China Consumer

Guessing wrong?

If you don’t own your China stores, the brand suffers. Ask Guess executives

Guess the brand...

“We deliver products and services of uncompromising quality and integrity consistent with our brand and our image”.

That’s the first line in the mission statement of US apparel retailer Guess Inc. But in its race to build a China footprint, is that commitment losing a little of its shine, at least as far as some of its local customers are concerned?

When Guess arrived in China four years ago, it faced similar challenges to other foreign brands wanting to establish a commercial bridgehead: how to compete in a fragmented market with uncertain logistics and a complex regulatory structure.

So rather than invest in its own store network, Guess opened a wholesale office in Shanghai and chose to partner with local distributors (that contrasts directly with North America, where Guess stores are directly owned by the company).

The drawback, Guess realised, was the distributor incentive to drive top-line sales, even if that came at the expense of diluted brand equity for its products. CBN Weekly quoted a dealer who complained that while he tried to avoid discounts, his counterparts in other malls used them a lot.

It shows. Guess handbags, clothes and other accessories have dropped from an average price tag of Rmb2,000-3,000 when it first entered China, to Rmb1,100-1,300 today, according to an Economic Observer report this month. Industry insiders even gossip that it’s hard to find a rack in a Guess store that doesn’t have items on sale. A staffer in the wholesale office told the newspaper that they find it difficult to track their inventory through to point-of-sale. But not to worry: “Obviously, the more distributors can sell the better it is for us, even if it means damaging the brand’s value,” the same employee confided. Not a perspective they will be keen on back at corporate HQ in LA…

Guess competes in the middle-market luxury category, below brands like Hermes and Louis Vuitton but above other foreign labels such as H&M and Esprit. How it protects that positioning looks like being a matter for debate, especially if the brand gets more of a reputation for moving in a discount direction.

One anecdotal example, also reported in the Economic Observer: 32 year-old Miss Li, who bought a Guess handbag when she first started working, but has since traded up to another label.

“It’s not because my salary has gone up, but Guess is now so cheap that the brand is just not appealing,” Miss Li explains. “I don’t even buy them for gifts because it’s almost embarrassing.”

The Guess sales strategy contrasts with British fashion house Burberry, which announced last year that it would pay $108 million to take full control of 50 stores in 30 cities previously run by its franchisee partners. At the time, Burberry said that the move was designed to ensure a consistent brand image across its retail network.


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