How Consumption Downgrade Affects the Business of China's Fashion Industry？

Luxury goods giants Hermès, LVMH, and Kering all reported slower sales growth in the third quarter of 2023, raising concerns about the health of the industry.

Industry insiders believe that the decline in fashion brand performance is linked to the weak Chinese market. Some attribute this to the broader phenomenon of consumption downgrade during economic downturns.

In China, young consumers who are passionate about fashion and often shop for niche designer brands and trendy labels found in concept stores and fashion e-commerce platforms are also known as “trendsetters.” In the past, they were one of the main consumer groups for fashion brands, but now, faced with economic challenges, trendsetters are increasingly suppressing their consumption needs.

This shift in consumer behavior is a form of consumption downgrade.

The most direct manifestation of consumption downgrade is that consumers reduce consumption frequency and become more price-sensitive. When trendsetters are not as willing to buy fashion products as they used to be, concept stores are the first to be hit.

In Beijing, many concept stores have been affected by the consumption downgrade this year. The number of concept stores offering discounts has increased, and the frequency and intensity of discounts have also increased. This is due to the growing diversity of consumer shopping channels, which has led to increased price competition for concept stores. This trend is also likely to affect concept stores’ future product selection. Some concept stores are considering lowering their price range.

As the Chinese economy enters a downturn, fashion consumers will become more discerning in their choices of brands and products.

In the past, consumers were willing to pay a premium for design, but now, as the economy enters a downturn, design is no longer the only factor that matters. Instead, consumers are looking for brands that offer both design and value for money. On social media platforms like Douyin (the original version of TikTok), Xiaohongshu and Taobao ifashion, some brands that meet this criteria have become popular among trendsetters.

The past decade has seen a boom in the growth of niche designer brands and trend brands in China, but this has also led to oversupply today.

Regardless of the macro environment or the industry’s own development cycle, it can be seen that these brands are undergoing a reshuffle. They either choose to focus on value for money, or rely on quality and brand power to maintain brand premium. A large number of homogeneous and low-value brands will be eliminated in this process.

There is a phenomenon this year: more and more fashion boutiques in China are stepping up their efforts to hold sales events. Even a stylish boutique in Shanghai that has never offered discounts before has opened its first offline sale event this year.

An industry insider who focuses on the ecosystem of fashion boutiques said that fashion boutiques are basically offering discounts, and the discounts will become more and more exaggerated.

Fashionistas’ consumption channels are already very fragmented, and they are more likely to actively seek out channels with price competitiveness to buy, waiting for discounts and promotions. Compared with buying agents, live streaming, or other leading e-commerce platforms, many fashion boutiques do not have a clear price advantage. Some fashion boutiques have even turned discounts into a daily occurrence in order to cope with price competition.

In addition, as consumers are becoming more and more cautious about shopping, brands that do not have high cost-effectiveness, convincing brand power, and stunning products will find it difficult to attract consumers to continue buying.

The past five years have been a golden age for the creation of designer brands and trend brands in China. Many platforms have supported the launch of a large number of brands, and many rappers and celebrities have also established their own brands.

In the face of consumption downgrade, many brands in China are facing the risk of being eliminated by the market. According to industry insiders, among the 10 most recognizable brands in the country, about eight have encountered operating difficulties in the past year.

As the fashion industry is one that values individuality and taste, consumers’ attitudes towards discount sales are rather delicate. While it is always a pleasure to find a good bargain, too many discounts too often may cheapen a brand’s image.

That is why fashion boutiques are often hesitant to advertise their sales openly. Unless you are a member of the store, you can only find out about sales through special channels.

Another option is to turn brand sales into an event. For fashion-conscious consumers, a sale should be more than just a discount. It should be a fun and memorable shopping experience.

In the past, many fashion brands used fire sales to clear inventory. Brand owners would sell products for less than US$10, which quickly cleared inventory but also disrupted the market order.

In an economic downturn, consumers are seeking out more affordable ways to feel good and express their fashion sense. Fashion boutiques are also starting to add categories with lower transaction thresholds, higher demand, and higher usage frequency.

For example, they are adding lifestyle products, especially fragrances and flowers. These products are lower-priced than clothing, shoes, and bags, but they can greatly enhance everyday well-being, express taste, and be suitable for gift-giving occasions.

For fashion boutiques, these lower-priced lifestyle products are also suitable for generating sales.

Showroom Shanghai mentioned in its closing report on Shanghai Fashion Week 24 SS that several new brands in the lifestyle category, including personal care brands, fragrance brands, and sock brands, all saw unexpectedly high growth.

Accessories, with their relatively low price and high rate of pairing, have also become a hot-selling item that allows consumers to express their fashion sense without spending a lot of money.

A buyer at a fashion boutique said that based on the changing consumption environment, she would focus more on accessories this year, with a focus on scarf and hat brands for the fall/winter season.

This trend can also be seen from the platform side. Showroom Shitang’s closing report also mentioned that accessories are less affected by the macro economy than clothing. Although the number of participating accessory brands and the overall number of buyers have narrowed this year, their performance has not declined.

In the past, trendsetters were a group of people who were more accepting of price premiums. They were willing to pay for design and style, and many fashion brands had multiples of 10. However, in the current climate of consumption downgrade, consumers and channels are more likely to scrutinize brands with high price premiums. Criticism of designer brands for being overpriced has become a hot topic at Shanghai Fashion Week 24 SS.

These topics, which were not considered to be very popular in the past, have also become sensitive this year. The impact of consumption downgrade on Chinese fashion brands is still ongoing. In addition to squeezing out price bubbles, they are also undergoing a new round of internal adjustments. In the future, we will continue to monitor these changes.