China's Apparel Market Expects US$60 Billion Contraction In 2020

Surveyed consumers expect their spending in the second half to return to their 2019 level

HONG KONG, May 27, 2020 – More than 75 percent of Chinese consumers reduced or postponed purchases on apparel and footwear and their total spending decreased by 45 percent in the first quarter of 2020, according to Oliver Wyman’s latest survey. The survey also found that there was little retaliatory spending in April and May. The largest apparel market is expected to see a 15 percent contraction in 2020, equivalent to about US$60 billion in market value (see Exhibit 1). On the bright side, the survey found that consumer spending would probably return to its 2019 level in the second half of 2020.

“It is going to be a turbulent year, with structural and longer-term shifts in the apparel and footwear market in China,” said Imke Wouters, Partner of Oliver Wyman, who led the survey. “Despite the industry downturn, we are seeing the further growth of e-commerce, with an accelerated penetration into sub-segments, such as high-income customer groups. The post-COVID market is expected to be more polarized across income levels and city tiers.”

Exhibit 1. Projection of China’s apparel market (2018 – 2020E, in billion US$)

The COVID-19 outbreak has exacerbated the spending gap between the high and low-income groups. The low-income group tends to buy less and trade down for essentials. More than 70 percent of the low-income survey respondents said they would prefer good value for money, and more than 60 percent said they would purchase essentials only. On the other hand, the respondents from the high-income group said they would trade up and go for both value and quality, with 54 percent of them saying they would still look to buy products offering higher quality and functionality, and 56 percent of them saying they also preferred items offering value for money.

Another key change brought about by the COVID-19 outbreak is how some shopping channels have fared better than others. With the shift to e-commerce accelerating with the onset of the COVID-19 outbreak, Oliver Wyman predicts that online channels could take up to 50 percent of the entire market in 2020, rising significantly from 34 percent in 2019. Traditionally favoring shopping for apparel and footwear in stores, shoppers from the high-income group have jumped to become the biggest online spenders during the outbreak, carrying out 64 percent of their spending online. While some growth was seen in the share representing pure online shoppers, dominated by the younger generation, most of the survey respondents said that they would still like to do their shopping in multiple channels.

Thus, offline stores still have a useful role to play. Specifically, the survey indicates a relative rebound in certain brands’ offline stores for the remainder of the year. However, sales in department stores are not expected to come back robustly. More than 40 percent of the survey respondents said they would still like to try on the products they are interested in and make sure of their quality hands-on. In particular, new features such as new technologies, exclusive offline products, and personalized services would encourage more than 60 percent of the respondents to visit and possibly make a purchase in an offline store in future.

“The offline stores are still important, but it is imperative for retailers to re-examine the role and footprint of their offline presence, and fundamentally change the offerings and experience for their customers,” explained Wouters.

The survey also found that the sportswear sector showed stronger resilience in its offline presence than the general apparel market. Compared to the average consumer, sportswear fans said that they intend to shop more at various sportswear brands’ own stores in the next one to two years.

Exhibit 2. Indicative performance of China’s apparel and footwear market 

“The impact of the COVID-19 outbreak on China’s high-street fashion market has been material,” added Wouters. “We have seen the market recover to some extent as people’s lives have started getting back to normal, but retaliatory spending was not widely observed right after the outbreak began to subside. For the remainder of the year, we believe the market’s overall growth will still be lower than the historical level (see Exhibit 2). Fashion retailers need to adjust their proposition to address consumers’ changing behaviors, rationalize their store networks, and take cost-control initiatives to minimize their losses while also prepare for the future.”

About the survey

The survey was fielded between April 30 and May 12, 2020. It surveyed 1,000 consumers in China who had purchased apparel and footwear products in 2019. Of the entire group of respondents, 68 percent have a monthly household income between RMB 5,000 and RMB 25,000, 30 percent come from Tier 1 cities, and 35 percent from Tier 2 cities. We defined the respondents with a monthly household income above RMB 25,000 as the high-income group in our analysis. Male and female respondents were evenly distributed.

About Oliver Wyman

Oliver Wyman is a global leader in management consulting. With offices in 60 cities across 29 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. The firm has more than 5,000 professionals around the world who work with clients to optimize their business, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is a wholly owned subsidiary of Marsh & McLennan Companies [NYSE: MMC]. For more information, visit www.oliverwyman.com. Follow Oliver Wyman on Twitter @OliverWyman.