Seasonal discounts are a normal thing, and the Japanese fast-fashion brand Honeys, located on the 3rd floor of Shanghai’s Xujiahui 600 Department Store, recently had a post-season sale, hangers hung densely packed with clothes, because there are so many clothes, you have to work hard to open a piece to see the whole picture, if not for the discount signs posted everywhere in the store, it looks more like a warehouse that no one cares about, not like a fashion women’s clothing store.
According to the Honeys clerk, the discount has lasted for more than a week, mainly 29 yuan, 59 yuan and 99 yuan, even if the price is low enough, but the clothes on the shelf do not seem to have decreased much, but no matter how it sells, it will all be withdrawn after a week.
Although promotion has become the norm in the retail industry, the problems faced by Japanese womenswear brands represented by Honeys at about the same time or earlier that entered the Chinese market are obviously more serious.
According to a recent Nikkei report, Honeys, which has been struggling for several years, has decided to close 270 stores in China starting this year, reducing the number of stores to 430, 30 of which will close by this spring.
To make matters worse, Itokin, Japan’s fifth-largest clothing company, entered the Chinese market in 1995, with more than 30 brands such as IIMK and AVV. It also has department stores, with a maximum of 300 Itokin commercial buildings in China, located in Shanghai, Dalian, Beijing, Qingdao, Shenyang, Tianjin, etc. The most recent report is that Idojin has officially confirmed its complete withdrawal from the Chinese market.
In fact, at the end of last year, there were various speculations about the wave of Japanese clothing brands closing stores, and Japanese media reported that in September 2016, when the delegation of the Japan Federation of Economic Organizations visited China, it asked the Chinese government to set up a special window to simplify the withdrawal procedures of Japanese enterprises and let loss-making Japanese companies withdraw from China as soon as possible.
Honeys, which entered China in 2006, used to expand at the rate of “1 in 3 days (in department stores)”. It is a golden age for commercial real estate development in China. According to the statistics of the National Bureau of Statistics, the growth rate of investment in commercial business housing from 2001 to 2007 has always remained between 15.4% and 39.5%.
Like Honeys, Itokin’s clothing brand, which is also fresh and cute, has been liked by some students and young company people, and because of the low price, it is relatively competitive in department store women’s clothing.
But their expansion was quickly dampened. It’s not just these Japanese clothing brands that caught up with the good times of commercial real estate in China, Zara also entered the Chinese market in 2006, H&M entered Shanghai in 2007, and Uniqlo, which repositioned itself as a middle-class lifestyle brand in 2005 and has grown rapidly since then.
In 2011 alone, China added about 400 new department stores, while Zara opened 156 new stores that year.
Itokin, which once occupied an entire building on Shanghai’s East Nanjing Road and Xizang Road, has given way to ZARA, and the Yidujin Commercial Buildings in Dalian, Tianjin, Qingdao and Harbin were acquired by Liverford International Group, the parent company of Hong Kong-based Sogo.
Japanese women’s clothing can not be described as collapsed in the Chinese market. According to data from research agency Euromonitor, in 2016, among the top 10 Chinese women’s wear brands in sales, Chinese brands accounted for 4 and European brands accounted for 5, and the only Japanese brand on the list was Uniqlo, ranking second in market share. This is not surprising, after all, it is the best fast fashion brand in the Chinese market.
The more serious problem is that the growth rate of women’s clothing sales in China has been decreasing year by year, with a maximum increase of 10.5% between 2011 and 2012, and the growth rate has fallen to 5.3% in 2015-2016. It looks like whoever wants to get a piece of this market is getting harder and harder.
The withdrawal from the Chinese market is actually a concentrated outbreak of the Itojin Group’s problems. Its operations in Japan have also been affected by the decline in foot traffic in department stores and shopping malls, and as of January 2015, the group has lost money for four consecutive years, and sales in department stores have fallen for five consecutive years.
Founded in Japan in 1978, Honeys is a publicly traded company with more than 1,000 stores around the world, while China is its second-largest market, with brands including C.O.L.Z.A, CINEMA CLUB, COMFORT BASIC AND GLACIER.
The company has been declining since 2013, and Honeys’ financial report as of the end of May 2016 shows that since 2013, the company’s turnover has fallen from 61.924 billion yen to 58.225 billion yen. It is expected to fall to 54.4 billion yen by May 2017, while profit fell by 40% from 4.711 billion yen in 2013 to 2.821 billion yen in 2016.
The decline of the department store industry around the world is an indisputable fact, and neither Honeys nor Itokin has relied on sales channels for many years no longer work. Moreover, there has been a regional bubble in China’s commercial real estate, such as 15% to 20% vacancy rates in shopping malls in Chongqing, Shenyang, Qingdao, etc. Even Zara is shrinking.
Honeys and Itokin have never had a clear brand positioning, nor have they kept up with the needs of fast-changing young consumers, and they are too slow compared to European and American fast fashion. Even the original Japanese orders on Taobao have been upgraded for several rounds. So they are actually abandoned by young consumers before they have established brand appeal.
Therefore, fast fashion such as zara and H&M can smoothly enter the new shopping mall from department stores, and even adjacent to luxury goods, becoming an offline traffic entrance. While the new mall does not welcome Honeys and Itokin’s brands, the first to fourth floors of Hang Lung Plaza in Shanghai Harbour Plaza, which are dominated by women’s clothing, are almost all European and American brands, and we see that the only two Japanese clothing brands are a high-end jeans brand and Uniqlo.
They also experimented with e-commerce, but always seemed to be a step slower, until 2011, when Itojin opened a flagship store on Taobao, because it had no experience in operating online stores in China, online operations were handed over to third-party companies, so the group could not flexibly adjust its online business, and closed stores in 2012.
Honeys’ official website says that the company and Yishang.com jointly launched the Holliz online flagship store, and now there are only 4 clothes on sale on this page, and the official website has not been updated.
Now, there’s one more thing they need to worry about — rising factory costs. Initially because of cheap labor, Japanese brands tended to move their production to China, Honeys opened a factory in China in 2000, and has 2 logistics centers in Shanghai and Shandong, where 90% of its goods were once manufactured.
But with China’s labor shortage, the number of working-age people in China fell for the first time in 2012 and has fallen by 4.87 million in 2015, which has also directly led to higher wages, and Chinese workers’ wages are growing at an annual rate of 10%, reaching 187% in the decade from 2004 to 2014.
This has created cost pressure for brands such as Honeys, which are shrinking in the market. Honeys opened its first factory in Myanmar in 2012, the first Japanese company to enter Myanmar, where labor costs are a quarter less than in China, and now Honeys’ Myanmar factory can produce 18,000 pieces of clothing a day, and recently planned to open a third, and the production line has increased from the initial 5 to 34.
Another way to cut costs is to “slim down”. In 2015, Japan’s eight largest clothing companies reportedly cut a total of 50 brands, accounting for 20% of the total number of clothing brands.
As one of them, Idojin was acquired by the Japanese investment fund Integral in February last year, and the fund adopted the same strategy, cutting 28 brands of Idojin to 20, 1400 stores around the world to 1000, and renovating the stores… But now it seems that this series of remedies is of little use. So the withdrawal from China is not surprising.
However, several fast fashion brands that have almost occupied the wardrobe of young Chinese people will also have fierce competition in the future. According to a report released by Mintel, from 2011 to 2016, the compound annual growth rate of China’s fast fashion market was as high as 20%, and it is predicted that the compound annual growth rate of the market will gradually decline to 12% from 2016 to 2021.
Consumers have experimented with the thrill of constantly changing styles, and now that period of excitement has passed, people are gradually reducing the frequency of consumption. Mintel believes that younger consumers are now more willing to spend more on individual items, upgrade to buy better products, or more diverse fashion styles to express personal taste.
According to the “2016 First Half White-collar Women’s Fashion Consumption Report” provided by Fashion Group to Curiosity Daily (www.qdaily.com), more than 80% of young women spent more on fashion than in 2015, and 41% of women’s monthly fashion spending increased by more than 2,000 yuan over the previous year.
But if you look at Honeys’ top 10 sales in Tmall’s flagship store, the average price is only 154 yuan, which also includes the winter coat category. The problem is also that as mentioned above, it has completely lost the fashion label, and the low price is not tempting for consumers.
However, even the “go-to-do” brands of recent years have not had a good time, and just 2 weeks ago, the Chengdu Chunxi Road business district, once known as “Zara’s largest flagship store and first image store in China”, closed. As we mentioned in previous reports, since last March, ZARA has begun to slow down the pace of store openings and reduce the size of new stores; H&M’s gross margin has slipped to 55.2% from 59.5% in 2012 and operating margin has fallen from 18.01% to 12.4%, both of which are the lowest in five years.
Even UNIQLO, which ranks second in China’s women’s wear market share, is slowing down, and UNIQLO’s parent company’s 2016 fiscal year shows that UNIQLO’s after-tax profit in Japan and overseas markets has declined to varying degrees, with after-tax profit in Japan falling by 12.6% and overseas markets falling by 13.7%.
Trends are always wave after wave, that wave of Japanese sweet wind has almost disappeared, what about this wave of fast fashion?
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