whether it's overseas P & G, Coca-Cola and other companies, domestic GREE, Moutai and other companies, have proved that the Chinese market can be a great success. The fundamental problem is how to tap these consumption demands.

2. The city level is very complicated. The urban hierarchy of China's vast land is extremely complex, with 34 provincial-level administrative regions, 334 prefecture level administrative divisions, 2851 county-level administrative districts and 39888 township level administrative regions. This is also a headache for many international brands that came to China very early, from distribution, inventory management, personnel management, and so on in the low tier cities.

Third, the most popular e-commerce culture in the world. Many people may not realize that China's electricity supplier industry is now the world's No.1. By the end of 2018, China's overall electricity penetration was 18.4%, compared with the penetration rate of the US electricity supplier in 2016, which is only 8%, and it is expected to be less than 10% by the end of 2018.

China is still a developing country. Although the living standard of our people has been greatly improved in recent years, we must admit that we are still a developing country. 75% of the residents in the area, the monthly disposable income was no more than 2500 yuan. In 2018, the total disposable income of the people of the whole country was 2352 yuan. It can be simplified that the group earning more than 2500 yuan per month has already belonged to the higher income group in China.

1. the Chinese market has always been the battleground of the major clothing brands.

China has a huge consumption base, which has always been the battleground of every brand. In 2018, the retail sales of clothing above the limit were about 10000 billion, and if the other knitted fabrics were added to the calculation, the retail sales of Enterprises above the limit would be about 14000 billion. (Enterprises above Designated Size refer to enterprises whose sales amount is greater than a certain amount, the requirement of retail industry is 5 million, and 60 employees are required). Such huge demand has made China a battleground for the major international fast fashion brands. (below, the data taken are all parent group data. For example, UNIQLO takes data from fast selling group, and ZARA takes data from Inditex).

Four fast fashion brands, China (Asia) business share has experienced a significant upgrading stage. Since 2005, international fast fashion brands have been developing rapidly in China. The four fast fashion brands account for their rapid growth in China's business revenue. (some companies disclose their business revenue in Asia, and the core of Asian business is still China's regional business. The average annual value of this year is FY fiscal year).

GAP's Asian business increased from 3.6% in 2005 to 10% in 2017; the Asian income of Inditex (ZARA) increased from 6.7% in 2005 to 23.9% in 2017; the proportion of China's income in H&M increased from 0.6% in 2007 to 5.5% in 2017; the proportion of Chinese receipts in UNIQLO increased from 9.9% in 2007 to 14% in 14%, and 16.3% in the new year.

2. what are the four fast fashion brands doing in China? - UNIQLO is advancing vigorously, ZARA and H&M are growing steadily, and GAP is facing bottlenecks.

The growth rate of China's clothing market has slowed down, but it is still an attractive market. In terms of total retail sales (above quota), the Chinese garment industry experienced a rapid growth in the past 2006-2012 years. During the period, the overall growth rate of the garment industry was 20%+. During this period, the apparel brands of all countries entered the Chinese market and shared a fast growth stage. After 2015, the overall growth rate of the clothing industry tended to be gentle. At 6%-8%, this is the normal stage of development. And when the rapid growth stage has evolved to a stable growth stage, it is time to test the true operation ability of each brand. But it should be noted that at this stage, the overall growth rate of China's 6%-8% clothing market is still an attractive market in the world.

From the overall perspective, the four fast fashion group can be said to be of the same magnitude. From the chart below, we can see that the sales volume of the four fast fashion groups can be said to be the same volume of magnitude, calculated in US dollars (there may be certain exchange rate errors). In the 2018 fiscal year, GAP revenue is about 15 billion 900 million dollars, H&M revenue is about 24 billion 400 million US dollars, Inditex (ZARA) revenue is about 29 billion US dollars, and fast retailing (UNIQLO) revenue is about 19 billion 300 million US dollars. Basically, it can be regarded as an enterprise of the same volume level.

From the development trend, UNIQLO (fast Marketing) and ZARA (Inditex) will be stronger. Despite the total volume, the four fast fashion groups belong to the same volume, but the development trend is different. From the chart below, we can see that the development trend of UNIQLO (Fast Retailing) and ZARA is stronger globally, while H&M growth is relatively mild, while GAP has not seen much growth in the past 15 years. The rapid development of UNIQLO and ZARA is inseparable from its China strategy.

The strong development of UNIQLO and ZARA owes much to the success of China's strategy. Despite the overall volume of global sales, the four fast fashion groups belong to the same volume, but the development trend is different. From the chart below, we can see that the development trend of UNIQLO (Fast Retailing) and ZARA is stronger globally, while H&M growth is relatively mild, while GAP has not seen much growth in the past 15 years. The rapid development of UNIQLO and ZARA is inseparable from its China strategy. From Asian (China) sales, by 2018, the sales volume of GAP Asia and H&M China was about 1 billion 200 million US dollars, while Intitex (ZARA) Asia's sales volume was US $6 billion 700 million, while the sales volume of fast selling (UNIQLO) China exceeded US $3 billion. In fact, in China (Asia), ZARA and UNIQLO have been ahead of the GAP and H&M orders of magnitude. The strong development of UNIQLO and ZARA in recent years owes much to the success of its China strategy. The rapid development of China has made strong growth in the business of UNIQLO and ZARA.

Four fast fashion brands China (Asia) business growth is now split - UNIQLO triumphantly advancing, ZARA and H&M are in the middle, GAP is in the bottleneck. In recent years, the business situation of the four fast fashion brands in China (Asia) has shown a great division. Since 2014, the H&M composite growth rate of China has been 6.8% (the global composite sales growth rate of -0.3%) during the same period, and the composite growth rate of Inditex (ZARA) is 10.3% (the total sales growth rate of the global composite market is 6.8%), while the fast selling (UNIQLO) composite growth rate of China is 23.7% (the same period the total sales growth rate of the whole world is 9.1%), and the GAP composite growth rate of Asia -2.6% (the composite sales growth rate of 9.1% in the same period). Overall, in the past five years, China (Asia) has been growing rapidly for H&M, ZARA and UNIQLO, but GAP's Asian business has never been able to grow rapidly.

Up to FY2018, China's (Asia) business of the four fast fashion brands is further showing differentiation. Fast retailing (UNIQLO) China has increased by 33.5%, and has made rapid progress. Inditex (ZARA) has increased by 9.2% in Asia, while the rule of law is still growing at a relatively fast rate, while GAP has a negative growth. H&M China's business grew by -3.0%, and GAP's Asian business grew by -18.2%. From the perspective of Asian business growth, GAP is actually experiencing development bottlenecks. H&M has a large degree of turbulence, and the overall growth rate has also narrowed.

2.1 fast retailing (UNIQLO): China's business growth is an important driving force for its overall growth.

Fast retailing (UNIQLO) China is a major driver of growth. Fast forward group (UNIQLO) disclosed China's business related information after 2014. Since 2014, fast selling (UNIQLO) China's business has surged forward. Since 2014, the composite sales growth of China's sales has reached 23.7%, which is an important engine to drive the entire global sales, while the same period global sales growth is 9.1%.

It is clear that China's business is an important driving force for the growth of the entire fast sale (uniqo) business. The proportion of its Chinese business, from 9.9% of FY2014, to 16.3% in 2018, especially the FY18, and the decline of several other fast fashion brands in Asia (China). We can see that, by separating its growth source, we can see that FY2014-FY2018, with only about 15% of its account, contributes to the 38% part of the growth rate (FY2018), and that Chinese business is one of the most important parts of the overall growth strategy of uniqo, and in recent years, the Chinese business of uniqo has also shown a very rapid growth, significantly faster than the rest of the world.

The strong growth of uniqo is largely due to its strong Chinese business. In the last two years, the business of UNIQLO is becoming stronger and stronger. In the uniqo, there is no sign that "the fast fashion Chinese market is getting harder and harder to do".

2.2 Inditex (ZARA): Asian business is well regulated, robust growth, and overall business growth is flat.

Inditex (ZARA) - in the middle of the rules, Asian business has maintained steady growth. Asian business is an important driving force for the development of ZARA. From 2006 to 2019 fiscal year, Inditex (ZARA) Asian business is developing rapidly. In fiscal year 2006-2019, the composite growth rate of Inditex Asia is 20.6%, while the total revenue growth of Inditex is 10.6%. Asian business is the spear of attack by Inditex (ZARA). Its Asian business grew faster than its total revenue from 7.5% in 2006 to 20% in 2013.

In recent years, the growth of Inditex (ZARA) Asian business has gradually been in line with global business growth. Since 2014, Inditex Asian business has been relatively synchronous with global sales growth in the same period. FY2019's Asian business and total revenue growth were 6%. Asian business accounted for about 23% in the past three years, and business accounted for 23% of its contribution to growth. FY2019 Asia accounted for 23.2% of its growth in Asia.

Overall, it can be said that in the past 2006-2016 years, Asian business has been an important driving force for the rapid growth of the whole Inditex (ZARA). During this period, the growth rate of Asian business is significantly faster than that of other parts of the world, and the Asian business share of the company is also significantly and rapidly increasing to 20%+. But since 2017, the growth rate of Inditex (ZARA) Asian business has been in line with its global growth rate. Asian business is still growing rapidly, but this is based on the rapid growth of global business. Since 2017, ZARA has been a strong brand all over the world, and has been growing at a relatively fast rate. However, its Asian business has not shown a particularly strong trend.

2.3 GAP: from the "straws" to "burdens", the bottleneck of Asia's development is showing a significant negative growth.

GAP - the global business has been stagnant for more than ten years, and Asian business has been a bright spot. From 2006 to 2011, when the total revenue growth rate was negative on average, GAP's Asian business growth rate remained at around 10%, which could be said that the Asian business pulled the GAP in the mire and kept it growing to a certain extent. FY2006-FY2016, GAP Asia Business composite growth rate of 9.4%, while GAP total revenue growth of -0.1% over the same period. Asian business grew from 3.9% in 2006 to 9.6% in 2016, but overall, Asian business accounted for a smaller share of the GAP business system.

Since 2017, the development of GAP business in Asia is obviously bottleneck. Since 2017, GAP's total revenue growth has picked up, but its Asian growth rate has seen a significant decline, or even a negative growth. FY2018's Asian business growth rate is -18.2%, far below the total revenue growth rate of 2.2%, which is a negative contribution to the growth of GAP as a whole. In the latest fiscal year, FY2019GAP's Asian business grew at -2.4%, while its total revenue growth was 4.6%. GAP Asia's business accounted for 7.4% of F017's FY2019 after reaching 10% of the highest level.

In fact, the overall growth of GAP has stagnated since 2006. In 2006, GAP's total global revenue was $16 billion, while the total revenue of GAP in 2018 was US $15 billion 900 million. It can be said that in recent years, the growth of GAP is stagnant.

But the role of GAP's Asian business is changing from the original straw to the burden. In the 2006-2016 years, GAP composite growth rate was negative, while Asian business composite growth rate was nearly 10%. That is to say, during the past ten years, GAP's business outside Asia showed a more painful negative growth. During this period, Asian business can be said to be GAP's "life-saving straw", pulling GAP to keep its overall business development unchanged. After 2017, GAP's Asian business showed obvious problems. In 2018, GAP business grew by -18.2%, which showed a very obvious negative growth. Asian businesses began to become "burdens" from GAP's "life-saving straw", and GAP was often regarded as an argument that "it's not easy to do well in China at the moment". But in fact, it can be seen that it is not fast fashion that has not been done well, but that the operation of GAP itself has been stagnant for more than a decade. Before that, Asian business could pull GAP as a life-saving straw. In the past two years, GAP's Asian business has also been stagnant or even negative growth like global business. This may not be a problem of China's fast fashion environment, but a problem of GAP itself. With the slowing down of Asian business, the future of GAP has shown a more difficult situation.

2.4 H&M: China's business is not the core of its business, and the overall volatility is the key.

H&M - China's business has experienced rapid growth, but it has never been called its core business. 2007-2013, H&M's global business has seen rapid growth. From 2007 to 2013, China's H&M composite business growth was strong, and its composite growth rate reached an astonishing 54.5%. H&M composite revenue growth in the same period is 9.2%, in this period, it can be said that the overall business development of H&M is also very fast. The proportion of China's business grew from 0.6% in 2007 to 4.6% in 2013, to FY 2018, accounting for only 5.1%. China accounts for only about 5% of the business, and is still not the core business of H&M.

Since 2014, H&M total revenue and China's business revenue growth has been declining. Since 2014, the global business development of H&M has experienced a decline in growth rate. FY2014-FY2018, H&M global business composite growth has dropped to 2.1%. During this period, its composite business growth in China has dropped to 6.8%, but overall, in recent years, China's business has significantly contributed to H&M's performance. H&M China's business, with its share of less than 5%, contributed 34.8% growth in FY2012, FY2013 contributed 11.5% growth, and FY2017 contributed 33.7% growth.

On the other hand, H&M's business growth is not very stable. In recent years, both total revenue and China's business revenue have fluctuated greatly. As can be seen from the graph, there is a great fluctuation in both H&M total revenue and its business in China, but the slowdown in total revenue since 2014 is a relatively definite trend.

H&M global business has been slowing down for several years. FY2018's China business is growing negatively. FY2019 is critical to H&M China. FY2018, H&M's China business growth -3.0%, the first negative growth, is also considered as "China's fast fashion has become difficult to do" argument. But in fact, it may not be the case. First, the overall business of H&M has seen a significant slowdown since 2015. Not only is its business in China, but second, H&M's business growth has shown great volatility. Its FY2015 growth in China is 13.6%, FY2016 is 0.9%, FY2017 is 16.8%, FY2018 is -3.0%, and growth is not stable. So on the whole, we think that the negative growth of 2018FY in China's H&M business is not a reflection of the fact that "China's fast fashion market is not good enough," but FY2019 is really critical to H&M China.

3. a full analysis of the business strategy of the store -- the marketing strategy of the four fast fashion group in China.

Judging from the number of stores in the world, Inditex group ranks first, and the remaining three are basically the same level of quantity. The number of global stores of FY2018 four fast fashion group, including fast retailing, Inditex, H&M and GAP, is 3445, 7475, 4968 and 3594 respectively. Inditex (ZARA) is significantly higher than other three stores, and H&M stores are slightly higher than GAP and fast retailing (UNIQLO), but basically the same number level.

From the growth rate of global stores, the number of FY2005-FY2018 and fast selling global stores increased from 1232 to 3445, an increase of 180%; Inditex increased from 2244 to 7475, an increase of 233%; H&M increased from 1193 to 4968, an increase of 316%; while GAP increased from 2994 to 3594, with an increase of only 2994. In addition to GAP group, the other three fast fashion groups have increased 2-3 times the number of stores worldwide.

Judging from the number of China's (Asia) stores in the four fast fashion group, GAP is obviously lagging behind, and the remaining three are quite similar. The number of stores in FY2018 UNIQLO China, Inditex China, H&M China and GAP Asia is 633, 593, 530 and 372 respectively. Apart from the obvious lag of GAP, the number of other three stores is quite similar.

From the growth rate of stores in China (Asia), FY2008-FY2018, UNIQLO Chinese stores increased from 13 to 633, an increase of 48 times; Inditex China's stores grew from 14 to 593, an increase of 41 times; H&M China's stores increased from 13 to 530, an increase of 40 times; while GAP Asian stores grew from 131 to 372, with an increase of 40 times. It can be said that the past ten years are the golden age for fast fashion group to expand its stores in China.

According to the proportion of the total number of stores in China (Asia), UNIQLO ranks first in the world: FY2005-FY2018 UNIQLO China stores account for 0.65% of the world's total sales to 18.37%; FY2007-FY2019, Inditex China's stores account for 0.22% to 7.86%; FY2007-FY2018, H&M, China's stores account for 0.46% to 10.67%; FY2005-FY2018, GAP Asian stores increased from 2.61% to 10.35%. UNIQLO's business accounts for 18.4% of China's business and is the four most fast fashion brand in China.

From China (Asia), the number of net open shop accounts for the group's number of global net shops, the UNIQLO is still in the first place: the proportion of China's open shop in UNIQLO is increasing, from 26% of FY2010 to 53%, and after, it accounts for more than 50%; the proportion of China's net open shop in Inditex has increased from 1% of FY2008 to 27% of FY2012, FY2013-FY2017 has fluctuated between 13%-25%, but FY2018 has obviously declined to -15%; the proportion of China's net open shop in H&M has increased continuously, from 3% of FY2008 to 23%, and then began to decline. For GAP group, the proportion of Asian open shop accounted for the global share has fluctuated in the past ten years. FY2019, GAP accounted for 28% of the Asian open shop. UNIQLO has accounted for more than half of the total number of open outlets in China. There is no doubt that UNIQLO is the most important business in China. The proportion of China's H&M and Inditex (ZARA) stores is about 15%-20%, which is also an important business. However, the impact of Chinese business on H&M and ZARA is not so important for UNIQLO. Neither GAP nor Asian business has grown much.

3.1 UNIQLO: shops are closing rapidly, and net shops continue to grow rapidly. China accounts for a growing proportion.

The number of opening and closing stores in UNIQLO China is strong: shops are strong and shops have excellent profitability. It does not reflect "China's fast fashion becomes very difficult": UNIQLO nearly 10 years, and its opening stores in China have shown strong momentum, and become stronger and stronger after 2012. FY2009-FY2011, UNIQLO has 20-30 stores in China every year, and FY2013 has more than 80 stores every year. After FY2016, many people think that "China's fast fashion is hard to do", but UNIQLO still maintains 90 stores a year and develops strongly. As for the number of closed stores, FY2008-2014, UNIQLO China's closed shop numbers are below 3 stores, and few shops are closed, and FY2015 has so far improved the number of closed stores in UNIQLO China every year. But compared to the number of stores opened by UNIQLO, the proportion of closed stores is also very low, which means that most of the shops have strong profitability and small demand for closure. It also means that UNIQLO's strategy in China is very successful, and it does not reflect the so-called "fast fashion market in China."

The number of Chinese open shop in UNIQLO: has been positive, operating well, expanding rapidly. Over the past ten years, the number of open shop in UNIQLO China has been positive, and in recent 5-6 years, it has maintained more than 80 high net stores each year, reflecting the good operation and expansion of UNIQLO stores. UNIQLO has entered not only China's second tier cities, but also China's three or four tier cities. UNIQLO China's recent net sales volume is positive, reflecting that China's fast fashion market still has wide space.

The company's global open shop accounts for China's contribution to its business growth. Over the past ten years, UNIQLO's global business has maintained a relatively fast growth rate, and the number of global open shop has increased from 26 in FY2008 to 186 in FY2014. FY2015-FY2018, the number of online stores in UNIQLO has declined, but it is still in more than 120 stores, maintaining a fast open shop. What is more noteworthy is that China accounts for 26% of UNIQLO's open shop, which has grown from FY2010 to FY2015, which has reached 53% in the net shop of UNIQLO. After FY2015, UNIQLO net accounts for more than 50% of China's annual net sales, reflecting the growing importance of Chinese business in UNIQLO's overall growth strategy. In the future, if UNIQLO wants to continue to grow at a faster pace, it will be the only way for UNIQLO to strengthen and optimize its business.

UNIQLO has maintained a high net shop in recent years, and has shown good profitability. It also reflects that China's fast fashion market is not "very difficult to do" but "entered a new stage of differentiation". It still has great potential and will generate many new opportunities.

3.2Inditex (ZARA): global expansion and deceleration, and China's business decelerated accordingly.

Inditex China's net opening shop: steady development before 2017, and the number of shops opened in recent two years is changing from negative to positive. FY2008-FY2012 the number of Chinese open shop has increased steadily, and FY2012 and FY2013 have opened up 132 or 121 stores respectively, reflecting the rapid expansion of Inditex group in China. However, since FY2018, the number of net opening stores in China has changed from 54 to -27. The strategy of adjustment and contraction is obvious, while the number of FY2019 shops is still negative, but the number of net closed stores has narrowed compared with that of FY2018.

Inditex (ZARA) accounts for the number of global open shops and China: global expansion is slowing down, and China's net opening shop is declining. FY2008-FY2017, Inditex has opened 300 stores to 570 stores every year, and its global business has maintained a relatively fast growth rate. Over the past two years, FY2018 and FY2019, Inditex have slowed down global expansion, and the number of net shops has declined. In FY2018, the number of open shop in the world dropped to 183, while the FY2019, Inditex (ZARA) global open shop dropped to 15, which is already close to 0. Obviously, the slowdown of Inditex (ZARA) is global, not only in China's business.

In the period of rapid expansion, Inditex (ZARA) has a net shop opening ratio of about 20%. In the period of rapid expansion of FY2008-2017, China accounted for about 20% of the net opening of Inditex. China is regarded as an important area of ZARA. However, compared with the net shop of UNIQLO 50%-60%, China's ZARA business has not been so important.

Inditex (ZARA) China business has seen a net switch to stores in the past two years. After entering the FY2018, the Inditex global stores began to shrink, and the FY2018-FY2019 global open shop was 183 and 15 respectively, while the net shop in the Chinese region was shifting from positive to negative. FY2018Inditex (ZARA) China opened shop for -27 family, FY2019 China opened shop for -4 home, Inditex China's deceleration degree, more than global business.

Inditex (ZARA) has seen a slowdown in global store expansion in recent years, and the trend of rapid expansion in China in recent two years reflects the fact that China's fast fashion market has "entered a new stage of differentiation". ZARA may now face some difficulties worldwide and may need to make some adjustments, otherwise it may lose its edge in this situation.

3.3 GAP: sluggish is not two or three days. GAP has been in place for many years, and China is not a life-saving straw.

GAP Asian open shop, once considered GAP's straws, is now showing a crisis. FY2011-FY2016, GAP has about 20-80 stores in Asia. Asia's business has become a lifeline for GAP's flagging business. But compared to Inditex (ZARA), fast retailing (UNIQLO) and H&M, there are not many shops in Asia. After the FY2017, Asian stores in GAP began to exceed the number of shops opened, the number of shops opened to the public and the number of shops closed, which indicated that GAP's Asian business had problems like its global business.

GAP the number of open shop in Asia: steady growth before FY2016, and the net opening of FY2017-2018 after negative adjustment. FY2010-FY2016 the number of net shops in Asia is positive, and the number of FY2013-2016 shops has maintained a steady growth, of which FY2016 has the highest number of shops in 68, reflecting the steady expansion of GAP in Asia. FY2017 the first negative number of Asian stores opened up for -49, showing a marked decline. Although the number of FY2019 shops has reached 20, it is still not very satisfactory compared with that before 2016.

The number of GAP global open shop and Asian share: the group's global performance is low, and Asia's contribution has declined. FY2013-FY2015 has more than 130 open shops every year, of which FY2015 has 170 shops, which has achieved a relatively high level in history. However, in the same period, the net sales in Asia declined from 112% of FY2012 to 38% of FY2015, while FY2016 group had only 12 outlets in the world and entered a comprehensive adjustment period. FY2019's overall business dilemma has improved slightly, with 72 stores in the world, but only 28% of Asia's open shop. The global and Asian business development is facing serious challenges.

GAP's slump is not two or three days. Its business has been languish for over ten years. In most of the past ten years, the net opening of stores was negative or below 20. In the past few years in FY2012-FY2016, Asian business seemed to be a life-saving straw. But after the FY2017, Asia's business also appeared to turn shop negative. But it seems inappropriate to use GAP's China business slowdown to explain that "China's fast fashion is hard to do", because the slump of GAP is global, not just in China. We tend to think that China's fast fashion market has entered a new stage of differentiation. However, in the past decade or so, GAP is not much like a brand that can benefit from the new stage of differentiation.

3.4 H&M: China opened a slight decline in business, but the overall situation is more robust.

H&M the number of opening and closing stores in China: the number of shops in China has declined slightly, but overall is relatively stable. FY2008-FY2018, H&M opened a store in China experienced a period from expansion to contraction, FY2008-FY2013, H&M accelerated expansion trend, from FY2008 6 stores a year to FY2012 each year, opening 52 stores, this phase closing rate is 0. After FY2013, there was a partial closure of H&M, but FY2013 to FY2018, H&M's number of stores has not been many. In the past two years, there are only 7 stores and 14 stores. In the past 10 years, H&M China has always been a positive shop owner, and its operation condition is relatively steady.

H&M China's net number of shops: has been positive, the business situation is more robust. In the past ten years, the number of H&M shops in China has been maintained at a positive level. The store has a better operation and keeps a fast opening shop. From the 6 of FY2008 to 91 of FY2016, the number of FY2018 shops has declined. In the course of the three or four line cities sinking, there are some attempts. But in general, the number of shops opened straight is the strong profitability of H&M stores in China.

The number of H&M global open shop accounts for China: the contribution of China's business to its business growth has weakened. In the past ten years, the global business growth of H&M has slowed down, and the number of net open stores in the world has increased from 216 in FY2008 to 427 in FY2016. FY2017-2018, H&M, the number of global open shop has declined, although the number of shops is still over 220, but the rate of opening up has slowed down significantly, reflecting the weak growth of the company. It is noteworthy that H&M's net opening up in China accounts for 3% of its growth from FY2008 to FY2014, and China accounts for 23% of H&M's net open shop. FY2018, H&M's net opening up of China's share has decreased, and the operation of the next two years is very important for H&M China.

H&M China accounts for a small proportion of its business, but H&M has maintained a positive net shop in the past few years, and has fewer closed stores, reflecting strong profitability. China accounted for a decrease in the FY2018 H&M global open shop. We think H&M has strong management and brand capabilities. It is possible to find new opportunities in the differentiation of China's fast fashion industry, but there are still uncertainties. In the next 2-3 years, it will be very critical to H&M China.

4. is China's fast fashion really hard to do? We don't think so.

From the negative growth of 2018FY in GAP Asia and H&M China, and the superposition of Forever21 from the Chinese market, many people think that "China's fast fashion market has become very difficult to do, and the golden era has passed." But we do not think so. We believe that the fast fashion market in China is now entering a stage of differentiation. But this does not mean that "fast fashion market is hard to do". China's fast fashion market still has great potential. New opportunities are emerging in the process of differentiation. But to seize the new development opportunities, fast fashion group needs to adapt itself to China's local consumption culture.

The analysis of the above two chapters shows that the development of China's business in recent four years shows a distinctive differentiation. Some brands lack adaptability to China's local consumption environment, and bottlenecks exist in China's business development. Some brands can seize opportunities, further develop, and even stimulate their global business to grow rapidly.

UNIQLO (Fast Retailing): the most popular brand in China, which is still in the new differentiation stage of China's fast fashion industry, is still surging forward, and China's business has gone from strength to strength. In recent years, the proportion of Chinese business in UNIQLO (fast selling) has increased continuously, while the growth rate of China's business has been significantly higher than the overall growth rate. The overall growth rate of the group is less than 15%, while China's business growth is more than 30%, which can be said that China's business is the engine of the rapid development of UNIQLO in recent years. In recent years, the opening shop of UNIQLO China has also showed no signs of slowing down. China accounts for more than 50% of the world's open shop. UNIQLO is the most popular brand in China, with high turnover, high exposure and high cost performance. This model has proved its success. The rapid development of UNIQLO China in recent years also means that China's fast fashion market is not declining, but has entered a new stage of differentiation, and still has great potential. The brand that is more adaptable to the local consumption culture can seize the opportunity and usher in a new development opportunity.

Inditex (ZARA): China (Asia) business revenue is beginning to grow in line with the global growth rate. It faces certain challenges. It can be said that in the past 2006-2016 years, China (Asia) business has been an important driving force for the rapid growth of the whole Inditex (ZARA). During this period, the growth of China (Asia) business is significantly faster than that of the rest of the world, and the Asian business share of the company has also increased rapidly to 20%+ in the past ten years. But since 2017, the growth rate of Inditex (ZARA) Asian business has been in line with its global growth rate, and its growth rate is about 6%. Asian business is still growing rapidly, but this is based on the rapid growth of global business. China has changed from the most rapidly growing region of ZARA to the same level of global business growth. In the past two years, with the slowdown in the global opening up, China has also seen a slowdown in shop opening and closing up, or even a negative number of stores before the global business. The business of ZARA (Inditex) in China is obviously facing some challenges. In the past decade or so, whether the fast design and heavy supply chain mode need to change in the future in China is a problem that ZARA needs to consider carefully.

GAP: slump is not two or three days, it is more than ten years, nor is it Asian issue. It is a problem of the whole group. GAP's slowdown in China in recent two years is considered by many to be a signal that "China's fast fashion has become very difficult". But in fact, the slump of GAP has lasted for ten years. It didn't start in two years. From 2005 to 2018, GAP's revenue barely increased. During this period, its competitor fast retailing (UNIQLO), Inditex (ZARA), H&M, with a very fast developing attitude, relentlessly surpassed GAP. In the past two years, the operation of GAP in Asia seems to be even worse. But we do not think this is a problem in Asia, nor is it a market situation in the past two years. It is more likely that GAP will be able to survive in the new differentiation stage of China's fast fashion market. The situation of GAP may not be so optimistic.

H&M: revenue fluctuates, and single store profits show stability. The next few years are very important to H&M China -- H&M's Chinese business has not been counted as its core business. After many years of development, H&M China business accounts for only about 5% of global business revenue. However, from H&M's opening and closing business in China, compared with the four fast fashion companies, the number of H&M stores is even smaller, which reflects to some extent better operation of its stores. H&M growth is fluctuating both in global business and in China. We believe that H&M China has a better business capability and brand strength. But at present, China's business is not yet its core business. In the next 2-3 years, it will be a very critical year for H&M China.

5. the future development direction of China's fast fashion -- new opportunities in the new stage of differentiation, better understanding of the brand of Chinese local consumption culture, or better grasp of opportunities, and the maturity of local brands has matured.

The 2006-2016 is the brutal growth stage of China's clothing brand. Since 2017, China's fast fashion apparel market has entered a more sophisticated stage of differentiation and development. In the past 2006-2016 years, China's brand clothing market has developed rapidly, but this is also a barbaric growth to some extent. Domestic and international brands are developing rapidly. Since 2017, the industry has entered a new stage of more sophisticated differentiation and development. To seize the new opportunities, we may not simply expand our experience in the past, but we need to have a better understanding of the local consumption culture and further integrate ourselves into the Chinese mainland from the aspects of products, channels and marketing.

UNIQLO's strong and GAP's loneliness is a microcosm of China's fast fashion industry differentiation since 2017. Since 2016, UNIQLO's annual sales volume in China has been stronger than that in the previous ten years. UNIQLO's revenue growth rate 30%+ is much higher than that of UNIQLO's global average growth rate of about 14%, and China's business occupies an increasing proportion in UNIQLO's overall business. In contrast, GAP, which is also one of the four fast fashion brands, shows a completely different situation. GAP's global business has been languish for more than ten years, and the vitality of brand development is relatively weak. In the period of savage growth of China's fast fashion 2006-2016, GAP Asian business also has a seemingly fast development. But since 2017, when China's fast fashion industry has entered a new stage of differentiation, GAP seems to have not adapted, and Asian business has shown a negative growth. UNIQLO's strong and GAP's loneliness is the epitome of the new era of China's fast fashion industry differentiation since 2017. Obviously, UNIQLO is benefiting from the differentiation of China's fast fashion industry. UNIQLO knows more about the Chinese market and gets more ground. It has won the share of the Chinese market with high turnover, high exposure and cost-effective. In the next few years, we can predict that the ability of UNIQLO to go deeper into China's three or four tier cities will be stronger. Many international fast fashion brands represented by GAP do not seem to keep up with the trains of change. These brands do not understand the Chinese market very well and operate in the past. When the development period of "flood irrigation" is over, they will encounter great pressure in adapting to the new differentiated market.

The split of China's fast fashion market has brought new opportunities and challenges for the international fast fashion group and the local fashion group. Young consumer groups, low tier urban consumer groups and e-commerce channels are becoming the core business variables of China's fast fashion market, and how to better grasp the new consumption main force and new consumption channels will be an important problem that international and local enterprises need to solve in this differentiated market war. It is gratifying to note that in 2018, when the international fast fashion giant appeared to be greatly differentiated, we saw the rise of the "national tide" and the growth of local clothing brands. FY2018, Lining, Anta, Bosideng, Semir apparel, Hai Lan home's revenue growth rate were 18%, 45%, 30%, 31% and 5%, respectively. Among them, Lining, Anta, Bosideng, Semir clothing revenue showed an accelerated growth. We believe that China's fast fashion apparel consumption industry has entered a new stage. The change of stage may be a crisis for some brands, but it is also an important opportunity for many other brands.

Judging from the number of main brands in the group, the number of stores in Anta, Lining, Semir, Barbara (belonging to Semir group) and Hai Lan home has also increased rapidly in the past 5 years. The total number of Anta's main brands is the largest, and FY2018 is 10057. The total number of outlets of Lining, Barbara, Hai Lan's home, Semir and Bosideng's main brands is 6344, 5293, 5097, 3830 and 3337 respectively. FY2014-FY2018, Lining, Anta, Semir, Barbara and Hai Lan's brand outlets increased by 12.8%, 31.9%, 8.1%, 49.5% and 52.2% respectively, all of which showed a very good expansion trend. Bosideng, though contracted in recent years, has achieved great success since 2018. It has shown great improvement in terminal sales, inventory management and product price bands. The rapid development of the national brand in recent years is also the strength that the state brand is more familiar with China's local consumer culture and the new stage of differentiation in China's fast fashion industry.

In addition, the electricity supplier is a core variable of Chinese business, and it is also a very important point of China's local commercial consumption culture. China's electricity penetration reached 18.4% in 2018, compared with about 10% in the US, and lower in most European countries. Take Semir costumes as an example, Semir, which only started the main business of e-commerce in 2012, has made the electricity business from 0 in 2012 to more than 7 billion in 2018, which fully reflects the potential and charm of China's local commercial culture. In China's local electricity supplier culture, many consumer brands such as millet and three squirrels have also been born. Among them, the south pole, north polar pile, Playboy and Heng Yuan Xiang are all the representatives of China's e-commerce brand.

The new stage of China's fast fashion differentiation is the opportunity for UNIQLO and China's brand opportunities: the success of UNIQLO is a clear reflection of the great opportunities of the fast differentiation era of China's fast fashion industry. UNIQLO in China, compared with other international fast fashion, the main advantage is that it understands Chinese consumption culture better, and has advantages in channels, products, marketing and many other aspects. This is the advantage of UNIQLO, and also the opportunity of China's brand. China's brand knows China's local consumer culture better, and the layout of its channels goes deep into all levels of cities in China. Since 2017, China's fast fashion apparel industry has entered a new stage of differentiation. It may bring many new opportunities for the rise of China's apparel industry in the future.

Recommended attention: Lining, Anta sports, Bosideng, Semir clothing and other national brand clothing enterprises, Antarctica and other Chinese e-commerce brand enterprises.

6. risk warning

Slowdown in consumption growth

Market competition intensifies

Channel structure reform

Consumer preferences change

Authors: Wu Jincao and Ji Yunan