Alan Fang (CEO of Novo Holdings): "It’s a good time to be a multi-brand retailer"
today Nov 4, 2012
Alan Fang is in a good position to talk about urban fashion in China. The CEO of Novo Holidngs has got his finger in many pies. He has a network of multi-brand stores, retail agreements with international brands, a trade show focused on urban fashion (Novomania) and an e-store in the works, independent of online retail giant Taobao. Fang gives us an insight on the market with more than 1.3 billion inhabitants.
FashionMag.com: How is the urban fashion market changing in China?
Alan Fang: Young people are looking for a style, for their own look…For them, this used to mean European or American brands. They would therefore frequently travel to these places and because of that, the market looks much different now than it did ten years ago. Ten years ago luxury labels were the only well-known names, but these days the Chinese consumer is very well-versed in international brands. People can easily keep up-to-date with the scene thanks to the internet, Weiboo (Editor’s note: a Chinese social media site) and even blogs. At the moment, things are changing at a very rapid pace, especially in big urban areas.
FM: In ten years’ time, do you think there will be a complete change from the way things are now?
AF: I think the scene will be completely different. Many more people will be interested in fashion. I think there is an attraction in being able to change your look and to try new things so easily.
FM: It seems that all we hear about is mono-brands opening stores in China.
AF: In today’s market, there is an army of brands that open up franchises. The next five years will see an expansion of multi-brand stores. What exactly is a mono-brand? It’s just a brand and its concept. There is a collision here. Local brands are strong because they are popular the entire country through; they’ve really come on with their level of merchandising. Big international brands, on the other hand, are franchised which guarantees that standards are consistent to the brand’s image. The market is very difficult and highly competitive. Retail isn’t as fail-safe as it has been in the past and we are seeing a lot of changes in light of this.
FM: International brands seem to speak of China as the road to El Dorado
AF: No no, it is as hard as ever to hit the Chinese markets. Barriers to entry are even harder to overcome. Rent, salaries, competition… everything is on the up.
FM: Which brands are really hitting the nail on the head?
AF: In my opinion, the Chinese market is driven primarily by premium and contemporary brands, for example Zadig & Voltaire, Acne, Tiger of Sweden or even Woolrich, Blauer, Twin Set and Drykorn. There are really not many players. If quality slips, brands find themselves losing customers to Zara or H&M. Brands must ensure quality and style in order to stay on top. Denim in China is quickly losing its allure. People just don’t want to pay 2000RMB (200 euros) for a pair of jeans.
FM: Are people gravitating more to Chinese brands?
AF: Local brands are gaining ground because of their supply chains. Problems used to lie with packaging and marketing, but they are just getting better from year to year. The future is good for them because they are so present in the country, with many brands having stores in 150 or more towns, whereas international brands are happy to just to set up shop in the 20 towns. Chinese brands also have a good mix of retail and wholesale, like Piece Bird or JSJ for example.
FM: How many Chinese brands do you think are on the market?
AF: Around 1000 perhaps, going on wholesale and suppliers. I’m not a designer but I could very well get in contact with a supplier, give them a few ideas and launch my own ‘Alan’ brand. Then I would try and sell the goods. There are maybe 100 or 200 brands that are really present on the market, each with between 300 and 400 stores nationwide.
FM: Bosideng has just opened in London. Are Chinese brands looking to explore other markets?
AF: It is everyone’s dream to expand internationally. The problem, even before we start with products, is the cultural differences in enterprises, namely the management. I advise Chinese brands looking to expand to buy a small European company, leave their teams in place and observe how they work.
FM: Are shopping centres beneficial to new brands that want to establish themselves?
AF: Commercial real estate is very different here than in Europe where you have to negotiate with cities to be able to construct a shopping centre. For the next five years we have around 800 stores in the works, each measuring around 650,000 square feet.
FM: Will there be enough consumers?
AF: That is a question that needs to be addressed. Growth is slower now than it has been in past years, in Shanghai as well as other places. I see it like this: one third of these shopping centres will succeed, one third will be average and the final third will close. The market is much more complex than it used to be. To establish a brand or a chain you have to focus on the national scale rather than just what happens in Beijing or Shanghai. For us, we are targeting third-tier cities with around one million inhabitants. It’s a much easier approach because with only three commercial areas in the city, our flow of customers is a lot less random. There are very few brands who can afford open stores measuring 22,000 square feet each. At the moment it’s Zara, Forever 21, H&M, Uniqlo, C&A and us, and we are the only multi-brand retailer. The ‘mix and match’ effect, paired with an excellence shopping experience attracts consumers.
FM: What proportion of Novo’s offerings are Chinese brands?
AF: At Novo, 65% of the brands are international and 35% are Chinese. Five years ago our offering was 100% international. International brands have a good balance of price, style and quality. When we opened our concept store carrying Chinese brands there was a distinct lack of marketing and merchandising on the brands part. That being said, international brands are poor at establishing in smaller towns and cities because of their high prices.
FM: Are franchises becoming choked?
AF: Previously, if you had the money you could easily set up a franchise, but as I said, rent is becoming much more expensive so less brands are choosing to do it.
FM: How much or the market is multi-brand retailing?
AF: You could say 5% if you count just the big retailers, but in reality it is more like 70%. On every street you see little boutiques, showrooms and even some bigger stores selling local collections.
FM: So my figures are wrong…
AF: That depends on your definition of multi-brand. If you are talking about retailers like Lane Crawford, Joyce or Novo, then the share is low. However, in every town, on every street, you can find multi-brand stores who buy directly from manufacturers.
FM: Is e-commerce the future in China?
AF: It is a very important phenomenon, considering the 300 to 400 million internet users there are. Price is the first thing an online-buyer will look at. I think that the web could, given time, account for up to 40% of sales for brands. Today, some brands even see between 5 and 10% percent of their sales coming from online. Often, because of logistics, brands have difficulties delivering to all areas of the country. In this respect, international brands are less present because they don’t want to encroach on the success of their franchises.
FM: KKR recently bought into your capital. What are your future plans?
AF: With the employees, I still have a 70% stake in the capital. However, the company needed money to be able to develop. It was a good time to make the move. We are going to expand our retail network, going from 15 stores to 32 in two years.
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