the next decade- a new dawn for china's fashion industry

Transforming “Soft” Culture to “Hard” Economy- Opportunities across China’s Creative & Fashion In dustry

BY KC YOONBY KC YOONBY KC YOONBY KC YOON Email: [email protected]: [email protected]: [email protected]: [email protected]

Mob: Mob: Mob: Mob: 18675573803186755738031867557380318675573803 http://cn.linkedin.com/in/kcyoonhttp://cn.linkedin.com/in/kcyoonhttp://cn.linkedin.com/in/kcyoonhttp://cn.linkedin.com/in/kcyoon

The Industry must not only groom “World-class” Fashio n Brands ... but also through strategic partnerships develop innovative platforms to transf orm China’s Fashion Industry to be

globally competitive and sustainable in the long-te rm

Feb 2012

Significant Potential in Significant Potential in Significant Potential in Significant Potential in China’s Creative & Culture China’s Creative & Culture China’s Creative & Culture China’s Creative & Culture IndustryIndustryIndustryIndustry

Impacted by Internal + External Drivers

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PART 1- China’s Creative & Culture

Economy

3

Creative & Culture Industries undergoing “digital” evolution as economies migrate from manufacturing to knowledge-b ased..

Convergence – Increasing Accessibility E

xter

nal

Digitization – Increasing Available Content

McKinsey’s table showing penetration of digital devices In China upto 2015

Digitization of Traditional Content

Inte

rnal

Focus on Building Creative & Culture Industry Growing Chinese Consumption

• China expected to be world’s largest luxury market in 2014; second largest consumer market globally by 2020

• Multiple moves to encourage Creative Industry- de-regulation; seeding of investment funds; etc

Since 2800 BC -4000 years of history - 25 major dynasties and

over 100s of emperors

From 12 BC- Over 1000 years of

mythology recorded in

literature, poems & songs

4

28 officially recognized written

languages, 22 ethnic minority plus 100 spoken dialects

38 sites identified as World Heritage

by UNESCO with 27 Cultural sites

…Deep foundation for creation of new media & cultura l activities, design inspirations, etc..

BLOCKBUSTER

MOVIE “RED CLIFF”

A recent USD 80m movie directed by Director John Woo

Already grossed over USD120m in Asia alone part 1 of the 2 part movie.. “..you can’t beat Red Cliff as the most fabulous and classiest movie this summer” The Observer UK 2009

SHANGHAI

TANG The first luxury lifestyle fashion brand to emerge

from China

Shanghai Tang is an international clothing chain

Founded in 1994, China’s 1st International clothing brand - Inspired by traditional Han Chinese clothing combined with the modernity and dynamism of the 21st century.

5

Chinese Govt in 12 th Five Year Plan has made deliberate focus on Culture sector as a “Pillar” industry

US

D 80 B

illion ++ Fashion • Luxury Products- Jeweler, Accessories, Leather Goods, etc. • Apparel brands- casual wear, sports, Formal, niche wear, etc. • Footwear brands

Fashion Sector within Fashion Sector within Fashion Sector within Fashion Sector within Creative Industry.. Creative Industry.. Creative Industry.. Creative Industry..

Growth Accelerated Pulled by Overall Creative Industry..

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PART 2- China’s Fashion Industry

YR 2010:

YR 2020:

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Early Stage Market Late 1980s to 2000

Growth Market Year 2000-2010

Expansion to Maturity Year 2010- 2020 &

beyond

All signs suggests that the market is poised for an other stage of evolution – MASSIVE EXPANSION!

Key Events Impacting Industry

Fashion Brands in Market

Asia Financial Crisis

WTO- effective 2004

Global Financial

Crisis

Beginnings of Domestic

Sports brand LiNing

12th 5 YR Plan endorse

Culture Ind.

Entry of HK-Casual Wear Brands

Domestic & (some)Foreign Sports & Casual Wear Brands hit

Mass Market

Grow th of Foreign Brands-Fast Fashion +

Luxury

YR 1990:

YR 2000:

Recent market entrants still finding growth opportunities! New domestic

brands growing through internet retail channels

Growing recognition &

strength of domestic luxury

brands!

Massive Opportunity!! Massive Opportunity!! Massive Opportunity!! Massive Opportunity!!

Next Evolutionary Phase will see China’s Fashion Industry- Becoming a Global Player

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Acceleration of Culture Industry will have signific ant impact on China’s Fashion Industry…expanding role in economy..

Investments in Foreign Brand

(Follie Follie- fashion accessory)

Focus of 12 th Five Year Plan on Grooming of

“Culture” Industry

Significant Investments by

“Insiders i.e.( PE +

Wealthy Family Offices)

Acquisition of Significant

Stakes in Domestic Apparel Brands

Globally ..Culture Industry i.e. media & entertainment have

been major drivers for expansion & spread of

fashion & brands

USD 115M

15% equity

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BCG Report 2011

Men’s & Women’s Apparel

2010: per capita fashion

spend : • China- RMB 1,150 • USA- RMB 5,770 • UK- RMB 5,020

Opportunity still to capture market share & gain at tractive returns from investments in China’s Fashion Industry

Other Fashion Spend :

• Significant Market opportunities for shoes, accessories, child wear, etc. (not included in projected market size)

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Potential for investments & partnerships with both foreign and domestic brands

Slowing Developed Market Economy- Foreign Luxury +Fashion Brands

Undergoing Consolidation with Potential for Acquisition

” Growing Fashion Consumption Young brands continue to grow; existing brands expanding brand portfolio

Teen and Young Casual

Fashion brands

Luxury brands

Surf and Action wear brands

Fashion Sportswear and menswear catering to 20-40year old consumers in

2nd/3rd tier cities

Comfortable Zen-style clothes catering to the average middle-class

lady 25-45years

Leading casualwear brand extending to build a fast-

fashion brand

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Opportunity for foreign brands to meet emerging nee ds of Chinese female consumers – Topshop, Jcrew, Expres s,

Ann-Taylor, Banana Republic..

BCG Consumer Needs Analysis:

Increasing wealth of urban female consumers create new demands for diverse occasion-based

fashion needs-

Market remains attractive for strong brands that c an identify and meet consumers needs…

Global Fashion Group VF Corp’s 2015 Strategy: Targets 28% CAGR growth from Asia driven by

China & Revenues from China to reach USD 1 Billion

Outdoor sports and action brands to drive growth- N orth Face, Vans, Lees….

Chinese Fashion Consumers! Chinese Fashion Consumers! Chinese Fashion Consumers! Chinese Fashion Consumers!

Growing & wealthy consumer pool ..influenced by availability of internet but widely distributed..

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2015: 300M+ Middle-class households

2025: 1 Billion Urban Consumers + >200 Cities

of 1M+ Population

Diverse consumer Base & new retail

locations

Young wealthy consumers

Expanding consumer base (both wealth & geographical ly) creates opportunities for both trading-up as well as mass-m arket brands

Apparel spend share

Consumer Spend Breakdown

Distribution of Wealthy Households

Age Profiles of Wealthy Consumers

Diverse consumer Base & new retail

locations

2015: 100M+ Luxury consumers

Young wealthy consumers

Large Wealthy Consumer Base

Trading Up!

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Dynamism of China’s internet – provides opportuni ties for new channels & online-focused brands

2015: Over 800M internet users + 300M Online

Shoppers

2015: Online retail to reach 7% of all retail

~RMB 1.8 trillion

Key Brand-building & Sales channel

Apparel largest category of online shopping

(12-15%) Success of online-only

Apparel brands e.g. VANCL

Internet Users Number and Penetration

Online Shoppers Number and Penetration

Share of Online Shopping Spend

Significant share

Of sales

Increased Market Complexity Increased Market Complexity Increased Market Complexity Increased Market Complexity –––– a Challenge for Brandsa Challenge for Brandsa Challenge for Brandsa Challenge for Brands.

World-class Talent, Skills Required to be Competitive- Technology +Retail Management + Branding + Marketing ..

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Limited Brand Building & Management

Experience

Limited Retail Management Skills and

Talent

Limited Funds & Resources to grow

Market (global)

Potential Range of Actions that can Address Issues

Par

tner

ship

with

est

ablis

hed

Glo

bal/F

orei

gn F

ashi

on b

rand

Men

torin

g by

Exp

erie

nced

Indu

stry

Le

ader

s/P

rofe

ssio

nals

Par

tner

ship

with

Lea

ding

Inve

stm

ent

(PE

) Fun

ds

Est

ablis

hing

Fas

hion

Clu

ster

to A

ttrac

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kills

& S

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Res

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Combination of strategic & cross industry partner ships between various fashion industry players could offer soluti on

Long-term Competitiveness &

Value Brand

Scaling + Sustaining Profits as Cost

increases

Global Branding Attracts

Consumers

Potential ValuePotential ValuePotential ValuePotential Value----Creation Creation Creation Creation Platforms and OpportunitiesPlatforms and OpportunitiesPlatforms and OpportunitiesPlatforms and Opportunities

Range of Investment Opportunities in the Fashion Industry

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PART 3- Investment Opportunities

Opportunities in Creative Industry centered on Educ ation, Beauty & Healthily Lifestyle, Travel, Fashion, Sports Entert ainment, Leisure-

Creative Cluster and Retail Real Estate Platform

Brand Investment Platform 1

A

• Foreign- PE

Funds/Global Fashion-focused Funds

Forming PE Fund • Outbound USD Fund

to acquire foreign brands for China

• RMB Fund to invest in domestic brands

• Capital & global fashion

network access for domestic brands to go global

• Most Domestic Co still

single –brand- grow portfolio in multi-brand strategy

• Domestic Fashion Retail

Groups (HK/China-based)

• Fashion house in-house

investment arms

Opportunity Value-add to Fashion Industry

Potential Players

“Platform already seeing major size transactions recently.. Investments in domestic & foreign brands..over just the past 6 months..(M&A also active in global fashion brands)

USD 200M

USD 58M

• Investment targets - luxury brands - Outdoor/sportswear - High-end RTW - fast fashion - fashion accessories

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Foreign Brands with strong heritage, design and gl obally known have penetrated the market successfully

Luxury Brands

Casual Wear Brands

Sports Brand

HK/China Contributes 30% of global revenues with highest

compstore growth

Fast Fashion Brands

BESTSELLER Fashion Group China

4,000 stores in over 300 cities- ONLY, VERO MODA, JACK& JONES are leading

brands

2,000 global stores with 500 cache-cache in China

China has 3,000+ out of 4,200 Global stores ; contributing

30%+ of total operating income

5,400 outlets across China

Expands to 42 cities in 2011 Expands to 59 stores in 2011

1

A

Close to 100 stores- the leading men’s luxury brand in

China

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Company Brand Country Description Acquirer Amount

Feb 2011 Tectron Moonbasa China B2C Mass market

Female Fashion

Fung Capital USD5.8M

Feb 2011 Ferragamo Ferragamo Italy Luxury Brand Peter Wu - 8% equity

Jun 2011 Miroglio Female Fast-fashion

Italy Female Fast Fashion

Mandarin Capital Partner

USD58M

Sep 2011 Delvaux Delvaux Belgian Luxury Leather Goods

Fung Capital

Dec 2011 Trendy International

Orchily 5 Plus

China Female Casual RTW

L Capital USD30M

Oct 2011 Xinhe

Anmani

China Female Highend RTW

L Capital

Dec 2011 Li Ning Sports China Sportswear TPG/ GIC

USD110M

1

A



Potential Players

• Investment Targets

-Young designers - New brands

Brand Investment Platform 1

B

Forming Fashion Incubators • Start-up

accelerators and incubation centres for young fashion brands

• Foreign/Domestic VC

Funds

Domestic governments –provide co-funding

• Fashion houses in-house

investment arms

• Retail Malls & Dept stores

• Nurturing centers for

young designers & brands

• Access to capital and

backend support i.e. manufacturing/logistics- focus on design


“Platform just beginning to gain appearance in China (although prevalent in high-tech industries) – globally successful models in Toronto, New York and recently Singapore



Potential Players

• Investment Targets Commercial & Retail Real estate in identified fashion cluster cities


Real Estate -Fashion Economic Cluster Platform

2

A

Fashion Real Estate Clusters • World-class

Fashion Design • Global fashion

shows • Shenzhen “Creative

City • Internet+

ecommerce hub • Fashion

Manufacturing h ub

• Infrastructure/Real Estate Fund

• Real Estate Developers – Foreign City planners + domestic RE players

• City Government

• World-class

Fashion Cluster to attract global talent, businesses and create hub for interaction & innovation

China’s Fashion Clusters have emerged from the textile manufacturing base- with cities like Humen, Foshan, Shanghai having a base. Global acknowledged fashion cluster cities – Barcelona, Milan, New York. Planned Fashion Cluster city will be the next step…



Potential Players

• Investment Targets Branded and Unique Outlets for Fashion Specialty Retailing; located outskirts of population centers


2

B

Real Estate –Specialty Retail Outlet Platform

Developing Niche Retail Real Estate • Luxury Designer

Outlets • Fashion Discount

Outlets • Mass-Market Mall

Outlets

• World-class Fashion

Outlets to enhance shopping experience bringing a unique environment plus multi-brands under one roof

• Large Outlet Multi-brand Retail Operators

• Real Estate Developers- Domestic /Foreign- Retail Outlet Developers

• Real Estate Fund

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 developers (Mitsui Fudosan) also joining the outlet construction excitement

• City Government

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Differentiated Retail cum Leisure concepts targete d for families, tourists usually at the fringes of population cente rs

2

B

Europe’s Chic, Leisure cum Luxury Designer Retail Outlet Chains

19 Village-styled across Europe retailing 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

Italian Village in China

Italy’s Fingen Group

June 2011- Italy’s leading luxury real-estate developer and fashion retailer RDM (Fingen Group) –opened of 1st of series of USD80M Italian Villages for Discount luxury retailing in China’s Wuqing (60,000sq m retail+ 2,000parking)-between Tianjin and Beijing. 4 to 5 more of these villages expected over the next few years.

Europe’s award wining FLashion villages



Potential Players

• Investment Targets - Fashion Design houses - Retail software - Fashion education - Fashion ecommerce

Fashion Capabilities Platform 3

• Fashion Design, Retail

Consultancy, Branding & marketing

Investing in Fashion Capabilities

• Manufacturing

supply chain • Retail Management • Design technology • Fashion Education

• Access to core

components required to build sustainable globally competitive fashion industry

• Retail management / supply chain software players

• Global Fashion

Academy/Schools

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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

Creation of Core Industry Creation of Core Industry Creation of Core Industry Creation of Core Industry Platforms Platforms Platforms Platforms ..

Address Identified Weaknesses & Facilitate Innovation + Global Knowledge & Talent Exchange ..

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Domestic

Fashion Industry

Access to Global Markets

Access to Global Capital

Access to Global Talent

Access to Global

Fashion Knowledge

Access to Domestic Industry

Resource

Platforms become fundamental base for the Globali sation of China’s Fashion Industry

Brands Investment Platform

Real Estate –Cluster & Retail Platform

Fashion Capabilities Platform

VALU

E-C

RE

ATIO

N

Access to Global Fashion knowledge, trends & talen ts major factor in “value-chain” upgrade

Outdoor & surf wear cluster (USA)

Luxury Brand Cluster (Italy) Global

Fashion City (Milan,

Italy)

Global Creative

City (Singapore)

Global Fashion

City (HK)

China Fashion Design Cluster (China)

China Fashion

Manufacturing Cluster (China)

the next decade- a new dawn for china's fashion industry

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