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Childrenswear in China Starting to Become Crowded

May 30th, 2012

The next few years look set to bring bumper growth for childrenswear in China, and this strong potential for reward is seeing manufacturers flocking to the category.

Lots of children but an underdeveloped market

Although China’s population has been showing signs of ageing, with the birth rate falling year-on-year and the mean age of the population rising from 35.5 in 2006 to 37.6 in 2011 according to Euromonitor International data, due to its sheer size the country has a vast number of children aged 0-14. With 216 million 0-14-year-olds, China has the second largest child population in the world, behind only India.  However, its underdeveloped childrenswear market does not yet reflect this.

In comparison, the US has 61 million children aged 0-14 and a childrenswear market worth US$28 million. China’s childrenswear market stands at US$14 million (RMB94 million), half that of the US, despite having a child population more than three times the size.

Rising incomes mean parents now have spending power

This vast consumer base of children to clothe would, however, mean little if parents’ income was limited and new clothes were simply not an option – as was the case not so long ago in China. While it must be remembered that China has a high level of income disparity, parents in urban areas now have more money than ever to spend on their children. In addition, the number of people living in cities in China outnumbered villagers for the first time in 2011, according to the country’s National Bureau of Statistics.

Since 2006, per capita annual disposable income has risen by 88%, meaning parents have more money to spend on their children.   Reflecting this income growth, consumer expenditure on children’s apparel per household rose steadily from RMB166 in 2006 to RMB237 in 2011, an increase of 43% in just five years.

Clearly, this huge child population, combined with an underdeveloped childrenswear market, a rise in urban living and an increase in consumer spending power, presents an apparel opportunity not to be missed.

Competitive landscape set for change

Apparel manufacturers have of late begun to recognise the potential of childrenswear in China and as a result the category has recently seen much activity from local and international players alike.

Although in 2011 domestic brands still accounted for a larger share of retail value sales than multinationals, with seven of the 10 leading brands being domestic – Balabala from Semir was the leading brand with a retail value share of 3%, followed by Dadida, Pepco and Annil – international brands are increasingly targeting the country.

Sports brands Nike and adidas have already entered this field with clothes and footwear aimed at children and teenagers, while luxury brands Burberry, D&G and Armani all introduced childrenswear lines in 2011 following the opening of the country’s first Baby Dior outlet in April 2010.

Thanks to the combination of the one-child policy and higher disposable incomes than ever before, many young parents are treating their children to high-quality products, and therefore Western branded apparel products, which are seen as aspirational and something to trade up to as income rises, are likely to gain strength in the years to come, putting pressure on local manufacturers and bringing more consolidation to what is currently a highly fragmented market.

Taking the attention away from the adults

While international players have intensified the level of competition in the Chinese childrenswear market in terms of new arrivals, they are not alone. One noticeable recent development in the childrenswear market has been the entry of traditionally adult-focused apparel manufacturers. As well as the sport and luxury multinational brands already mentioned, Chinese manufacturers have also begun to expand their offerings into childrenswear. At the same time, multinationals already established in China have invested in and enhanced their childrenswear offerings.

Local players Septwolves, 361 Degrees and Li Ning have all recently expanded their activity in the childrenswear market. Domestic sportswear manufacturer 361 Degrees said in January it plans to open 600 more stores over 2012 specialising in childrenswear, while sportswear brand Li Ning recently announced it intends to switch its focus to childrenswear. In footwear, Chinese giant Belle International Holdings announced its intention in late 2011 to also expand into children’s footwear.

Added to this interest from local players, Zara and Uniqlo have both incorporated trends from their adult apparel ranges into their children’s clothing lines as parents have become more fashion-conscious on behalf of their children and are more likely to splash out on something simply because they like the look of it.

While this recent focus from traditional adult apparel players on the childrenswear market has yet to have a very visible impact on the category with regard to company market share, over the forecast period the trend is set to gain momentum and exert more influence, again putting pressure on smaller local players.

Local players face the toughest challenge

So where does all this activity leave China’s local players in childrenswear? Without doubt, the current leading brands have the most to lose from this flurry of activity in the category as they risk being displaced by the aggressive expansion of the category’s new arrivals.

Domestic brands have already fallen behind in the larger first- and second-tier cities, with international brands coming to the fore. However, through targeting low to middle-income consumers, domestic manufacturers remain strong in third- and fourth-tier cities. It is unlikely, however, that they will remain unchallenged here for long. Multinational players are almost certain to accelerate their penetration in lower-tier cities soon enough, launching lower-priced products and subbrands tailored for lower-income consumers in cities that have huge populations and increasing income levels. As a result, domestic brands are likely to face the biggest challenge of all going forward.

Huge potential but casualties expected

Given the potential the category holds and the fact that childrenswear is far more profitable than adult apparel – because the sizes are smaller but the prices are similar – it should come as no surprise that the category is provoking such interest and activity. In the years to come the fight for parents’ money is set to reach epic proportions and although there is much room for success, casualties – particularly in the form of local players – are likely to be high.

 

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