Can Someone Explain China Retail?

I had always just assumed it was because China's "nouvelle riche" are avid conspicuous consumers, though I wonder if the comments thread can shed a more insightful light on the phenomenon

I have also noticed this contrast between China and Taiwan, as my fiancee is often making the same complaints. The clothes and cosmetics here are often more expensive despite being released on the mainland sometimes months after Taiwan.

We do nearly all our clothes shopping in Taiwan, better selection of good stuff, attractive sales and good mid range and boutique stuff that isn't overpriced.

1. Right, it doesn't matter that the "cost" of rent or labor is cheaper in China, the items in this category are largely priced at the same level of Western stores. One reason is to make sure the Western prices aren't too transparent. If a Westerner could find the same item cheaper in China, they could to some degree divine the margins they're paying at home and feel angry about it. The other reason is for the Chinese consumer. They're aspirational prices. The prices not only reinforce the notion that the product is somehow better because it is Western branded, it also validates the upwardly mobile status of the Chinese consumer willing to pay that price. These items have much more "status" invested in them in China, and the companies know that.

2. Yep, this is common even in the ritziest places of Shanghai (like Plaza 66). There really aren't THAT many wealthy Chinese to buy all these high end luxury items. That these stores can survive involves a mixture of cheap labor (rent isn't that cheap) and the willingness of the brands involved to lose money to maintain their presence.

3. Not surprising. Did she gravitate towards brands available in the West? There's probably some measure of negative China brand perception and national brand bias here, as it isn't that hard to find Chinese branded clothes at all. The only way to test this is to take two similar designs, remove the labels, and ask her to judge the quality of each without knowing the brands. There are a lot of reasonably priced, well-made Chinese clothes, but most Chinese brands aren't sophisticated enough to market and package themselves to be appealing. Those that don't hurt those that try. Again, I'm pretty certain there's national brand bias here since China is the world's garment factory and the main influencing factor is the marketing.

4. This isn't surprising either. The Chinese are fans of Korean fashion also. The main influencing factor here is that Korea is perceived to be first-class relative to China and hence there's more "trust" that the Koreans know what they're doing. Another reason, particularly for the Chinese, is that people gravitate towards their idols and Korean pop-culture and k-pop idols have plenty of influence amongst East Asians, especially with the famous/infamous culture of superficiality (beauty at the cost of going under). I reckon your daughter falls more to the former than the latter though, if she's raised in the States and otherwise not heavily exposed to an Asian social circle or Asian pop culture. She probably saw Korea and thought, wow, they're so much less ghetto than China and the Chinese and accorded Korean clothes as being more worthy of her respect and interest.

China retail has a wider price spectrum than the West, and actually affords the consumer more choices. The bottom line is that the more expensive an item gets, the more you're paying for the marketing and personal satisfaction of affording something that expensive. The actual good itself really doesn't cost THAT much. It's all image based and the differences in quality aren't really that big.

The really cheap stuff in China is indeed really cheap. Yes, there may be a good reason for them, such as material quality or craftsmanship, but they're not going to kill you. If you go higher up, you'll find decent-quality stuff that is on par with the vast majority of branded apparel in the West. The only difference is label and price. If you can get past the marketing and brands, you'll get good clothes for better prices than the West. Unfortunately, marketing is strong and many Westerners can't free themselves from it. Image, as I said. Face, if you want a Chinese equivalent. If you go further up, the Chinese are at a loss here because all high end luxury goods are mostly about fuzzy feelings of exclusivity and perception. The Chinese are still largely manufacturers at this point, whereas the Westerners are marketers. You can't get people to fork over enormous sums to you without being really good at marketing. China doesn't have that image and won't so long as much of it remains dirt poor. Japan suffered the same stigmas with its products until it modernized. Same with Korea.

I have also been driven nuts by everything you've talked about. For 6 months, I cannot for the life of me figure out why all of this is so. I can't believe I have to pay the same price for clothes in Shanghai that I do in Farmington Hills, MI. And I am especially irritated that electronics such as game consoles are as much as 30% more expensive than in the west.

Just my theory, but I think it's because of shopping culture in China. Meaning, people will see a relatively low quality domestic item, and since they know and believe it is domestic, refuse to pay more than a very cheap domestic price. So people will either bargain for that price, or collectively shop owners keep an originally low price, KNOWING people won't pay more. But then once "foreign" brands come into the picture, consumers think it is perfectly reasonable (and dare I say even GLAD) to pay a very high "foreign" price. I've had friends here brag about how expensive their new gucci purse is. Perhaps pricing of consumer items in America (and apparently Korea?) is based more generally on the percieved value of the piece of clothing by itself (quality, color, brand recognition), whereas in China the actual high price of an item has value in itself beyond the piece of clothing, hence making a higher price much more acceptable.

As to why there are so many empty Gucci stores, we know why: there's not enough people that can afford to shop there. But, as you said, since the rent and employee costs are so much lower, any given store can survive as long as it gets just a few customers a day, since the profits go so much farther on any given item. American retailers need to sell FAR more clothes to stay in business.

This is just my guess though!

My guesses:
The itinerary played a great role for your daughter to decide where to buy her clothes. If you take your daughter first to Seul, then Beijing and Shanghai and back to USA, she will definitely buy more here in China;
Second. Chinese retail market especially for clothes is very different with other parts of the world. The so-called world famous branded clothes will not be cheap than those sold in the States, but if you go to the right place, it will be totally different.
Third, each time my wife find the clothes she liked, she will never rush to buy. She waited patiently until finally they give a 80 or 90% discount. Almost every time she is successful.
Fourth, from the rent, the salary and the cost, it will be difficult to get a proper and correct retail price. You can buy a jean at about 3000 yuan or 30 yuan. It's not a joke.
Fifth, but there is a joke for the rich Chinese. They say that they only buy not the best , but the most expensive. Some are really so.
Sixth, the shop gives a different price when they saw an American client. They may give a cheap price for Chinese clients.

*VAT is at least 17% in China for foreign-brands (even tho' manufactured in China)
* Rents in Beijing & Shanghai rival those of US
*People who shop at the high-end stores aren't very price sensitive. Those shops survive on high margins. They aren't targeting the mainstream Chinese consumer, but rather the wealthy.
* High-quality, reasonably priced merchandise isn't located in the shiny shopping malls. There are areas of less expensive shops selling chinese brand or knock-off brands. The quality varies; it is uneven. The styles emulate various trends that might not match the U.S. market trends.

Well, I've been living in Shanghai with a small child or children for about four years now, and I think one of my friends summed the retail scene up best: "It's like your only options are Nordstroms and a Dollar Store."

As to why Plaza 66 and the other high-end malls in Shanghai are empty, two points: The first is stolen from David Drayton's blog, where he notes that upper end retailers often do 1/2 to 2/3 of yearly sales around Chinese New Year. The second is that not only do landlords cut rent for high end businesses to increase the status of their development, but I'm pretty sure the government gives places such as Plaza 66 a very low rate on the land use rights, on condition that Plaza 66 remain full of high end businesses. So the whole thing is sort of a giant advertisement for how fancy and developed Shanghai is. Whether it's actually a functioning enterprise is another question.

Electronics are more expensive than Taiwan, HK, Singapore, or the US due to taxes. You can, however, get reasonable deals on accessories such as keyboards and USB flash drives. I'm not sure if items such as wireless routers and portable hard drives are a good or bad deal here. If you're handy enough to build a computer from spare parts, you might be able to get a US-competitive price. I watched them build a computer in Xujiahui, and will say that the quality of the work was low enough that I felt I could probably do a better job. Or at least not rub my palms all over the memory chips & mother board.

Last trip to the US, I bought 2 suits at S&K (a US discounter) for slightly less than custom suits cost at the fabric market. I still had to pay someone 10 RMB to cuff the suits when I got back here, but the overall quality of the garments was a couple orders of magnitude better.

We have had some luck getting reasonably priced small children's clothes at the children's markets. But fashion statements beyond "pink," "Hello Kitty," or "cute animal" are not really necessary in the age range I'm shopping for.

1. Brands like “Burberry or Gucci or whatever” must maintain their prices, that’s a symbol of quality and status, otherwise they wouldn’t be rightly ranked like they are now.

2. No explanation available at this time.

3. Nowadays 99% of the Chinese people dress like Americans, so there is no need to buy Chinese clothes, but Western clothes. Did you go to the souvenir stores? They might have some.

4. I think she just didn’t get to the right place/street. I think this statement is kinda biased.

I generally agree with your post, and I agree with a lot of the commenters that the two main reasons are a division between American/Korean fashion and Chinese fashion and a lack of middle class Chinese consumers, even in Shanghai and Beijing.

That said, there are some little stores that have nice clothes at good prices. They're usually gray market retailers, making them hard to find and situated among god-awful retailers. That they're hard to find, however, is a high price of another sort.

Basically,you ve entered wrong stores. There are plenty of stores for the CRMCs (Chinese Real Midlle Classes) and Low income earners. And speaking of Korean Fashion, Shopping in the northern city of Dalian will open your daughter's eyes further...

Re: China car pricing it is mostly due to taxes based on engine size. IE normal small engined cars aren't too far away in price from the US but look at the Cadillac Escalade and its priced at US$200k here because the engine is so large (5.7l). I'm not sure where the cutoffs are but the Porsche will have at least a 3.6l.

Look at Audi, the biggest engine offered in China in the A6L sedan is 3.0. That's the smallest engine offered in Canada.

RE: rent/staff costs I've also wondered why I'm forced to pay more than US$10 for a mediocre burger with local beef when I can find a better and cheaper one in NY city. Costs must be lower but similarly I think pricing is based more on willingness to pay rather than on costs.

For Americans who are used to buying "mid-range" brand clothing, (i.e. The Gap, Banana Republic, Club Monaco, etc.) Shanghai is a terrible place to shop. Of course you can't find some of the chains here but for example a nice pair of dress pants at Club Monaco in the US will cost you around $125. Last fall I saw a similar pair at the Club Monaco on Nanjing for almost $200.00. Ikea is expensive here whereas in the US it is considered a bargain. So I defer any purchases for mid-range global merchandise until I can visit the US or Hong Kong. I think Bangkok has better prices as well.

I do think Uniqlo has decent prices here and cute clothes as well.

Ironic that so many "cool" Korean clothes are actually made in...China. Same for Japanese stuff with the purposely screwed up Engrish script all over it.

There's one store in the clothing wholesale area of Guangzhou selling massive amounts of "backdoor" factory stuff of the uber trendy Japanese brand "Muji".

As for the Chinese stuff...well it seems they are either crap (as stated above) OR some pseudo "Famous Italian Brand" (Vasto, etc) that is 100% local. Those are actually well designed and of good quality in many cases BUT are totally ruined with utterly misplaced gaudy brand logos that they feel they must stamp to begin their brand awareness campaign. Also, the sleeves and body lengths tend to run shorter than usual.

Why on Earth would you expect prices in China to be lower than the United States, Dan? Retail space is in fact much more expensive here than in the US. There is a 17% VAT, 5% to 6% tax on official receipts, and so on. Many companies have also discovered a perverse situation where lowering prices can also lower your sales. Add all this up and you get sky-high prices.

I can sum up shopping in China for you in three words: Expensive, inconvenient, and shoddy. I like living here, but I am really tired of the bad shopping.

It's because you are shopping in a "American" style, so you get the "American" style clothes at "American" style prices. Most price sensitive Chinese buy clothes at places you don't even think are legitimate shops.

I agree that part of it is a class-consciousness thing for the high-end stuff. Beyond the yuppies, there are many baofahu out there who don't know a damn about a good product except its price tag. Enter Chinese brands like "Valued Squirrel" (I shat you not) that sell a Lacoste-like polo for $80 USD. Thus, the Chinese retailers are learning...if the foreigners can sell crap for $$$$, why can't we? The innovative side of the fashion industry, however, is still far away.

A lot of good points have been made, but I'll share my thoughts anyways:

1) It is definitely true that the mentality here exists of "more expensive = better/prestige". It is all about maintaining image/face. If a brand is priced too low, the upper and even middle class won't take it seriously. They are paying for the brand and the statement it projects. These people will never brag about finding good deals because it would say to others in their social circles that they are cheap.

2) Related to #1, foreign brands are considered luxury brands here and must be priced higher to be consistent with the "foreign = better" view. Those who cannot afford this will buy the cheap knockoffs (which are abundant). I recently came back from the US where I did quite a bit of clothes shopping. The same brands here cost 5-10x more (I'm not exaggerating!). Also note that even with foreign brands, you won't necessarily be getting the same thing as you would back home - the styles and quality can differ.

3) I believe that "foreign" goods are taxed quite heavily, even if they are manufactured here. As to the statement regarding luxury cars, imported autos are subject to hefty taxes, this is in addition to the "displacement tax".

4) I have a feeling that there are some nice profits being made along the domestic retail chain. Those big department stores definitely take a cut on sales.

5) Lastly, department stores are for the wealthy. Yes, you also have the middle class shopping at these places (usually during sales/promotions), but they're not the ones spending the most money there. You can find a lot of cheap clothes at the stall markets or even online (Taobao). Yes, the really cheap stuff is crap but you can find surprisingly good quality clothes without having to pay department store prices. That said, I still prefer to save my clothes shopping for my visits back home.

Price aside, the other issue facing expats here is that those with larger figures (in terms of height and/or width) can have problems finding clothing that fit comfortably.

I used to own two boutiques in Beijing and now am living in the US working in a boutique. Being in clothing retail industry for some years, I have been comparing Chinese retail business styles with western styles.

I think modern Chinese fashion industry is pretty much based on the western fashion industry. People love western brands because those companies brought a uncommon "luxury lifestyle" by their marketing strategies to common Chinese people, which was what most people wanted to have but couldn't. To live in the lifestyle is more important than to own a good quality product itself to Chinese customers. Those companies of course wouldn't lower their price to get more customers in, because their brands are not for most people anyway. In fact, the price in China is much higher than in their own countries because of all sort of extra costs, especially taxes to Chinese government, such as importing tax, custom tax, luxury product tax, sales tax (which is nearly 17% in Beijing, that most people have no idea!).

Coming to branding and marketing, China is way behind. First, Chinese companies lack understanding of PR's importance. Second, they can't afford to buy the ad. space at the front page of Vogue every month like what Gucci or Chanel can do. If Chinese companies don't learn how to brand themselves, of course they can't compete with western companies. Even some traditional brands with very long history have failed or get lost in the competitive, increasingly capitalized Chinese market. This is not about whether Chinese people are fans of Japanese fashion or Korean fashion. This is about China lacks its own brands.

As a Chinese living overseas, I am trying and I believe I will do some contribution to Chinese fashion industry. I'm sure Chinese companies are also trying. It will be better.

There's nobody in the super high end stores because the people who buy there are government officials and their families and they come after-hours to avoid being seen by the masses.