Clothing: An Outside Consultant\'s View

¶ … Clothing: An Outside Consultant's View

Although sales revenues have temporarily declined by 10%, X-L Clothing has, no pun intended, an XL opportunity to become a market force in the world's largest country, and explore one of the international community's greatest, untapped and expanding markets. China's low labor costs have long made it an attractive manufacturing base for clothing companies, because companies such as X-L could make clothes cheaply for export as well as import. Now, China's emerging middle class make the nation an ideal market to sell clothing, in this case outerwear that is uniquely tailored to the needs and desire of the Chinese consumer.

Naturally, X-L is slightly concerned by the recent annual drop in revenue. At present, it is considering three alternatives: 1. To increase advertising by $5 million annually, 2. To drop the brand and to 3. redesign the brand by increasing R&D expenses by $3 million over the next 18 months. The first option, of the three, seems like the best alternative by far. First and foremost, never underestimate the value of a strong image when selling clothing, even sports clothing. The image of Michael Jordan caused countless aspiring NBA stars to shell out more than a hundred dollars for relatively ordinary shoes, some of which the consumers never wore on the courts. No price was too high to pay to be like Mike, or simply wear his shoes.

Today, Chinese consumers are just beginning to understand the lure of advertising to create a personal identity. Already, fast-food companies have radically altered Chinese eating habits in urban areas. Now, this can also be true of the leisure industry. "China is poised for a consumer-products revolution...As government policies shift to encourage consumer spending, businessmen may finally realize their fantasies of an enormous, untapped consumer marketing frontier" (Ford, 2007). Surely the X-L clothing company wishes to become one of the businesses capitalizing upon this untapped market?

China wishes to consume images of the United States, and by marketing itself as a representation of all that is exciting, fresh, outdoorsy, strong, and American, X-L can become synonymous with outdoor clothing. Furthermore, the vast size of China, even if revenues were not declining, demands a large advertising budget. China is a tremendously diverse nation, and marketing to different demographics, focusing on a diversity of sports, and segmenting its advertising to target different regions will prove important in securing a first mover advantage in this market. Brand dilution because of the threat of imitations is also very real, and it is essential that Chinese consumers learn to accept no imitations of X-L.

Discontinuing the brand after a relatively paltry market setback seems like an example of throwing the baby out with the bathwater. Particularly as the drumbeat of preparations for the Beijing Olympics is commencing, it would seem absurd to concede the market other incoming foreign competitors, and retreat from such an opportunity. First of all, the market for outdoor clothing is potentially enormous. Not only are there are over 200 clubs for outdoor sports in China increasing at an annual rate of 30% but this is likely to grow as interest in sports peak after the Olympics and young people wish to emulate their favorite sports stars. Spending on clothing in general has been increasing, as finally young consumers have been able to enjoy spending their disposable income on a more luxurious lifestyle than their parent's generation.

As noted before, consumer spending on clothing in 2001 was 3.21 times more than in 1990, and the consumption of the clothing per person in 2001 increased by 6.63% from 2000. True, X-L has markets in Japan and Korea. But these markets are far more deeply explored and mined, both by X-L and its competition. Plus, China's middle class is still growing, and even from a geographical perspective, there is more 'outdoors' in China in which citizens can deploy their sporting skills, in comparison the more densely populated other Asian nations.

Not only lifestyles have changed but the idea of spending money on sporting clothes is still relatively new. X-L must establish itself as the brand of choice, at this critical juncture in China's economic history. "At the moment, China's consumer economy is about the size of Italy's, but in two years' time it is going to start adding an Italy every year," observed one China analyst (Ford, 2007). Plus, the young, athletic market is expanding: "Young people are responding, and refusing to follow their parents' example of socking away 25% of their post-tax income - one of the highest savings rates in the world....These kids have had 30 years of unparalleled economic growth...They ask why they should deny themselves something that they want" (Ford, 2007)? Pulling out now when Chinese young people are just learning to become consumers would be disastrous, especially since sportswear is a luxury item, relatively speaking, and Chinese consumers are just learning to defy their parents and spend on luxury items like sporting goods. Today, "stores featuring luxury brands such as Gucci, Christian Dior and Chanel have begun to appear in more and more Chinese cities" ("Dissecting China's Middle Stratum, 2004, China Daily)

But what of expanding the company's R&D? True, some research and development is always necessary for a sportswear company to thrive. Everyone is always looking for the next water or temperature resistant fabric or nutrition bar within the industry. But the Chinese market, even its most affluent members, is not likely to be encompassed by the highest end consumers when viewed in an international context, as compared to elite hikers in the United States, Australia, or Great Britain. Consumers are only beginning to explore the outdoors, and are likely still focusing on the basics, still learning to consume like capitalist sportsmen and women. Some R&D is always necessary, but this should not be the primary focus of the company, nor where it places the majority of its funds at this juncture of its history in China.