Showroom Observation: Ways to Survive for Buyer-Oriented Multibrand Boutiques in China
In 2004, Guo Ben, a Shanghai native, who just came back from Switzerland, was vacillating between Plaza 66 and Xintiandi and finally chose the latter to open his Glossy due to the lower rental. He could not imagine back then that buyer-oriented multibrand boutique would be a hotspot for fashion retailing in China in 11 years, nor could he realize that Glossy has turned out to be the first such outlet in China.
Buyer-oriented multibrand boutique emerged after WWII, and saw its booming growth in late 1980s in Europe, America and Japan. According to an incomplete estimate that there are more than 32,000 buyer-oriented multibrand boutiques of various sizes around the globe, which generate revenue approximate to 200 billion dollars and have become a most important part of global fashion wholesaling. General criteria for buyer-oriented multibrand boutique mainly include: consistent esthetics and value core concerning shop decoration and display, visual image and brand/products selection appeal to targeted consumers; with official showrooms and fairs echoing the time schedule of major fashion weeks as the shop’s most important ordering channel, buyers’ (as individual or team) values, esthetics preferences, experience are significant basis for brands choice, product portfolios, and single products for the shops; products are mainly buyout (including some products on consignment). Retail outlets meeting the criteria above can be categorized as buyer-oriented multibrand boutique, whether it is called boutique department store such as Barneys New York, Lane Crawford, Dover Street Market, or a some 20 square meters shop on the street side of Kobe, Istanbul, or outlets of a number over dozens or hundreds like Beams, Via Bus Shop, or a single outlet such as Colette in Paris.
Back to China a decade ago, apparently, the market environment and customers’ habits did not provide a favorable soil for buyer-oriented multibrand boutique at that time. Consumers started going after famous brands, and there was not any room left for fashion brands outside of luxuries and business clothes no matter from the perspectives of either recognition or esthetics awareness, which directly led to the withdrawal of Lane Crawford’s by closing its water-testing outlet in China. The period from 2004 to 2009 was still the golden age for “foreign trade fashion outlet,” while local buyer-oriented multibrand boutique can only mean European products shops except Glossy and BY in Shanghai and Waterstone in Beijing.
The period between 2009 and 2011 can be seen as the hatching period for local buyer boutique in China, when BNC, Dongliang, Triple-Major, Alter and TIPS were basically founded during this period, while Glossy, BY entered their growth and development during this phase. This is because market environment started changing: some consumers grew tired of luxuries and started trying designer brands of differentiated esthetics; designer brands in China became mature and gained increased attention; ever-intensifying competition forced commercial property projects to seek differentiated retailing models. Buyer outlets founded during this time period have two fundamental features: the first is that they are mainly located in Shanghai and Beijing, the fashion forefronts in China; the second is that Chinese designers are the selling points in part or on the whole.
Around 2012, domestic buyer outlets in China entered the growing period as fashion market environment underwent rapid changes. The market during such growing period showed three good signs:
Firstly, as all kinds of players got involved, the number of outlets grew fast. The reputation from BNC and Dongliang spurred a host of buyer outlets which were dedicated to promote Chinese designer brands, among which the Fashion Door in Guangzhou, Round Round in Nanjing, FOUR in Chengdu, Galatea Wan in Changsha, WSHIEN in Chongqing are prominent ones. The opening of HCH in Wuhan Tiandi in 2012 signaled the shift of the traditional agent to buyer-oriented multibrand boutique, and its extraordinarily successful performance led a host of agents stranded in the traditional model to move on to either join the industry or prepare to do so. On the fashion brand end, Arrtco opened by Hempel in Beijing led the way, while 01 MEN by CANUDILO in Guangzhou and D2C affiliated with Qiushuiyiren in Zhejiang made a splash entering, further exciting the interest of a few brands including Metersbonwe, Marisfrolg, Mark Fairwhale. While on the Chinese designers’ side, One By One by Wang Chuqiao took the initiative, followed by Archipel by Shangguan Zhe, which is going to be opened soon in Xiamen. A modest estimate shows that by the end of 2014, there were nearly 900 buyer outlets in China with an annual revenue over 6 billion RMB.
Secondly, esthetical tastes of Chinese consumers gradually diversified, and many outlets targeting niche style came out in China. For street fashion, there are A-Maze, HSpace, Luna and MMC to be opened soon; for vanguard fashion, there are eth0s, J Gallery, Phantom; for American vintage, there is Radiance; for life esthetics, there are Lost & Found, The Back Room, Between, and TASTE Shop…
Thirdly, the area of outlets become larger and larger, such as the Fashion Door which has an area over 2,000 square meters for a single shop, HCH in Wuhan about 1,300 square meters, while Archipel phase I which is to be opened soon has an area of 800 square meters. Similarly, the revenue of single shop grows annually, such as HCH in Wuhan which has an annual revenue over 40 million, while Glossy in Shanghai saw the maximum monthly revenue approximate to 3 million in 2014.
There is only one reason for local buyer-oriented multibrand boutiques being shifted into the high gear over the past three years: profound change for the market environment and commercial model in the fashion industry in China due to the overall mega environment influence.
On the consumer level, as the change of fashion recognition and improvement of personal esthetics, a few high-income consumers in China started to drop their obsession with brand logos, fashion consuming hotspot gradually shifting from luxuries to designer brands that are more design-intensive and more niche-bent. Young consumers from ‘80s and ‘90s generations become the major consuming force; compared to older generations before them, they have a more open horizon, more matured esthetical awareness and more of their own ideas; and their consumption style is more rational and diverse. As such, designer brands of global influence, light luxury brands with high price-performance ratio, trendy brands that are even closer to the life style of the youth, and domestic designer brands that better align with local market values and taste start eroding the market which was once dominated by big luxury brands.
On the brand level, due to objective limitations from resources and experience, the majority of designer brands, light luxury brands, and trendy brands find it hard to expand in a self-operating retail model in a gigantic market like China which is complicated and changing all the time, so the wholesale model from buyer outlet buyout becomes the best option.
On the channel level, the general path model from traditional brand to agent to department store/shopping mall encountered great challenge. Great impact from e-commerce, changed consuming habits of young consumers, an intensified competition among homogeneous commercial properties, a slowdown in the rush by luxuries and commercial brands to expand, all together drove department stores/shopping malls to look for differentiated retailing models. The newly emerged buyer-oriented multibrand boutique featuring differentiated experience became their immediate favorite, while supportive policies including good locations, decoration subsidies and low discount points came up and gave a push to the development of buyer-oriented multibrand boutique.
On the traditional agent level, the old proven business model to get a commercial brand and open an outlet in a department store found that they are facing an uphill battle to survive, and considering business model change is inevitable. Tempted by supportive policies from department store/shopping mall externally, while motivated by brands of commercial potentials selected through multibrand collection screening internally, opening a buyer-oriented multibrand boutique turns into an important option along their journey for transformation.
Change of consuming philosophy and habits, difference in brands’ operation, demands for differentiated retailing on commercial properties, and shift from traditional agent concept and model have combined to drive the rise of domestic buyer-oriented multibrand boutique. More importantly, an enormous middle class would emerge in the next decade in China given a stable social environment. Generally, for the ‘90s generation, unlike former generations who have to spend all their savings on housing, their consuming power are reflected in life taste improving and individual value realization, thus “life style consumption” and “esthetics economy” will become important consuming engines. When there is demand, there must be supply. Not surprisingly, the next decade would be an age for buyer-oriented multibrand boutique and its upgraded version -- life esthetics space -- to truly prosper in China. Optimistic estimate shows that it is not impossible that by 2020 the number of buyer-oriented multibrand boutique (and its derivative models) would exceed 5,000 in China with an annual revenue more than 60 billion RMB.
Anyway, strategically, investment in domestic buyer-oriented multibrand boutique in the next decade may prove successful, but technically, there are still tough challenges facing existing and potential buyer outlets. One or even a number of outlets going out of business due to wrong decision-making or being ill-prepared will definitely be the constant view along this highway. Specifically, selection and deep understanding of a target consumer group, determination and utilization of esthetics style, sourcing of high price-performance ratio property, reasonable grouping and adjustment of brands structure and products portfolio, establishment of buyer team and data supporting system, tapping and management of brand resources, management of restocking range, customer database and VIP management, training of shopping guide and exhibition team, building and publicity of a unique outlet image, how to deal with the inventory as well as how to deal with challenges from e-commerce and commissioned purchase, all of these are problems that buyer-oriented multibrand boutique of various types need to face up to and deal with at some stage.
On the commercial and investment level, the domestic buyer-oriented multibrand boutique is actually a revolutionary upgrade from traditional brick and mortar retailing model, and it spawns great opportunities as well as risks. Since the backgrounds of players in the industry are multifarious, spanning from fashion workers, rich fashion lovers, traditional agents, brand operators, designers, upstream fashion industry, traditional department stores, to commercial properties, the types and styles of the outlets they set up are diverse, so it is hard to provide a one-size-fits-all answer to address their ways to survive. Generally speaking, there are following choices and directions for buyer-oriented multibrand boutique to develop in China:
Boutique Department Store: benchmarks for this category are Lane Crawford and Dover Street Market by Rei Kawakubo. Advantages for this model are the bargaining chips for the brand when negotiating cooperation with property developers, possibility of subletting partial retailing space for stable and risk-averse profit, and lowered cost for promotion from size advantage, while the challenges include huge sum of capital investment demand at the early stage, demand for building a huge buyer and commodity management team, as well as how to efficiently manage the inventory. The keys to success for boutique department store: firstly, find the commercial space that offers adequate volume at extremely low costs; secondly, maintain a stable and high traffic of customers by relying on good publicity, great shopping experience, and unique products portfolio. Currently, Fangsuo has taken the shape of boutique department store based on its present size and reputation, the Fashion Door in Guangzhou with real estate background and HCH in Wuhan with rich retailing experience are capable of turning themselves into boutique department stores, and it is very possible that in the future more and more traditional department stores and commercial properties would choose such model.
National Chained Buyer Outlet: benchmarks for this category are United Arrows, Beams and Via Bus Stop in Japan. Advantages for this model are the bargaining chips for the brand when negotiating cooperation with property developers, with franchising operability thus possible for rapid growth under less capital pressure, easy disposal of inventory, while the challenges include demand to establish well-rounded and flexible purchase and commodity management systems to transcend consuming barrier across different regions, as well as how to deal with inadequate gross profit margin associated with conventional purchasing to support the growth of certain market segmentations and channels. The keys to success for national chained buyer outlet: firstly, formulate different products portfolio strategy and promotion strategy targeting different markets under the consistent esthetics style; secondly, improve the gross profit margin of the outlet by operating its own brands. Currently, D2C, with its traditional OBM background, has started building its national chain landscape, while HCH and Arrtco, which also have similar brand and agent experience, possess great potentials to become such outlets.
Urban Landmark Buyer Outlet: a benchmark for this category is Colette in Paris. Advantages for this model include that once the outlet gains reputation, it can generate high revenue from a not very big operation area (such as Colette, with an area of merely 300 square meters, has an annual revenue over tens of millions of Euros), and that it has bargaining chips for the brand when negotiating cooperation with properties, while the challenge is of course how to make their fame and attract a great number of visitors to come and consume. The keys to success for urban landmark buyer outlet: firstly, find the independent retail space in famous scenic spots and commercial centers in tourism cities; secondly, the owner of the outlet is a person of renown or possesses publicity resources nationwide; thirdly, it needs a strong visual design and event implementing team. Currently, Glossy and Archipel by Shangguan Zhe that are endorsed by celebrities possess the greatest potential to become such outlets.
Small but Sweet Boutique Buyer Outlet: benchmarks for this category are Lift in Tokyo, RA in Antwerp, and Darklands in Berlin. Currently, most buyer outlets set up in China by fashion workers and fashion lovers belong to this type. It is estimated that more and more such buyer outlets will emerge in cities around China. The advantage of this model is that it has a low threshold and does not need a big sum of capital and rich retailing experience. Challenge is that if the style is too mainstream, it faces fierce competing environment, while if the style is too highbrow, customer traffic will be a problem. In addition, the small size drives up various costs and results in a low ROI (though many owners of such outlets do not consider money-making their primary goal since they open such outlets purely out of personal sentiment, interest and ideal). The keys to success for such outlets: firstly, it needs patience to survive the first couple of years since the customer base takes time to grow; secondly, the percentage of products from accessories, sundries, and home categories should be increased gradually under consistent esthetical tastes, and to some extent, this approach would improve sales per unit area, average gross profit margin, and reduce inventory pressure.
Community Lifestyle Buyer Outlet: outlets of this category have sprung up lately in America, Japan, Germany, and Northern Europe. Simply put, they are like MUJI outlets opened around a community (the difference is that MUJU sells their own brands, while such outlet adopts buyout of other brands). The advantages of this model include low investment, easy access to properties, and readiness to duplicate a successful business model, while the challenge for such model in China lies in how to find various commodities that are accepted by a majority of the middle class under consistent esthetical tastes.