Beauty and fast fashion brands are reevaluating their dependence on China after battling underperforming stores, local competition, and changing consumer preferences.
In 2022, Spanish fashion retailer Mango closed its two remaining stores in China. "We are divesting in China," CEO Toni Ruiz said in an interview with Reuters. "We find it unattractive and have decided that it is not the priority for the next three years." Products will still be available for purchase through franchise outlets and on Tmall.
Mango joins other high-street fashion labels in scaling down their operations across China, including Inditex’s Bershka, Pullamp;Bear and Stradivarius brands, which shut down their Tmall flagships in 2022 aftering closing their physical locations. The divestment trend has also swept through the beauty industry, seeing names like Innisfree and LVMH-owned Cha Ling drastically reduce their store network to optimize their retail strategies.
Now, more names are turning their focus from the world’s second-largest economy to its first: the United States. Mango hopes to add 40 stores in the US by 2024, while rival Zara plans to open or revamp nearly 30 stores by 2025. But how does North America’s “land of opportunity” compare to China, and will it really give these companies the rebound they desire?
Due to rigid COVID-19 regulations, China experienced an economic growth of just 3 percent in 2022, one of the weakest levels in nearly half a century. Although the country’s reopening helped to reverse falls in industrial output and retail sales in the first two months of 2023, the government is still working hard to stimulate consumer spending and combat a high youth unemployment rate.
In contrast, the US recovered sooner than other major economies, with GDP now 5 percent above its 2019 level. US household consumption expenditures returned to normal by the second quarter of 2021, and the unemployment rate reached a more than 50-year low in January 2023 at 3.4 percent, according to the US Bureau of Labor Statistics.
As such, brands that concentrated their efforts on the US were able to compensate for some of their losses in China. In the fiscal year 2022, Adidas reported that currency-neutral revenues were up 1 percent compared to the prior year due to double-digit increases in North America and Latin America, helping to offset the 36 percent revenue decline in China. Meanwhile, Mango sales hit a record 2.8 billion in 2022, boosted by flagship store openings in New York and Florida.
But it’s not just strong retail sales that make the US attractive — it’s how Americans shop. In China, consumers looking for masstige goods, or products that are marketed as prestige but produced for the mass market, prefer to shop local, says Humphrey Ho, managing partner of Hylink Digital, Americas, an advertising agency headquartered in Beijing and Los Angeles. In the US, however, an emphasis on product value and an openness towards Korean brands (thanks to the K-pop wave) has made American consumers willing to adopt “premium price point alternatives” to domestic brands.
“Couple this with high inflation and what seems to be an impending recession in the US, we will have a lot of consumers drop from luxury brands that are available at LVMH or Shiseido into the masstige category,” Ho predicts.
However, succeeding in the market will take more than opening new stores. Brands must localize in the US by adapting their messaging, highlighting both the value of their products and the values of their company.
In Asia, “the number one consumer selection of a luxury brand is not value, rather brand prestige,” Ho explains. “In the US, it's not price but rather ‘value’ and ‘value for what the messaging conveys.’ If brand messaging can unlock that, you have an unlimited price point advantage when first entering — but only when entering that first time!”
Mango appears to be banking on this. As part of its rebranding, the European retailer is offering higher-priced clothes for special occasions and parties to differentiate itself from fast fashion players in the US. The brand has also started to gain more recognition in the market after dressing actress Amber Valletta in a white suit from its new premium collection for an Oscars party.
“Fast fashion has become so cheap it is almost impossible for brands to compete with while maintaining good quality,” explains Allison Malmsten, a marketing director at Daxue Consulting, which does consulting and market research for Chinese brands expanding to the west. “Mango is known to not use sweatshops and has a more transparent supply chain. Rebranding to higher-cost, higher-quality wear allows [it] to avoid some of the pressures to cut the corner on ethics as well.”
Korean beauty brands, however, are taking a different approach. Sulwhasoo, the luxury skincare line under Amorepacific, is dropping the Chinese characters it had been using for its logo since 1997, reports The Korea Times. Additionally, it has started casting more diverse faces for its ad campaigns, including Blackpink’s Rosé and Oscar-winning actress Tilda Swinton.
“Every country has their own version of political correctness,” Malmsten tells Jing Daily. “In China, it is about aligning with the government's views. But in the US [with] its very diverse consumer base, it is about acknowledging and respecting every culture, gender expression, and body.”
However, selling in the US is by no means easier than selling in China. Mango, for one, is returning to the US after two failed attempts. Like in China, competition is stiff; among major fast fashion competitors, Shein accounted for 50 percent of sales in November 2022, Bloomberg Second Measure found.
There’s also global macroeconomic pressures that could dampen the US economy in 2023, including inflation and signs of “trade-down” behavior, which is switching to cheaper alternatives (though this could actually be good for masstige players).
But in the race for market share, Malmsten reminds brands that they can still maintain their cultural identity by emphasizing what consumers love about their products in the first place. “Many Americans trust K-beauty brands because they are gentle, while they trust J-beauty for being minimalistic and holistic. K-beauty and J-beauty brands can narrow down on this inherent competitive advantage they have.”
Ultimately, international brands will not completely abandon China. But with consumer spending yet to strongly rebound and other uncertainties prevailing, 2023 could see more brands turning to the west in hopes of a new gold rush.