Economics 101 tells us that demand starts with the consumer responding to price. The consumer must both desire the product or service and be able to afford it. Clearly, not everyone can partake in all markets. However, as the price of goods falls, buying increases – just as when prices rise, fewer items (if any) are bought or cheaper items may be substituted for the more expensive. But of course there are exceptions. A costly piece of Louis Vuitton leather luggage or a luxury Aston Martin car, for instance, appeals to a particular buyer because of the status associated with it. Raising prices for these goods does not necessarily decrease demand because they are “Giffen” goods; part of their appeal is that they are expensive. In the retail clothing sector, when merchandise is discounted the demand for these goods increases and they are sold. Discount sales are a highly effective means of clearing merchandise. In the West this has become something of a social custom; Black Friday and Boxing Day are testaments to the success of such large-scale marketing promotions. In China on the other hand, the concept of sales has not been applied evenly in the retail sector. While bargaining is the norm for most transactions in China (haggling is encouraged if not expected), and discounts are common with all cheap and overstocked merchandise, some upscale Chinese clothing brands, still largely unknown in the West, appear to be immune to the “On Sale” convention.
Currently, much of the clothing in China is fairly inexpensive; it consists mainly of domestic brands and is usually sold in small shops or on the street, often in the older city block communities but also in stores for young consumers in the city centre. It seems that “while the Chinese population is expected to grow 2% by 2020, income growth will continue to outpace population growth — which means more consumers with more buying power. Per capita disposable income is expected to grow 75% between 2012 and 2020, according to projections made by Euromonitor International.” (See: “Reaching the Chinese Consumer,” by Emily Thompson)
Choosing not to offer seasonal discount sales is an important branding strategy for some Chinese retailers. Discounting distinctive merchandise is tantamount to “losing face,” an important concept in social interaction here. In China, “losing face” means that one has lost one’s dignity, social standing, honour, and/or trustworthiness. A common Chinese insult is, “You have no face.” It appears that in the new Chinese consumer culture a sale or discount is regarded as a defeat for those who aspire to buy into the exclusivity that an upscale brand offers. In theory, shoppers can be enticed to purchase clothing at regular prices if they know it will never go on sale. For some nouveau riche, brand-obsessed Chinese consumers, buying clothing at a discount is seen as distasteful and penny-pinching.
The reality though, is that domestic upscale clothing shops in China are empty of customers and little, if any, sales activity is taking place. Posh retail stores in fashionable shopping malls look eerily deserted; their high prices are out of reach for the majority of Chinese consumers. Would it not make sense to discount these products and sell them in order to divest inventory and make room for new merchandise? And, more importantly, what happens to the merchandise that isn’t sold? Allegedly, stores such as Louis Vuitton and Chanel burn unsold merchandise but a Google search turns up no credible information and Snopes.com has no answers either. What these companies do with unsold goods is anyone’s guess.
The Chinese retail clothing sector is abound with quality, design, and style that the West has not been privy to. Brands such as Exception de Mixmind, ZUCHUG, Ein and Origin have focused exclusively on the Chinese domestic market, providing consumers with “post-modern” styles that are uniquely designed, highly fashionable, and definitively Eastern. Stylish storefronts, strategically placed in China’s major urban boutique malls, exude exclusivity and wealth (and likely charge very high rents). As yankee00 recently commented in GoKunming, “I just Googled images of Exception de Mixmind, and by the looks of them, those things won’t go out of fashion before 2075.” Uma Wang, a Chinese clothing designer, has already made it into the Western market. Although these labels are largely unknown to Western consumers, plans are underway to bring more of them abroad. It will be interesting to see how Chinese clothing brands will adapt to Western retail marketing strategies.
As in any East-meets-West encounter, when brands from one market expand into another, some degree of compromise has to be reached. Consumer behaviour and expectations in different parts of the world are not the same. Consider the following phenomenon: most upscale clothing chains in North America (or just about any Western clothing chain, for that matter) will receive new seasonal items several times a year and, of course, because this is new merchandise it will not be put on sale. The consumer, however, has been conditioned to wait until the items go on sale – knowing full well that eventually they will be discounted. The sale phenomenon, and the extensive scale of discounts, have become particularly predominant since the late 2000s when the economic crisis decreased purchasing power and affected consumer spending habits accordingly. It appears that sales start earlier each year and discounts are larger. In such an environment, why would anyone pay full price? And how will Chinese brands compete in this type of setting?
They will probably have to compete on at least two fronts. The first is design and quality. Major Western retailers will have to step it up a few notches to compete with these emerging, upmarket Chinese clothing companies who have quality and unique design on their side. The second and more important issue is price. If Chinese clothing companies, upon entering the Western market, refuse to discount their merchandise they may be out-competed by labels that do offer sales. This issue, in fact, may prevent them from entering the Western market in the first place. Adaptability will be key. When merchandise is marked down – even once a year – it becomes more accessible to those who can’t quite afford the extravagant. Domestically, Chinese consumers who have less disposable income might consider buying these brands to add to their wardrobes, if they were more affordable. It seems that this would be mutually beneficial; surely there is money to be made in sheer volume of sales in a country with a population such as China’s. The question is, does this conflict directly with the culture of “losing face?” Given that dickering is an integral part of daily life in China, firm and final discounts (and simply lowering prices a tad in the first place) could still allow these companies to save face.
Acknowledgement: A large thank you goes to Margaret Skwara for instigating this topic, getting it started, and essentially co-writing it with me.