Zara is in and Prada is out as Xi Jinping’s crackdown on corruption is starting to cause problems for high-end brands in China. According to a recent market survey 65 percent of luxury retailers failed to reach their targets for new store openings in 2013.
The slowdown for couture sellers is in contrast to the success of mid-range fast fashion brands, such as Uniqlo, Zara, H&M and C&A, which increased their total store count by 40 percent from mid-2012 to the end of last year.
The report, “Spotlight on China’s Retail Market 2014: Experience at the Fore in the New Retail Typology”, co-published by international property consultancy Knight Frank and global design and consulting firm Woods Bagot, singled out luxury retailing as an underperforming sector in an overall retail environment where e-commerce and fast-fashion were flourishing.
Speaking of the difficulties facing top brands, Paul Hart, Executive Director, Greater China at Knight Frank, said, “We find that many retailers missed their store opening targets last year. This can be due to a variety of factors, including the difficulty of finding good quality sites; sales were dragged by tightening government policies on anti-corruption; or a change in strategy for internal reasons.”
Retail is Up While Luxury Struggles
According to management consultants Bain & Co, China’s luxury market reached RMB 116 billion last year, achieving just two percent growth over 2012, while overall retail sales grew 13 percent.
Bain found that efforts by the party leadership to stamp out corruption and go after “tigers and flies” had particular impact on “gifting luxury”, with watches and menswear have taken the biggest hit.
Knight Frank predicted that the struggles of high-end retailers will continue in 2014. Referring to the market outlook for this year, Thomas Lam, Director and Head of Research & Consultancy, Greater China with the property consultancy commented, “The growth in luxury retail sales will slow while that in fast-fashion, mid-range fashion and F&B segments will maintain strong.”