China Consumer

Out of fashion

Baleno joins domestic peers in cutting back retail network

^

Chinese apparel retailer Metersbonwe grabbed headlines in 2009 when it became the first Chinese label to pay to appear in a Transformers movie (the second instalment, Revenge of the Fallen). The Chinese firm also got its name onto the T-shirt worn by the star Shia LaBeouf in the third film (Dark of the Moon). But audiences who were waiting for Metersbonwe to show up in the latest flick – Transformers: Age of Extinction – will be disappointed. Even though the Hollywood blockbuster featured more Chinese brands than ever (for more see last week’s issue), the casual-wear maker was nowhere to be seen. Perhaps that’s because – after years of aggressive expansion – the firm has quietly closed over 200 stores in China over the past year.

Metersbonwe isn’t the only apparel firm to scale down. Hong Kong retailer Baleno, which opened its first store in China in 1996, has also closed almost 400 outlets – or 10% of its stores – this year. In the financial year that ended in March, Texwinca, Baleno’s listed parent firm, reported that total revenue had dropped 9.3% compared with the year before.

Baleno, which derives the majority of its income in China, was one of the first Hong Kong labels to launch in the mainland. It became known for inexpensive casual-wear like polo shirts. The fact that it was a Hong Kong brand also conveyed a more prestigious image in the eyes of many mainland customers.

But Baleno has slowly lost its appeal. The brand, which was once a draw for many Chinese malls, has been shutting down unprofitable stores since 2012. The mention of Baleno on Dianping, a user review site, elicits a decidedly dismissive response, with many complaining about fabric quality, post-wash shrinkage and faded design.

Industry observers say Baleno has been too slow to respond to changes in taste. While fast-fashion companies like Inditex’s Zara bring out new products several times a season, Baleno updates its inventory four times a year. Younger consumers also complain that Baleno’s basic apparel isn’t exciting or trendy enough. It doesn’t help that for a long time, Baleno hired Asian superstar Andy Lau to endorse its range. Now in his fifties, he’s less appealing to China’s youthful consumers.

“I only go there to buy clothes for older people in my family. Their apparel is very basic. It’s not something that attracts me,” a shopper in Guangzhou told Yangcheng Evening News.

Another consumer agrees: “I used to shop there when I was in high school. But I have hardly shopped there since. Every now and then I would still check it out but I never buy anything,” a 40 year-old shopper told the same newspaper, adding that most of his friends have switched to foreign brands like Nike and Adidas.

Baleno seems to have similar challenges to Li Ning, the domestic sportswear label (see WiC93). “These companies have the same branding problem,” Li Guangdou, a marketing expert, told Huaxi City Daily. “When people think about Li Ning, they conjure up the image of its silver-haired founder, the gymnast. When people think about Baleno, they think of Andy Lau.”

The rise of online shopping has also challenged more conventional retailers like Baleno. Although Baleno has a virtual storefront on JD.com, one of China’s largest e-commerce platforms, most of its business is still done offline.

“The problem is, the market changes too fast. New brands and foreign retailers keep cropping up. The impact of e-commerce is also far-reaching. After a while the brand [Baleno] just feels stale and outdated in the minds of younger people,” says Ma Gang, a fashion commentator.

Baleno isn’t the only casualty of the changing times. In addition to Metersbonwe’s store closure programme, the domestic label Semir has also shut more than 700 stores so far this year. Hong Kong’s Giordano, another casual-wear label, closed 75 outlets (including 21 in Hong Kong) after recording an 11% drop in China sales in the first quarter of this year. In May, Feel100%, once a rival to Baleno, shut down all of its China operations, says Xinhua.

On the other hand, global labels like Zara, Uniqlo and H&M have continued to advance in the Chinese market. These apparel chains have now secured their footholds in the major cities and are looking to expand into second and third-tier cities too.

Zara operates about 150 stores under its flagship brand name in China but Forbes expects the number to double in the near future.

The older brands admit that they must find a way to respond. “Zara and H&M changed the rules… we have to understand the implications,” Peter Lau, chairman and chief executive at Giordano, told the China Daily. The transformation has been sudden, he acknowledged, comparing it to the way that the launch of the iPhone changed consumer expectations about mobile phones.

“People who insist on clinging to their [old] point of view ignore the reality of how much consumer behaviour has changed since Zara opened its doors,” Lau warned.


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.