REPLAY
Introducing and developing an Western Fashion
Brand in Mainland China
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
SUMMARY
A. Company and brand introduction
B. REPLAY in China
C. Apparel Market in China
D. Ways to expand a brand in China
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
Company and Brand Introduction
Fashion Box Group
• An Italian group that owns the trademarks Replay, Replay &
Sons and We are Replay (soon to be replaced by Red Seal and
White Seal).
• Brands which offer fashion for men, women and children of all
age groups.
• With total sales of 290 million Euros in
operates in more than 50 countries around
products can be found in over 5,000 points
230 monobrand free-standing stores and
corners.
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
2009, the Group
the world, where
of sale, including
170 monobrand
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
Company and Brand Introduction / Worldwide presence
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
Company and Brand Introduction
REPLAY
• The Replay brand accounts for approximately 80% of the
Group’s production.
• The collections are the result of careful research in materials
and the working of the fabrics, distinguished by elevated
quality, attention to detail and creative style.
• Replay collections offer around 800 items each season in over
30 classes of merchandise and are targeted to consumers in
tune with current trends in search of originality and
authenticity in their wardrobe selections.
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
Company and Brand Introduction / Stores
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
Company and Brand Introduction / Stores
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
Company and Brand Introduction / Stores
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
REPLAY in China
REPLAY has entered the market twice.
• While it was the first Italian denim brand to enter the Chinese market in
1999,it failed to develop while its competitors, though they entered the
game several years later.
Main reason for failure was the wrong choice the company made when
choosing their distributor, a manufacturing group from Singapore mainly
interested in getting the brand’s MFG orders in China and the region
• It started from scratch in 2007, appointing an new distributor, this time a
real retailer, with a proven track in the market with brands like Miss Sixty,
Episode, Jessica and Colour 18 among others
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
REPLAY in China
• Over the past 4 years, 32 points of sale (POS) were opened, mainly corners
within department stores, the balance being shop-in-shops within A-tier
cities’ major shopping malls
• The brand is available in 17 cities
• Average size of a POS is 60 m2
• Average monthly turnover per POS is RMB 200,000 (around 120 pcs)
• Opening pace for the upcoming 3 years is 20 POS per year to reach, by the
end of 2012, a network of around 90 stores across the country
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
REPLAY in China
Mapping of main players in the Chinese market
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
Apparel market in China
1.
General Data
Urban China’s consumption of apparel to grow at rates in between 3 and
7% per year over the next 20 years
Over the period, total spending in this segment is to triple to reach 1,100
billion RMB in 2025
Within the urban households categories, lower aspirants (earning in
between 25 and 40,000 RMB per year) are the largest consumers of
apparel products.
In the coming years, upper aspirants (40 to 100,000 RMB per year) will
become the largest consumers in this segment
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
Apparel market in China
China’s current share-of-wallet spent on garments is nearly 7.7%, much
higher than the share-of-wallet observed in developed economies (4.3%
in Japan, 3.4% in the US)
With income to increase significantly, the share-of-wallet spent on
garments is forecasted at 5.7% by 2025
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
General comments on\
Apparel market in China
2. General comments on branding
The Chinese customers put more faith in brand names than Westerners (recent
surveys shows 50% of the consumers would buy a product for the brand, only
33% in the US)
Attraction of brand remains more practical than emotional (good apparel
means good quality)
Chinese consumers eager to switch brands and even price segments if they
feel they would get more value for a similar price
Recent years have seen a huge number of international brands enter the
market with new product and promises, leading to Chinese consumers readily
abandon one brand for the other
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
Apparel Market in China
Hence, Chinese consumers are still not that familiar with a lot of these
global luxury goods brands, as these consumers have only recently
entered the luxury consumption income bracket, and thus brand
recognition and loyalty at this stage are still very weak.
Need to keep a very close watch on consumption trends and focus on
building sustainable brand loyalty, which is one of the key challenges
here.
Therefore, there’s a need to secure a marketing advantage through
consumer insight and segmentation so as to ensure a long lasting brand
loyalty by developing specific product characteristics and emotional
brand affiliations
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
Apparel market in China
3. Customer behavior
China’s apparel market slowly moving from product-oriented to
consumer-oriented
Chinese consumers do like to browse, to check before buying such goods.
Limited impulse buy for the time being
Customer’s expectations of product quality have been steadily rising
Increased attention to aesthetic and social value of a garment, vs. a former
attention almost exclusively to the garment functions (protective, warmth,
among others)
Price still is a factor for consumer to judge quality (high price = high
quality)
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
Apparel market in China
During immature stage of consumer behavior (limited experience
with modern marketing messages), tendency to rely on brands with a
proven track record
Tendency to show to others when wearing a praised brands. Not till
long ago, it would be common for them to leave their tags on a suit’s
jacket sleeve
Hence, brand importance is declining, factors increasingly
influencing the purchase are now style, quality, fit, service and shop
image.
It is crucial to understand the customers locally (fits, sizes, color
preferences… vary from one province to another); need to
understand their needs and wants, their perception of foreign brands
and their perceived quality/price for these brands
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
Apparel market in China
Chinese consumer need to know as much as possible about a brand, how
it was born, how it grew at an international level, and how big is its
presence across the globe
Strong brand and product information makes these stores efficient (a high
need for details and explanation, including technical aspects)
Consumer increasingly educated, being less and less “foolable” by simple
marketing artifacts.
Even if the majority of consumers do pay attention and praise imported
garments, they are at least as keen on buying a brand’s products for they
cater to their fit and size needs. Compulsory to adjust some western fits.
“Made by Replay” might be stronger than “Made in Italy”
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
Apparel market in China
4. Distribution
Compared to shopping malls, boutiques, and street stores , specialty
stores (monobrand outlets) are the most popular apparel retail format
appreciated and accepted by Chinese consumers
Most retail formats are specialized by products whereas specialty stores
are supplied by specific brands
Strong brand information makes specialty stores make effective channels
in attracting early sympathizers
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
Apparel market in China
Current apparel distribution composed mostly of monobrand stores
A few multibrand stores (I.T, Joyce) have entered the market in the past
years, but these examples remain specific.
Monobrand stores are mainly concessions in department stores or shopin-shops within Malls
Very few opportunity for street shops, and most of the time these are not
making money, they are more of a window in the market to both help the
brand awareness and attract potential franchisees.
Examples in Shanghai: Huai Hai Middle Road, Nan Jing West Road
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
Apparel market in China
Economic conditions offered for concessions in department stores are
most of the time a percentage of the turnover, a percentage that can range
from 18% up to 33%
A percentage is often coupled with a minimum rent (translated in
minimum turnover to achieve per m2).
The department store will cash in whichever is higher
Fixed rent prices (for shop-in-shops and street shops) have rocketed in
major cities. In Shanghai, 5usd/m2/day is common on Huai Hai Road,
rents on Nan Jing Xi Lu have reached 11.5usd/m2/day .
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
Apparel market in China
The retail market is beginning to reach maturity in Tier 1 cities like
Shanghai.
Thus the need to accurately target specific consumer groups is much more
significant in these areas.
As a result retailers are increasingly expanding into second and third tier
cities like Qingdao, Nanjing or Tianjin.
The attractiveness of these secondary regions is enhanced by the
migration from the countryside to the regional cities, increasing the size
of the second and third tier urban retail market.
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
Apparel market in China
5. Market segments
Initially there were two markets for apparel in China:
1. Low priced basic apparel sold under local brand names and offered in
Chinese department stores, foreign hypermarkets or small family owned
specialty chains
2. Luxury brands sold either in franchised boutiques or upscale department
stores
Due to the rapid growth of China’s middle class a new category has emerged
Consumers in China’s middle class are increasingly sophisticated, demanding
higher quality, variety and innovation from their retailers
The new category is highly fragmented and is dominated by specialty casual
brands from Hong Kong, such as Esprit (620 outlets), Giordano (950 outlets),
and Baleno (1,280 outlets)
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
Ways to expand a brand in China
1.
Distribution agreement
This is what has been mostly used by international brands entering the Chinese
market over the past 10 years.
Despite the size of the market (of the country), most brands have chosen to
give an exclusive distribution agreement to local players being able to operate
In Beijing like they would operate in Chengdu or Wulumuqi.
Goal is to put the distributor in position to quickly achieve a ROI beneficiating
from a larger area of operations.
In order to succeed, distributor needs to have regional offices across the
country, with teams in position for a daily control of the development as well as
reporting channels enabling the distributor, and as a consequence, the principal, to
appraise the situation in real-time
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
Ways to expand a brand in China
Advantages of using a local distributor (when the appointed distributor is
identified properly):
-
-
-
Use a company which has the needed connections to get the business
grow
Use a company which culturally understands all aspects of the apparel
market
Use a company which most of the time can use synergies in their
operations (most distributors do operate more than one brand and are
therefore in a stronger position in the market)
Limit the entry investment to the minimum and guarantee margins for the
principal
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
Ways to expand a brand in China
Disadvantages
•
•
•
•
Have a limited visibility of what’s happening unless there’s someone
from the principal being physically involved in the operations
Medium to high risk of damaging the brand was the appointed distributor
to decide to suddenly stop the operations, and this despite whatever legal
terms agreed
Limit the profit of the operation to its wholesale level; given the growth
perspective of China, this can represents substantial amounts of money
Convey a conservative message to the players in the market (“I am not
strong enough, I am not interested enough, etc… to do it myself or at
least as part of a JV)
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
Ways to expand a brand in China
2. A JV agreement
A growing number of brands have entered in JV agreements over the past
couple of years. And REPLAY just went this way.
This is the result of brands starting to show a stronger interest in the market
tying deals with their existing distributor (REPLAY for instance) so as to
accelerate the forecasted growth and start grabbing a higher share of the
margins produced.
It’s also the choice of new candidates wanting to control the operations right
from the start without having (or wanting) to invest major amounts.
Most JV agreements are 50-50, which on the one hand limits the risks of
growth while on the other hand, can create blocks in the decision making
process when cultures are far from being similar
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
Ways to expand a brand in China
3. WOFE
WOFE stands for WHOLLY OWNED FOREIGN ENTERPRISE, and this
allows the principal to own their operations 100%. LV was the first company
allowed to do so even though the law allowing this had not yet been passed.
A WOFE enables the principal to have a full control of the all chain of
operations, and is mainly used by major companies which have the investment
capacity to put up regional operations all over the country, often grouped with
MFG units.
Tough it sometimes raise concern for consolidation (rules are strict and vary
when it comes to capital export), most examples in the market are successes
(CK, Inditex,…)
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
Ways to expand a brand in China
4. Franchising
This works with any of the previously introduced operationg structures.
Franchising is one of the key ways, if not the only one, to reach out for 2nd and
3rd tier-cities.
Regardless of the operating structure, this development method
is the best way to achieve a proper expansion
While 3rd-tier cities are not target markets for Replay, 2nd-tier cities are now
increasing their attractiveness for us and other competitors as these are
immature markets.
There is an unsuspected amount of purchasing power in these cities.
Wealthy people from these cities have had a tendency to travel to neighboring
A-tier cities to spend their money: Suzhou/Wuxi/Hangzhou to Shanghai,
Tianjin/Dalian/Qingdao to Beijing, etc…
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
Ways to expand a brand in China
How does this work?
The exclusive distributor becomes a master franchisee for the principal (and a
franchisor for the market), and starts looking for franchisees, usually within a
province so as to guarantee high enough a potential to people interested into
the venture.
The franchisee purchases from the master franchisee a mutually agreed amount
of goods, paying a price which is a percentage (in between 42 to 48% of the
retail price fixed by the franchisor).
There are a serie of rules (the ones that applies to the distributor) at several
levels of the operation, from fit-out of the store to goods display.
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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REPLAY – DEVELOPING AN INTERNATIONAL FASHION BRAND IN CHINA
THANK YOU
OPETRAGALLO@REPLAYHK.COM.HK
10/21/2010
Olivier PETRAGALLO - Sales&MKT Regional Manager
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