Chinese fashion has an image problem, Bosideng's struggle shows

A Bosideng store in Shanghai, China. PHOTO: QILAI SHEN/BLOOMBERG
A Bosideng store in Shanghai, China. PHOTO: QILAI SHEN/BLOOMBERG

(BLOOMBERG) - Selling upscale apparel in London and New York should not have been so hard - at least that is what Chinese clothing maker Bosideng International Holdings Ltd predicted when it tried to go global in 2012.

Bosideng, which makes down-jackets for giants including Adidas AG, was the most successful outerwear supplier in China when chairman Gao Dekang, a tailor-turned-billionaire, opened a £35 million (S$62.3 million) store in London's Mayfair. The expansion plan flopped as the label failed to gain sufficient traction. Now, Bosideng is focusing on its domestic market and counting on foreign brands to help revive profit.

The misfire highlights the challenges for Chinese companies - the world's largest garment exporters - in trying to tap overseas markets with their own brands. For one thing, their vast domestic customer base, historically deprived of choice, created a false sense of recognition, said Doreen Wang, the New York-based global head of consultancy BrandZ.

"Chinese consumer apparel makers think that putting products on shelves means that you've established a brand - because that is how they came up in a China where consumers just bought what was accessible," Wang said. "But in the current consumer environment, building a brand takes a long time and a lot of investment."

Bosideng, a Chinese transliteration of "Boston", was selling US$1.3 billion (S$1.8 billion) of merchandise in China annually, including the nation's top-selling line of down-filled puffer coats, when it enlisted designers Nick Holland and Ash Gangotra to help it take on the premium American and European menswear markets.

Problem was, the Bosideng brand was hardly known overseas and the company did not understand the investment needed to gain acceptance as a high-end retailer.

"We tried ourselves to sell our merchandise outside China, and not just be a manufacturer for other brands, but ended up reconsidering that," executive director Kelvin Mak said in an interview. "If we want to re-enter the international market, we will be more careful in taking that step."

The company closed its unprofitable London flagship store in January. The shop's opening five years ago - in a newly built bronze, triangular building off Oxford Street, where the Hog in the Pound pub once stood - was to herald more overseas outlets.

Rather than grow, Bosideng went into an earnings free fall. Profit plunged 90 per cent in three years as customers in China migrated to other companies' online platforms for their clothing purchases, and foreign fast-fashion franchises moved in.

Bosideng's shares, which began trading in Hong Kong a decade ago, have slumped 66 per cent over the past five years, valuing the company at about HK$7 billion (S$1.2 billion).

Marty Staff, a former Hugo Boss executive, coordinated the company's first and only showing of its collection at the 2014 New York Fashion Week.

Even so, Bosideng was unwilling to invest large sums on advertising and marketing, Mak said. 

He cited that as a reason why there has not been a deal to carry the label at Saks Fifth Avenue. A spokesman for Hudson's Bay Co, which owns the New York-based, upscale department-store chain, said the company does not comment publicly on the terms of vendor agreements.

Promotional activities for Bosideng's London store included lending suits to male celebrities and posts on Facebook, Mak said. "We were not comfortable with making that kind of investment as we were just testing the waters," he said.

While China's home-grown technology brands, such as Huawei, Lenovo, Oppo and Alibaba, have been successful overseas, the country's apparel companies have typically not known "how to build a product with both functional and emotional components", said Richard Ho, senior partner at consultancy Roland Berger GmbH in Shanghai.

What is required is a profile and a story, said Chan Wai-Chan, a retail partner at consultancy Oliver Wyman in Hong Kong.

"I would hesitate to call Bosideng a brand," Chan said. "It had a fantastic location in London, but when people walk by, they ask, what's the story? What's this about?"

On a visit to the store, Chan said he was told by a shop assistant that Bosideng is "the biggest down-jacket brand in China".

"That has limited effect," he said. "It could have the best production abilities, but not the innovative idea behind the brand. That's why it can make jackets for top global brands, but not sell them globally themselves."

Bosideng began with innovation. Gao, its chairman and founder, was a small-town tailor with an eye for fashion and business, who started a factory in the 1970s with six sewing machines, 11 workers and materials procured and carried by bicycle from Shanghai. On one of his many 180km round trips, he saw customers lining up to buy coats made of down - a luxury few people could afford and an opportunity he was quick to tap.

At one time, the company sold 3.5 million jackets of one particular style in one particular colour, Holland, who designed clothes for Bosideng, told The Telegraph newspaper in 2012, when he said the company was churning out 450 million ducks' worth of jackets annually. Today, Gao and his family are worth US$1.06 billion, according to Forbes.

About a third of Bosideng's revenue comes from making down-jackets for brands such as Columbia and North Face, Mak said. It is a business that enables the company to glimpse the styles and designs that others are planning to introduce.

In China, outerwear sales growth is slowing. Denmark's Bestseller A/S dominates with 3 per cent of the market, ahead of Fast Retailing Co's Uniqlo, with a 1.5 per cent hold, according to market researcher Euromonitor International. Bosideng's share halved to 0.7 per cent last year from 1.4 per cent in 2012.

Bosideng is now focused on wooing younger, trend-conscious consumers. It has bought several domestic womenswear labels, including Jessie and Buou Buou, and is looking for more, Mak said. He projects 10-to-20-per cent revenue growth for its women's workwear segment - pitched at an older, wealthier clientele - in the year ending March 2018.  It is also negotiating to bring a Japanese childrenswear label to China, where it sees greater prospects, thanks to the lifting of the one-child policy and a consumer shift to higher-end items, such as organic-cotton clothing.

As for down-jackets, Bosideng is trying to sharpen its branding with a line featuring Disney characters, sales of which totalled 100 million yuan (S$20.1 million) in the first year, and a premium range designed by Fabio Del Bianco of Italian apparel manufacturer Moncler.

"What we see is steady improvement again after the bad period," Mak said. "It's quite hard because the market has changed and more international players have come in. What we want to do is rebuild our customer base and let people know we are good at down-jackets."

Bosideng slashed its Chinese outlets to 4,000 from 10,000 five years ago, closing mostly stores in department stores where foot traffic has slumped. It has also strengthened its manufacturing and logistics capabilities, enabling products to be delivered within a week, and boosted its e-commerce portals, which now account for a fifth of revenue.

The expansion abroad was not a complete bust. Mak says the London property is now worth £50 million, though Bosideng has no plan to sell.

"We may return in a few years when we have completed our domestic restructuring," Mak said. "For now, international expansion is on hold."