CHINA APPAREL MARKET UPDATE 2019 - PART 2: KEY TRENDS AND DEVEL0PMENTS - Illustrated with case studies - Fung Business ...

 
CHINA APPAREL MARKET UPDATE 2019 - PART 2: KEY TRENDS AND DEVEL0PMENTS - Illustrated with case studies - Fung Business ...
CHINA APPAREL MARKET
UPDATE 2019
PART 2: KEY TRENDS AND
DEVEL0PMENTS
- Illustrated with case studies
Asia Distribution and Retail
August 2019
CHINA APPAREL MARKET UPDATE 2019 - PART 2: KEY TRENDS AND DEVEL0PMENTS - Illustrated with case studies - Fung Business ...
TABLE OF CONTENTS

                        Digital                 Social media –            Cross-sector            Fashion’s sharing
Key Takeaways           transformation in       a new powerful            expansion               economy catches
                        supply chain            retail channel            continues               on quickly
                 P.03                    P.04                      P.12                    P.19                       P.26

Embracing “New          C2M model               Off-price retail          “Plus-size” fashion     M&A continues at
Retail”                 prevails                grows fast                market gets bigger      elevated levels

                 P.33                   P.38                       P.43                    P.48                       P.55
CHINA APPAREL MARKET UPDATE 2019 - PART 2: KEY TRENDS AND DEVEL0PMENTS - Illustrated with case studies - Fung Business ...
KEY TAKEAWAYS

Embracing digital transformation in supply chain              Social media – a new powerful sales channel        Pursuing cross-sector growth
• Supply chain digital transformation enables                 • Every stage in consumers’ shopping journey,      • Cross-sector collaborations and partnerships are
  apparel retailers to shorten replenishment times,             from product discovery to placing orders to        becoming more prevalent in the apparel market
  optimize deliveries, match supply with demand and             product reviews can now be done on smart
  ultimately boost value and revenue                            devices via social media platforms/ apps         • Major apparel players have expanded beyond the
                                                                                                                   fashion sector to pursue cross-sector growth,
• Apparel players are embracing a data-driven                 • The convenience and reach of social media has      which enables them to reach out to new
  approach in their manufacturing processes, tying              made it a new powerful channel for brands to       customers and seek new business opportunities
  their business decision to analytics insights                 connect with customers and sell their products

Online clothing rental services on the growth                 Embarking on in-store digital upgrading             Rapid development of C2M customization
• Clothing rental and resale of used clothing is              • Apparel retailers have caught up with the         • The advent of smart technologies has made it
  increasingly popular among Chinese consumers,                 “New Retail” trend by pairing up with e-            easier for apparel players to tailor products and
  especially the younger generation                             commerce players for digital upgrading or           services to the needs of individual customers
                                                                leveraging advanced digital tools to redefine
• Such clothing rental trend has led to the rapid growth                                                          • The rapid development of C2M customization
                                                                the way they engage with customers and
  of online clothing rental services in the country and                                                             service model has marked an important
                                                                provide better shopping experience for them
  the rise of some local online fashion rental platforms                                                            breakthrough in mass customization

Off-price retail – a win-win solution for brands and          Rising demand for chic plus-size clothing           Creating synergy and value in M&A
customers                                                     • Considering the growing demand for more           • Increasing numbers of major local apparel
• More apparel players are partnering with off-price            fashionable options in larger sizes, some           companies have conducted mergers and
  retailers online and offline to get rid of their leftover     plus-size retailers are investing in plus-size      acquisitions with their foreign counterparts to
  inventory                                                     collections or offering stylish clothing in a       boost their market share and brand influence,
• Featuring best deals on quality products, off-price           broader range of sizes to satisfy plus-size         expand market presence and enhance their
  retailers are becoming increasingly appealing to              customers’ rising demand for trendy clothing        supply chain capabilities
  consumers                                                     and capture new customers

                                                                                                                                                                        1
CHINA APPAREL MARKET UPDATE 2019 - PART 2: KEY TRENDS AND DEVEL0PMENTS - Illustrated with case studies - Fung Business ...
DIGITAL TRANSFORMATION IN SUPPLY CHAIN

Enhancing overall performance by shortening replenishment times,
optimizing deliveries, matching supply with demand and ultimately
boosting value and revenue
CHINA APPAREL MARKET UPDATE 2019 - PART 2: KEY TRENDS AND DEVEL0PMENTS - Illustrated with case studies - Fung Business ...
Embracing digital transformation in supply chain

                                             From manufacturing to logistics to marketing and retailing,
                                             stakeholders along the apparel supply chain are stepping up
                                             efforts to embrace digital transformation in a bid to keep pace
                                             with changing market demands and rising consumer
                                             expectations. Implementing supply chain digital transformation
                                             enables apparel retailers to shorten replenishment times,
                                             optimize deliveries, match supply with demand and ultimately
                                             boost value and revenue.

                                                                                                               5
(Photo source: Fung Business Intelligence)
CHINA APPAREL MARKET UPDATE 2019 - PART 2: KEY TRENDS AND DEVEL0PMENTS - Illustrated with case studies - Fung Business ...
Digital transformation in supply chain – manufacturing
         The apparel market needs to evolve swiftly to respond to increasing consumers’ demand for immediacy and constant
         newness. This requires a highly digitalized manufacturing processes supported by strong IT systems and connected
         devices and platforms. Realizing the importance of optimizing supply chain efficiency, some apparel players are
         embracing a data-driven approach in their manufacturing processes, tying their business decision to analytics insights.

                      Case: Handu’s data-driven system optimizes production

         Backed by strong IT systems including Order Management System (OMS), Warehouse Management System
         (WMS) and Enterprise Resource Planning (ERP), China’s online fast fashion retailer Handu is able to collect
         and analyse real-time selling data of every single item and respond quickly to dynamic market demand
         with prompt follow-up actions – placing replenishment orders and modifying product designs. Sales of each
         item and customers’ preferences and feedback are all recorded in the system and such data are turned into
         actionable insights used for analysis and demand forecast.

         In addition, the company also shares some data and insights with its key vendors to synchronize
         manufacturing activities with retailing. For example, factories and suppliers of fabric can forecast demand
         based on data provided by Handu, benefiting major stakeholders across the entire supply chain.

         Handu’s data-driven manufacturing approach has greatly elevated its supply chain agility and resiliency,
         giving a significant competitive advantage to the company. In the 2018 11.11 Global Shopping Festival,
         Handu recorded over 100 million yuan in sales on Tmall within the first 10 minutes and 35 seconds of the          Handu’s head office in Jinan city, Shandong province
         24-hour spending spree.                                                                                           (Photo source: Fung Business Intelligence)

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                                          6
CHINA APPAREL MARKET UPDATE 2019 - PART 2: KEY TRENDS AND DEVEL0PMENTS - Illustrated with case studies - Fung Business ...
Digital transformation in supply chain – manufacturing

                       Case: Red Factory’s optimized IT system facilitates production management and achieves agility

        The emergence of Internet celebrity fashion shops/brands has led to a growing need for
        micro/agile supply chain, which can handle orders in small quantities and of great variety of
        styles in a very short lead time with zero inventory.

        To meet the requirement for fast production of a large amount of small-batch orders, Red Factory,
        an S2b (supply chain to small business) platform providing supply chain solutions to Internet
        celebrities and online apparel shops, has developed an optimized IT system to facilitate order
        /production management and achieve speed and agility.

        With a strong IT team supported by staff previously working for tech companies such as Baidu and
        Alibaba, Red Factory has developed its own ERP system which is connected to WeChat for easy
        communication and data sharing along the supply chain. Performing three major functions –
        interacting with customers, prototyping/ sample making and production management, the
        optimized IT system analyzes orders and automatically matches orders with the appropriate
        factories/ production lines; it also centralizes and stores all the data and information related to the
        orders. Through the system, every single merchandiser in Red Factory can handle 20-30 orders
        simultaneously.

                                                                                                                           Red Factory’s production base
                                                                                                                           (Photo source: Fung Business Intelligence)

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                                7
CHINA APPAREL MARKET UPDATE 2019 - PART 2: KEY TRENDS AND DEVEL0PMENTS - Illustrated with case studies - Fung Business ...
Digital transformation in supply chain – logistics
         To satisfy the growing needs of consumers for faster and more reliable delivery services, major players in the apparel
         market are building smart logistics network and adopting advanced technologies in warehousing and logistics
         operations. The deployment of smart logistics tools also facilitates further digital transformation and upgrading of the
         apparel industry.

                      Case: Alibaba’s e-commerce platform Tmall and logistics arm Cainiao

         In recent years, many international and local fashion players have launched their online stores on Alibaba’s
         e-commerce platform Tmall to cash in on the booming e-commerce market in China.

         As the backbone of Tmall’s success, Alibaba’s logistics arm Cainiao is optimizing its logistics performance
         with advanced digital technologies including cloud computing and artificial intelligence (AI). For example,
         the company has made use of cloud computing for real-time logistics data sharing and intelligent algorithms
         for efficiency improvement including volume forecasting; it has also built a “logistics cloud” supported by
         Alibaba Cloud laaS platform for package tracking at every stage of the supply chain, enabling the three
         primary stakeholders – the package recipients, business owners who ship items and freight companies who
         deliver packages to track the shipment in real time, thereby maximizing logistics transparency.

         Besides, Cainiao has also adopted various advanced technologies including the Internet of Things (IoT), AI-
         backed tools and robotics in their warehouses and domestic fulfillment centers to track supply and
         demand and improve order fulfillment. Backed by Cainiao’s vast logistics network which offers same-day
                                                                                                                           Tmall Double Eleven Gala 2018
         and next-day delivery services across 1,600-plus counties, Tmall handled and fulfilled over 1 billion orders      (Photo source: CNA.com)
         during the 2018 11.11 Global Shopping Festival, setting a new record for logistics volume.

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                   8
CHINA APPAREL MARKET UPDATE 2019 - PART 2: KEY TRENDS AND DEVEL0PMENTS - Illustrated with case studies - Fung Business ...
Digital transformation in supply chain – logistics

                 Case: ERKE’s smart logistics system

        Domestic sportswear brand ERKE has set up a smart logistics system
        powered by Warehouse Management System (WMS) and Warehouse Control
        System (WCS), which enables the company to process and utilize real-time
        data and direct real time activities within warehouses and distribution
        centers, ensuring a higher throughput of goods and ultra-fast delivery.

        Backed by its smart logistics hub and some 7,000 brick-and-mortar stores,
        ERKE is able to offer 2-hour delivery in selected areas, greatly enhancing
        customer shopping experience. The company’s upgraded logistics system has
        also brought significant membership growth; the number of its subscribers
        has surged more than 99%, with members’ repeat purchase rate and average
        order value rising 58% and 15% respectively.
                                                                                                                           ERKE’s official online store
                                                                                                                           (Photo source: ERKE.com)

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                  9
CHINA APPAREL MARKET UPDATE 2019 - PART 2: KEY TRENDS AND DEVEL0PMENTS - Illustrated with case studies - Fung Business ...
Digital transformation in supply chain – marketing
         With more and more shoppers going online, many apparel players are using digital marketing tools to interact with
         customers in a more innovative and creative way, hoping to boost traffic and further increase sales.

                     Case: JNBY sets up an official account on WeChat

         JNBY has opened an official account on WeChat and WeChat Mini Program to engage with customers                            JNBY’s WeChat
         and market their products. The company has significantly increased its sales with its digital marketing                   Mini Program
         efforts. In 1H18, online sales accounted for 8.5% of the company’s total revenue, with the online sales
         growth jumping 45.1% yoy, much higher than the offline sales growth of 23.6% yoy.

                     Case: Uniqlo upgrades its store on WeChat Mini Program                                                                              (Photo source: JNBY’s
                                                                                                                                                         WeChat Mini Program)

         Uniqlo has upgraded its store on WeChat Mini Program, which allows customers to directly place
         order on the Mini Program store. The upgraded Mini Program store has a “scan and order” function
         where customers can scan the code on the tag to see product details and order via the app; customers                                          Uniqlo allows customers to
         can also use the “VR”360° function to view product with virtual reality technology. Apart from                                                directly place order on the
                                                                                                                                                       Mini Program store
         leveraging WeChat to market their products, Uniqlo also paired up with Shanghai Transport Radio
         Station FM105.7 to jointly launch a fashion living streaming event at Uniqlo’s Shanghai flagship store in
         May 2019. A famous radio presenter in Shanghai and experts from different fields were invited to the
         event and shared their summer fashion tips with consumers.

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence   (Photo source: Ebrun.com)                     10
Digital transformation in supply chain – retailing
         Technologies such as AI, augmented reality (AR) and virtual reality (VR) enable apparel brands to provide compelling and
         enjoyable in-store shopping experience, meeting the expectations of increasingly tech-savvy Chinese customers.

                     Case: C&A opens first new concept store in Nanjing

         In May 2018, international fast fashion brand C&A opened its first new concept store for China in
         Nanjing. With the use of “black technologies”, all the screens and sound systems in-store can be
         controlled through a cloud platform at the back-end management system. The store is also equipped
         with a magnetic anti-theft system, in which all the anti-theft product tags are embedded with RFID chips
         for data collection. C&A also uses Beacon technology and the shake feature in WeChat to detect
         customer's shopping route inside the store, which helps the brand to better understand customer’s                 C&A’s first new concept store in Nanjing
         portrait through connecting their CRM and POS systems with customer’s user ID in WeChat.                          (Photo source: Fashionnetwork.com)

                     Case: Hodo Group launches “Hodo-JD.com Experiential Store”

         In October 2018, Hodo Group and JD.com jointly launched the “Hodo-JD.com Experiential Store” at
         Huiju Wuxi Shopping Center in Wuxi. The store – offering mainly Hongdou’s apparel items and home
         products, as well as JD.com’s private labels such as Jingzao and Jingxuan – intends to bring a new,
         modern and high-quality shopping experience to its consumers by introducing a unique consumption
         scene and adopting various “black technologies” such as smart mirrors with styling recommendation
         and personal guide function.
                                                                                                                           The “Hodo-JD.com Experiential Store”
                                                                                                                           (Photo source: Linkshop.com)
Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                              11
SOCIAL MEDIA – A NEW POWERFUL RETAIL CHANNEL

A powerful way for apparel players to connect with customers
Social media – a new powerful sales channel

                               In recent years, the rise of social commerce – which combines
                               product sales with recommendations of users/ key opinion leaders
                               (KOLs) in social networks – has taken the e-commerce scene by
                               storm. Every stage in consumers’ shopping journey, from product
                               discovery to placing orders to product reviews can be completed on
                               smart devices via various social media platforms and apps. The
                               convenience and reach of social media has made it a new powerful
                               channel for apparel retailers and brands to connect with customers
                               and market their products.

                                                                                                13
(Photo source: Unsplash.com)
Young consumers tend to research products on social media platforms

             Driven by the higher penetration of mobile devices and improved
             logistics infrastructures in lower-tier cities in recent years, social media                                  Number of monthly active users, 1H19
             platforms have been growing exponentially. Increasing numbers of
             apparel brands and retailers are turning to monetize the huge traffic on
             social media platforms by tapping social-commerce – they allow users to
             share deals on social media platforms and bring others into the fold.
             Compared with traditional online shopping sites, social commerce                                              1,133 million           807.9 million           486 million
             platforms enable brands and retailers to draw higher traffic at relatively
                                                                                                                           Source: Respective company websites; compiled by Fung Business Intelligence
             lower costs.

           What content do you like to read the most on social-commerce platforms?

                      Apparel and bags                                                    38.6%
                                                                                                                       Social commerce is trending in China, especially among
                        Home products                                                33.9%                             younger consumers, who tend to use social media
                              Toiletries                                    27.0%                                      platforms to discover brands and review products. Riding
                   Food and beverages                                       26.9%                                      on the trend, some apparel brands and retailers have set
                             Cosmetics                                  22.9%                                          up their own app, WeChat official account, WeChat Mini
                       Digital products                         17.9%
                                                                                                                       Program, etc., in addition to their own websites, to
                   Healthcare products                        15.9%
           Sports and outdoor products                   11.1%
                                                                                                                       extend their reach to customers; some of them choose
           Baby and maternity products                8.5%                                                             to partner with KOLs / Internet celebrities to sell via
                            Fresh food             6.4%                                                                social media.
                                 Others          4.8%          iiMedia Research, April 2019 (n=1322)

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                                                           14
Apparel retailers set up own app and leverage WeChat Mini Program
                                                                                                                                “Scan and go”

                                                                                                                                 Shopping cart
                       Case: Bestseller
                                                                                                                                 Follow offline shopping guides

               Hoping to push forward its O2O initiatives and improve consumer
               experience in multiple channels, Bestseller developed WeChat Mini
               Programs for its brands – Vero Moda and Jack&Jones, with
               embedded functions such as “scan and go” and “shopping cart”.
               Sales associates in offline stores (“shopping guides”) can launch their
               own “page” on the Mini Program for customers to follow. Through
               their own page, they can recommend products, share styling tips and
               promotion information with customers and even provide one on one
               services to them. According to Bestseller, the Mini Program racked up                                           WeChat store
               around 100 million yuan in sales in 2018, of which 75% came from
                                                                                                                               Membership center
               shopping guides' sharing with their own circle of friends.
                                                                                                                               Log in page for shopping guides

                                                                                                                           Vero Moda’s Mini Program, June 2019

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                     15
Apparel retailers set up own app and leverage WeChat Mini Program

                                                                                                             Bestseller’s mini game on WeChat, April 2018
                       Case: Bestseller (Cont’d)

               Besides, Bestseller also launched mini games on WeChat to attract
               new customers, especially the young generation. For example, in
               April 2018, Bestseller launched a mini game for consumers to battle
               for the best-looking outfits in cartoon style with their friends on social
               media platforms; winners can get coupons when purchasing in
               Jack&Jones and Vero Moda stores. This event generated 800,000 yuan
               offline sales within two weeks.

                                                                                                               (Photo source: 91ud.com)

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                    16
Apparel retailers leverage content-based social-commerce platforms

                       Case: Mogujie
                                                                                                                                    On-air livestreams

                  Some apparel brands and retailers choose to leverage content-based                                               Discovery
                  social-commerce platforms to reach more consumers as large
                  numbers of consumers search for product reviews and styling tips on                                              My followings
                  these platforms. One prominent example is Mogujie.
                                                                                                                                   Trending
                  Mogujie has evolved from a consumer sharing community to a
                  fashion e-commerce platform. Users – individuals or KOLs – can all
                  post fashion reviews and styling tips on the platform to share with
                  other users and lure them to purchase. They can post their outfits,
                  tag the brands and comment on the products, and post links to the
                  product page.
                                                                                                                                   Livestreaming zone
                  Many lesser-known brands and individual KOL-designed brands are                                                    Short-videos
                  especially active on Mogujie. Jienilu, 小甜心_呢, yoke_瑜儿 are
                  some of the examples.                                                                                              Mogujie store on WeChat

                                                                                                                           Mogu’s Mini Program, June 2019

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                    17
Apparel retailers leverage content-based social-commerce platforms
                                                                                                                                      Items for
                                                                                                                                      purchases

                   Case: Mogujie (Cont’d)                                                                                             Number of
                                                                                                                                      viewers

               Mogujie has also launched a livestreaming platform for hosts. The
               livestreaming feature is designed to provide a more interesting
               shopping journey for customers. Users can view the livestreaming
               when looking for advice on what to wear, or just for entertainment
               during their free time.

               The Interactive experience enables them to discover new looks and
               find clothes that fit their style. They can also communicate with
               livestreaming hosts directly via the online chat room. By enabling                                                     Follow the KOL
               transactions during livestreaming shows, Mogujie makes shopping
                                                                                                                                      Add to cart
               easier and more convenient for customers, effectively getting
               customers to make impulse purchases and spend more.                                                                    Purchase now

               According to Mogujie, live video broadcasting business grew
               strongly with associated GMV increasing 138.1% yoy for FY19 ended
               31 March 2019. It could be inferred that the GMV from live video                                                       Chat room
               broadcasting for FY19 is around 4 billion yuan, constituting 23.3% of
               the total GMV, remarkably higher than 1.4% of FY17 and 11.8% of
               FY18.
                                                                                                     Mogu’s Mini Program, June 2019

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence               18
CROSS-SECTOR EXPANSION CONTINUES

Expanding beyond apparel products to seek new business growth
Pursuing cross-sector growth

                                             Cross-sector collaborations and partnerships are becoming more
                                             prevalent in the apparel market. Many major apparel players have
                                             expanded beyond the fashion sector to pursue cross-sector
                                             growth, which enables them to reach out to new customers and
                                             seek new business opportunities, a key to driving sustainable
                                             development.

                                                                                                            20
(Photo source: Fung Business Intelligence)
Apparel players expand into household sector

                       Case: Peacebird

               In September 2018, Peacebird opened five lifestyle and
               home product stores “Peacebird Livin” in Ningbo. As the
               first lifestyle and home products brand of Peacebird,
               Peacebird Livin’ offers a wide range of products, with a total
               of 3,000 SKUs, including bedroom and living room
               furniture, kitchen appliances, sanitary ware, home textile,
               home décor and fragrances. Integrating fashion creativity
               and home life, Peacebird Livin aims to provide customers
               with a comfortable, stylish and enjoyable shopping
               environment.

                                                                                                         Peacebird’s homepage pictures of Peacebird Livin
                                                                                                         (Photo source: Peacebird.com)

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                    21
Apparel players expand into digital payment sector

                       Case: HLA

               In May 2018, HLA invested around 500 million for a 64%
               stake in Shanghai-based third-party digital payment service
               provider Handpay. With the third-party payment license
               granted by the Chinese government, Handpay focuses on
               providing digital payment and e-commerce operation
               solutions to banking and financial institutes. The investment
               in Handpay enables HLA to penetrate into the digital
               payment industry and further strengthen its e-commerce
               business .

                                                                                                                           (Photo source: Handpay.com)

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                          22
Apparel players expand into commercial property sector

                       Case: Peacebird

               In April 2019, Peacebird and Shanshan Commerce Group
               entered into a strategic partnership on outlet malls
               development. The two companies will cooperate in various
               areas including outlets’ store design and innovation
               (composite buildings), store effectiveness enhancement,
               and consumer interaction. Peacebird Group has seven
               fashion brands targeting young consumers, which match
               well with the positioning of Shanshan’s outlet malls.

                                                                                                               Peacebird and Shanshan Commerce Group entered into a strategic partnership
                                                                                                               on outlet malls development
                                                                                                               (Photo source: Linkshop.com)

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                                                    23
Apparel players expand into hospitality sector

                       Case: JNBY

               JNBY, after launching its home product brand JNBYHOME in
               March 2017, forayed into the hospitality sector in October
               2018. Through JNBYHOME, the company has paired up with
               local youth hostel Travelling to jointly work on a hotel
               construction project in Hangzhou. The two companies
               would integrate their respective resources in brand
               operations, customer base and traffic.

                                                                                                             Concept image of the JNBYHOME plus Travelling With hotel project
                                                                                                             (Photo source: Socialbeta.com)

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                                        24
Apparel players expand into beauty sector

                       Case: JNBY

               HLA launched its in-house cosmetics brand éOL in March
               2018. Available at Heilan Home’s lifestyle stores online and
               offline, the brand features natural skincare and color
               cosmetics products ranging from cleanser, moisturizer, eye
               cream, skincare mask to lip gross, makeup foundation,
               mascara, eyebrow pen, blush and BB cushion compact.

                                                                                                              HLA’s in-house cosmetics brand éOL
                                                                                                              (Photo source: Xinhuanet.com)

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                           25
FASHION’S SHARING ECONOMY CATCHES ON QUICKLY

Online clothing rental services come into vogue in China
Online clothing rental services on the growth

                             Fashion’s sharing economy is catching on quickly in China.
                             Clothing rental and resale of used clothing is increasingly popular
                             among Chinese consumers, especially the younger generation,
                             who are more concerned about sustainability and open to sharing
                             clothes. They also have a stronger desire to constantly change
                             their wardrobe to keep up with the fast-changing fashion trends.
                             Such clothing rental trend has led to the rapid growth of online
                             clothing rental services in the country and the rise of some local
                             online fashion rental platforms.

                                                                                               27
(Photo source: Pexels.com)
Chinese consumers are catching up fast in the sharing economy

• Chinese consumers are more actively involved with and open to sharing
  platforms when compared with U.S. consumers

      Chinese consumers vs. U.S. consumers’ attitudes toward sharing economy                                          China is
                                                                                                                     one of the countries in Asia
                                                                                                                     spending most on renting clothes
                                                                           68%
            60%                                                                                                       No. of online resale platform users in China
                          47%
                                          25%                                             42%                                 Up from 1.5 million in 2014 to
                                                         8%                                                                     ~38 million in 2017
              Have used a                  Have provided a                 Believe benefits                           China, together with India, are leading in
            sharing economy                sharing service/               outweigh the risks                          renting clothes consumption in Asia
            service/ product                    asset
                                                                                                                     Spending on renting clothes in Asia
Source: Lloyd’s Innovation Report 2018, SCMP’s China Internet Report 2019; compiled by Fung Business Intelligence    UP at a CAGR of 11.4%, 2017-2023
                                                                                                                                                                                (est.)
                                                                                                                    Source: Allied Market Research, QuestMobile; compiled by Fung Business Intelligence

                                                                                                                                                                                            28
Major reasons driving Chinese customers towards clothing rental
                                               Convenient,
                                               easy return       Desire to update everyday
              Avoid waste,                                       wardrobe to keep up with
              appealing to the eco-                              fast-changing fashion
              conscious customers                                trends at lower costs

                                         Why renting clothes?       Having a chance to
       Couldn’t afford full-                                        familiarize with
       time ownership of                                            various brands and
       luxury fashion items                                         collections

             Don’t want to
             spend too much on                                  Looking for more
             an item they would                                 temporary style
             wear only once                                     solutions

                                               Try before
    Source: Fung Business Intelligence         purchasing            (Photo source: unsplash.com )
                                                                                                     29
Major fashion rental platforms in China

                       Case: MsParis
                                                                                                          Company name:
               Founded in 2014 in Shanghai, MsParis is one of the largest                                 MsParis
               online clothing rental platforms in China. Starting out from
               offering mainly gowns and luxury fashion items, the company
               has expanded into the market for everyday wear, carrying                                   Founded in 2014,
               womenswear from over 500 brands including international                                    based in Shanghai
               luxury fashion houses and major high street brands. Offering
               monthly membership plan at 488 yuan/ month, Ms Paris had
               around 7 million registered users as of January 2019.
                                                                                                                                                                    > 500 brands from
                                                                                                                                                                    international luxury
               Key developments                                                                           488 yuan/ month                                           fashion houses to
                                                                                                          (first month special                                      major high street
               In December 2018, the company launched a new offering                                      for new member –
               enabling customers to rent brand new clothes. After securing                                                                                         brands
                                                                                                          199 yuan/ month)
               US$18 million from a series A funding round in December
               2016, MsParis raised additional US$30 million from a series B+
               funding round joined by Alibaba’s Ant Financial in November
               2018.
                                                                                                          ~7 million
                                                                                                          registered users
                                                                                                          (as of January 2019)
                                                                                                                                 Ms Paris’s mobile app, June 2019

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                                     30
Major fashion rental platforms in China

                       Case: YCloset
                                                                                                          Company name:
                Founded in 2015 in Beijing, YCloset is also one of the leading clothing                   YCloset
                rental platforms for womenswear in China. Housing hundreds of major
                international and local fashion brands, the company carries over 1
                                                                                                                                                                    Hundreds of
                million items in stock, featuring formal and smart casual wear. Offering
                                                                                                          Founded in 2015,                                          international luxury
                monthly membership plan at 499 yuan/ month, YCloset had over 15
                                                                                                          based in Beijing                                          and affordable luxury
                million registered users as of September 2018.
                                                                                                                                                                    brands
               Key developments
               In November 2018, the company completed a new funding round led
               by Alibaba Group, which had also led a series C funding round for Y-
               Closet in 2017. Other investors of Y-Closet include SB China Capital,                      499 yuan/ month
               Sequoia, IDG Capital, ZhenFund and GSR Ventures.                                           (first month special
                                                                                                          for new member –
                                                                                                          299 yuan/ month)
                                                It’s almost like a relationship.
                                                In the past, you could only ‘get
                                                married’ to an item of clothing;
                                                now you can have a date with a
                                                dress and see if it fits you.
                                                                                                         >15 million
                                             (Doris Ke, marketing and PR director for YCloset)           registered users
                                                                                                         (as of September 2018)
                                                                                                                                  YCloset’s mobile app, June 2019

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                                    31
Major fashion rental platforms in China

                       Case: Le Tote
                                                                                                          Company name:
                 Founded in 2012 in San Francisco, Le Tote expanded into China in                         Le Tote
                 January 2018, marking the first U.S. online clothing rental
                 platform launched in the country. Considering the popularity of
                 Korean fashion trends in China, the company offers about 50% U.S.                      Founded in 2012,
                 and western brands along with 50% Korean and Chinese brands on                         based in San Francisco;
                 its platform to appeal to local tastes. Charging 599 yuan/ month,                      entered China in
                 Le Tote had over 500,000 registered users as of October 2018.                          January 2018

                 Key developments                                                                                                                                   > 150 designer and
                                                                                                                                                                    high-street fashion
                 • The company launched two pop-up stores in Shenzhen and                                599 yuan/ month                                            brands
                   Guangzhou respectively in August and September 2018; the                              (first month special
                   stores featured one-on-one exclusive styling service, styling and                     for new member –
                   makeup lectures, virtual fitting room, etc.                                           399 yuan/ month);
                                                                                                         1497 yuan/ quarter
                 • Apart from launching its official app LeTote China, the company
                   has also opened an official account on WeChat and used
                   WeChat’s payment system for transactions
                                                                                                          >500,000
                                                                                                          registered users
                                                                                                          (as of October 2018)
                                                                                                                                  Le Tote’s mobile app, June 2019

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                                     32
EMBRACING “NEW RETAIL”

Embarking on digital upgrading to enhance in-store experience
Embarking on in-store digital upgrading

                                             Deeper integration of offline and online commerce has become
                                             more prevalent in the “New Retail” era – mainly about leveraging
                                             technologies to create a more engaging shopping experience and
                                             fulfill the personalized needs of each customer at every touch
                                             point. Considering the blurring lines between online and offline
                                             stores, many apparel retailers have caught up with the “New
                                             Retail” trend by pairing up with e-commerce players for digital
                                             upgrading or leveraging advanced digital tools to redefine the
                                             way they engage with customers and provide better experience
                                             for them.

                                                                                                            34
(Photo source: Fung Business Intelligence)
Selected examples of apparel players embracing “New Retail”

                                                                                   Adidas and Tmall announced their comprehensive strategic partnership in February 2019.
                                                                                   The two companies will deepen collaboration in various areas, including new product launch,
                                                                                   consumer operations and new product innovation. In addition, Adidas will undergo a
                                                                                   comprehensive digital upgrade featuring new retail concepts through Alibaba’s business
                                                                                   operating system, leveraging on Alibaba’s new retail scenes, including omni-channel retailing,
                                                                                   smart stores, shopping guide and digitalized retail stores. Adidas hopes to synchronize
                                                                                   inventory across its online and offline stores and enhance retail operation efficiency.
        The exclusive release of Adidas’ running shoe line –
        UltraBoost 19 – on Tmall

       (Photo source: Alizila.com)

       GXG    opened its first new retail experiential store in Nanjing before the 11.11 Global
       Shopping Festival on 4 November 2018. The store adopts a lot of Tmall’s new retail
       technologies, including virtual fitting service and red envelopes collection and interactive
       games. GXG‘s cooperation with Tmall involves membership, data, marketing, product
       planning, supply chain, etc. In the 2018 11.11 Global Shopping Festival, GXG was one of the
       most popular brands on Tmall with sales on the platform topped 300 million yuan.
                                                                                                                           GXG opens first new retail experiential store in
                                                                                                                           Nanjing

                                                                                                                           (Photo source: Yifu.net)
Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                                      35
Selected examples of apparel players embracing “New Retail”

                                                                                   Metersbonwe paired up with Mobile Tmall app to test new retail models in Shanghai
                                                                                   in September 2018. Metersbonwe’s customers can place orders via Tmall app with their
                                                                                   smartphones, or directly through sales associates at all the 22 Metersbonwe’s stores in the
                                                                                   city. Backed by Tmall’s big data analytics technologies and supply chain capabilities, the
                                                                                   apparel retailer can conduct real-time inventory management and keep track of the stock
                                                                                   across its stores. After receiving orders from customers, Metersbonwe can instantly locate the
                                                                                   nearest store carrying the items that the customers have ordered and deliver the order to
        Metersbonwe’s new retail concept store in                                  customers within one hour through its logistics partner Fengniao Delivery.
        Shanghai Wanda Plaza

       (Photo source: Fung Business Intelligence)

       Zara, in tie-up with Tmall, launched a pop-up event featuring new retail concept at its
       flagship store in Shanghai Times Square in September 2018. This is ZARA's first new retail
       campaign in China. Offering ZARA's seasonal collections and special limited-edition products,
       the two-story store adopts a theme of “Wear Future” and aims to engage customers with
       innovative digital services. Installed with advanced QR code scanners, the store makes use of
       Zara mobile app to provide an easier shopping experience for customers. With Zara mobile
       app, visitors can scan the barcodes of their favorite items to check the product size and
       inventory in real time and opt for fitting, and then wait for a shop attendant to bring the                         Zara’s new retail flagship store in Shanghai Times
       clothes to a fitting room for them. Customers can also order items through the app.                                 Square

                                                                                                                           (Photo source: Fung Business Intelligence)
Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                                    36
Selected examples of apparel players embracing “New Retail”

                                                                                   Peacebird opened its first new retail flagship store in Joy City, Hangzhou in September
                                                                                   2018. This new retail flagship store offers a new consumption scene through adopting various
                                                                                   “black technologies” including smart shopping guide and magic mirror. In addition, the
                                                                                   flagship store has set up an experiential zone “Youth Lab” to create “Peacebird +”– a
                                                                                   consumption scene covering products from all categories of Peacebird. To bring more
                                                                                   creativity into its brand and boost engagement among young consumers, Youth Lab has
                                                                                   paired with local heritage brand Shanghai Phoenix Bicycles to launch co-brand clothing
                                                                                   products featuring vintage looks and invited popular fashion stylists from time to time to
        Peacebird’s first new retail concept store in Joy                          share styling tips with customers.
        City, Hangzhou

       (Photo source: Soupu.com)

       Semir introduced its new retail concept with the technical support of Tmall in April 2018.
       More than helping Semir integrate its online and offline payment, Tmall also created
       interactive shopping experience for customers in Semir’s stores. Customers who use Tmall app
       to scan the QR code in any of the 500 Semir smart stores across the country can experience
       AR video interactions and receive online coupons. Semir’s flagship store at Dragon Dream in
       Zhongshan Park has also adopted the facial recognition technology supported by Tmall.
                                                                                                                           Semir’s new retail concept store backed by Tmall
                                                                                                                           digital technologies

                                                                                                                           (Photo source: Tdcheml.com)
Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                                  37
C2M MODEL PREVAILS

Taking customization to the next level
Rapid development of C2M customization

                             From AI to big data, the advent of smart technologies has made it
                             easier for apparel players to tailor products and services to the
                             needs of individual customers. Driven by the increasing demand
                             for individualized customization, the rapid development of C2M
                             customization service model has marked an important
                             breakthrough in mass customization in the apparel industry,
                             taking customization to the next level.

                                                                                             39
(Photo source: Pexels.com)
What is C2M model?

• Key facts about C2M
                                                                         One of the e-commerce models
                                                                         featuring direct interactions between
                                                                         consumers and factory/
                Manufacturing process                     E-commerce     manufacturers, cutting out all the
                responds positively to     End-user       model          intermediaries
                end-user needs             needs

      Products are made-to-order,
      thus keeping ‘zero’ inventory                    Customized
                                                          orders    Enables consumers to order
                                                                    customized and quality products
                                           Zero                     at relatively lower costs
                                           Inventory

      Source: Fung Business Intelligence
Customized wardrobe for menswear

                       Case: Ybren.com

               Founded in 2014 in Hangzhou, Ybren.com is a domestic
               menswear C2M custom clothing company. It offers made-to-order
               men’s clothing including suits, T-shirts, shirts and pants through its
               online and offline channels. Operating an online platform plus 47
               brick-and-mortar stores, the company pairs up with local and
               foreign factories and has over 700 wardrobe consultants to offer
               door-to-door tailoring service across 140-plus cities in China,
               serving over 9 million customers.
                                                                                                                      Ybren’s online platform

                                                                                                                 How it works
                                                   Price range                                                   1.     Make appointments online or by call for free on-site measure
                                                   T-shirts: 199 yuan – 1,080 yuan                                      services
                                                   Shirts: 199 yuan – 1,880 yuan
                                                   Pants: 299 yuan – 1,899 yuan                                  2.     Meet with professional consultants at home and take body
                                                   Suits: 1,199 yuan – 2,299 yuan                                       measurements for accurate fit
                                                 (From the company’s website accessed in May 2019)
                                                                                                                 3.     Pick favourite style and fabric to customize the clothes; professional
                                                                                                                        consultants help define and finalize final style and details
                                                                                                                 4.     Custom clothing delivered home around 10 days after placing the
                                                                                                                        order, with one-year after-sales support
Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                                         41
Mobile app for bespoke suit service

                       Case: Cotte Yolan                                                                                                          How it works
                                                                                                                                                  1.   Make appointments for on-
              Founded in 2007, Cotte Yolan is a C2M custom clothing company
                                                                                                                                                       site measure services or
              launched by Qingdao-based formal wear manufacturer Kutesmart.                                                                            walk into the company’s
              Backed by Kutesmart’s 3,000-employee and a 3D printing smart                                                                             service buses for express 3D
              factory, Cotte Yolan incorporates 3D scanning technologies into                                                                          measurement
              their tailoring process, enabling the company to obtain accurate
              measurements and produce better-fitting clothing. Operating an                                                                      2.   Meet with personal
              online platform plus 7 physical stores, the company partners with                                                                        wardrobe consultants and
              world-renowned clothiers and offers custom suit service for men                                                                          take measurement for
              and women.                                                                                                                               accurate fit
                                                                                                                                                  3.   Pick favourite style and
                                                                                                                                                       fabric to customize the
                Price range                                                                                                                            clothes; wardrobe
                Shirts: 399 yuan – 2,399 yuan                                                                                                          consultants help define and
                Vest: 780 yuan – 13,980 yuan                                                                                                           finalize final style and
                Pants: 1,000 yuan – 18,000 yuan                                                                                                        details
                Overcoat: 3,980 – 26,800 yuan
                Suits: 1,980 yuan – 38,800 yuan                                                                                                   4.   Custom clothing delivered
              (From the company’s website accessed in May 2019)                                                                                        home around 7 days after
                                                                                                                                                       placing the order, with 30-
                                                                                                            Cotte Yolan’s mobile app, June 2019        day after-sales guarantee

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                                  42
OFF-PRICE RETAIL GROWS FAST

Appealing to both apparel players and consumers
A win-win solution for brands and consumers

                             Excess inventory is a challenge for almost all apparel players in
                             the market. Increasing numbers of apparel brands and retailers
                             are partnering with off-price retailers online and offline to get rid
                             of their leftover inventory, contributing to the growth of off-price
                             fashion retailers. Featuring best deals on quality products, off-
                             price retailers are becoming increasingly appealing to consumers
                             today, who are now more quality-driven and demand products
                             that are value for money.

                                                                                                 44
(Photo source: Pexels.com)
S2B2C online distribution app for off-price apparel products

                       Case: Aikucun

              Founded in 2017 in Shanghai, Aikucun is an online distribution app for
              off-price apparel products. Through partnering with 5,000-plus apparel
              brands worldwide, Aikucun has established an innovative supplier-to-
              business-to-customer (S2B2C) business model, which enables the
              company to connect brands (upstream suppliers) with product distributors
              (downstream businesses), who connect with customers via WeChat.

              Currently, Aikucun works with over 1 million distributors, with more than
              40 million hot fashion items sold through the platform so far. As of
              December 2018, Aikucun’s GMV topped 3 billion yuan, a drastic increase
              from 10 million yuan for the first month of its launch in September 2017.
              Aikucun has already raised around 1.5 billion yuan since its launch,
              including 100 million yuan from a Series A funding round led by Eastern
              bell Capital in September 2017; US$110 million from a Series B+ funding
              round joined by Sinovation Ventures, GGV Capital, BA Capital and United
              Media FoFs, among others. In November 2018, the company also set up a
              40,000-sqm supply chain management center in Zhenjiang with a view to
              reducing supply chain lead times and enhancing logistics efficiency.

                                                                                                                           (Photo source: Aikucun.com)

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                 45
S2B2C online distribution app for off-price apparel products

             Aikucun’s S2B2C model
             1.     Purchasing inventory – Aikucun
                    pairs up with 5,000-plus apparel
                    brands worldwide                                                                                           3
             2.     Connecting brands with distributors
                    (who could be people from different                                                                            4
                    walks of life, such as shop owners,
                    white-collar workers, college
                    students and full-time mothers) –
                    through Aikucun app, distributors
                    receive information of brands and
                    products available                                                       1
             3.     Connecting with customers –                                                                            2
                    distributors deliver product
                    messages to customers – followers
                    and friends on their WeChat
                    accounts, while customers can place
                    orders with the distributors
             4.     Delivering orders – after receiving
                    orders from customers, distributors
                    arrange order delivery with Aikucun
                    and earn agency margin, running no
                    risk of bearing inventory

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence               46
O2O discount fashion retailer

                       Case: Dadacang

              Founded in 2019 in Shanghai, Dadacang is an O2O commerce
              platform featuring discounted apparel items. As an O2O retailer,                                                                                        Dadacang’s
              Dadacang reaches out to its customers online and offline through                                                                                        mobile app
              Dadacang mobile app, Dadacang WeChat Mini Program and its four
              physical stores in Jiangsu, Anhui and Shanghai. By tying up with
              over 5,000 domestic and foreign brands, the retailer offers
              discount of up to 70% - 90% off for millions of apparel items,                           Dadacang’s Anhui branch
              covering menswear, womenswear, childrenswear, sportswear,
              footwear and accessories.

              More than carrying fashion items, Dadacang also offers cosmetics,
              jewelry, consumer electronics, household and food products.
              According to the company’s website, brands currently in
              partnership with Dadacang includes Adidas, Nike, Michael Kors,
              Kate Spade, Longchamp, Gerber, Semir, Metersbonwe, Swarovski,
              Pandora, L'Occitane, Philips and Zwilling J. A. Henckels, among
              others.
                                                                                                       Dadacang’s Jiangsu branch
                                                                                                                                                Dadacang’s WeChat
                                                                                                                                                Mini Program

                                                                                                                                   Dadacang’s mobile app, July 2019
Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                                47
“PLUS-SIZE” FASHION MARKET GETS BIGGER

A growing plus-size population fuels demand for fashionable options in
larger sizes
Rising demand for chic plus-size clothing

                               Despite a relatively low prevalence of obesity in China compared
                               with many western countries, the sheer size of China’s population
                               provides ample opportunities and potential for the plus-size
                               clothing segment. Considering the growing demand for more
                               fashionable options in larger sizes, some plus-size retailers are
                               investing in plus-size collections or offering stylish clothing in a
                               broader range of sizes in a bid to satisfy plus-size customers’
                               rising demand for trendy clothing and capture new customers.

                                                                                                  49
(Photo source: Unsplash.com)
Ample opportunities for plus-size clothing

       • Currently home to nearly 1.4 billion people,
         China is the most populous country in the
         world. Despite the relatively low percentage
         of obese people, the huge population has
         easily made China one of the countries with                                                                            Total population ~1.4 billion
         the largest overweight population in the
         world – over 43 million men and 46 million                                                                              Overweight population
         women in China are overweight/ obese, or
         around 10.8% of men and 14.9% of women,
         according to a study by U.K. medial journal
                                                                                                                           Men            = 10.8%
         The Lancet.                                                                                                       > 43 million    of men in China

                                                                                                                           Women          = 14.9%
                                                                                                                           > 46 million    of women in China

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                       50
Providing inclusive sizing to fulfil unmet consumer needs

            Taking notice of the growth potential in the plus-
            size market, many apparel players have stepped up
            their efforts to address unmet consumer needs by                                                   Nike’s China online store
            adopting inclusive sizing spanning XXS to 3XL/4XL                                                  offers womenswear in
                                                                                                               size 2XL
            in their products.

            For example, Nike’s China online store is offering
            size XXS to 2XL for their womenswear items and
            size XXS to 4XL for their menswear items. Its China                                                                            (Photo source: Nike.cn)
            counterparts including Anta, Li Ning and Xtep are
            also offering plus-size clothing, such as 3XL for
            women and 4XL for men, with some menswear
            products by Li Ning even up to size 5XL.

                                                                                                                                                                                         Li Ning’s online store
                                                                                                                                                                                         carries menswear in size
                                                                                                                                                                                         5XL

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                  (Photo source: Lingling.com)              51
Expanding product offerings to win over plus-size customers
       Some plus-size retailers are offering stylish clothing in a broader range of sizes to meet consumers’ heightened
       expectation. Offering various plus-size clothing styles to fit customers with different body shapes, some best-selling plus-
       size brands are able to accumulate hundreds of thousands of followers and earn nearly 100 million yuan a year.

                Case: Muzi Lixiang

       Founded in 2010 in Beijing, Muzi Lixiang is an online oversize
       womenswear brand on Taobao. Targeting female customers
       weighing 200-270 pounds, the brand offers clothing items
       sizing 2XL to 5XL, covering tops, dresses, pants, innerwear
       and accessories. To better understand and provide better
       services to its customers, all of Muzi Lixiang’s staff weigh at
       least 200 pounds, including the founder of the brand Li Xiang,
       who also serves as the brand’s plus-size model and influencer.                              Price range (mainly summer items)
       Muzi Lixiang had nearly 950,000 followers on Taobao as of                                   Tops: ~60 yuan – 190 yuan
       July 2019 and generated about 100 million yuan in sales in                                  Dresses: ~90 yuan – 180 yuan
                                                                                                   Pants: ~60 yuan – 160 yuan
       2018.                                                                                       Innerwear: ~20 yuan – 130 yuan
                                                                                                   Accessories: ~20 yuan – 70 yuan
                                                                                                 (From Muzi Lixiang’s Taobao store accessed in July 2019)   Muzi Lixiang’s online store on Taobao

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                                                            52
Plus-size brands featuring unique design

                Case: Garden Lis

       Founded in 2018 in Beijing, Garden Lis is a plus-size retailer
       featuring unique design plus-size clothing for women.                                                                                                                        Garden Lis’s Tmall store
       Targeting female customers aged 25-35 weighing 170-240
       pounds, Garden Lis offers clothing items sizing XL to 5XL,
       covering tops, dresses, pants and innerwear. Currently, it has
       217 self-operated and franchise stores in China and markets
       its products online through launching on Tmall, WeChat Mini
       Program and Xiaohongshu.

       Considering the higher demand for plus-size clothing in                                  Price range (mainly summer items)
       Northern China, Garden Lis has already expanded into                                     Tops: ~80 yuan – 280 yuan
                                                                                                Dresses: ~120 yuan – 370 yuan
       Qingdao and Inner Mongolia and planned to ramp up its store                              Pants: ~100 yuan – 370 yuan
       network in the northern region, with a focus on second-tier                              Innerwear: ~30 yuan – 50 yuan
       cities. In May 2018, Garden Lis completed a multi-million-yuan
       funding round led by local angel investor Tisiwi.                                           (From Garden Lis’s Tmall flagship store
                                                                                                          accessed in July 2019)

                                                                                                                                             One of Garden Lis’s specialty stores in Qingdao
                                                                                                                                             (Photo source: 36kr.com)

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                                                       53
Selected examples of plus-size menswear/ streetwear brands with
                  over 100,000 followers on Taobao

                                                胖胖哥                            4,690,000 ~20-160 yuan
                                                                               followers * price range

                                         Panmax                   1,910,000 ~100-1,000 yuan
                                                                  followers* price range

                                                  Asura
                                                    637,000 ~80-260 yuan
                                                    followers* price range

                                            纺布者      452,000 ~40-760 yuan
                                                     followers* price range

                                    Jpkthepangstyle     278,000 ~20-700 yuan
                                                        followers* price range

                                          IM铁人制品           250,000 ~40-2,000 yuan
                                                           followers* price range
                                                          234,000 ~60-5005,754,000
                                                半墨                             yuan
                                                                             followers^
                                                          followers* price range

                                                       Pmao             189,000 ~100-1,000 yuan
                                                                        followers* price range
                                                   大依无忧                 145,000 ~25-800 yuan
                                                                        followers* price range

Source: Media reports, companies’
official websites/ social media
accounts/ apps; compiled by Fung
Business Intelligence

                                         *Number of followers on Taobao as of July 2019
                                         ~Price range from the brands’ Taobao stores accessed in July 2019
                                                                                                             54
M&A CONTINUES AT ELEVATED LEVELS

Joining forces with foreign counterparts to create synergies and value
Creating synergy and value in M&A

                                             Increasing numbers of major local apparel companies have
                                             conducted mergers and acquisitions (M&A) with their foreign
                                             counterparts as a way to boost their market share and brand
                                             influence, expand market presence and enhance their supply
                                             chain capabilities.

                                                                                                       56
(Photo source: Fung Business Intelligence)
Selected M&A cases in China’s apparel sector, 2018 – 2019

       Acquirer      Target                          Date           Transaction           Details
                                                                    amount
       Xtep          E-Land Footwear USA             May 2019       US$260 million        Xtep announced that it has entered into a share acquisition agreement with E-Land World
                     Holdings Inc., the parent                                            Company, Ltd. and E-Land USA Holdings Inc., subsidiaries of South Korea’s fashion giant E-
                     company of American                                                  Land Group, through its wholly-owned subsidiary. Xtep will acquire 100% stake of E-Land
                     footwear brands - K-                                                 Footwear USA Holdings Inc., the parent company of footwear brands including K-Swiss,
                                                                                          Palladium and Supra, for US$260 million in an all-cash deal (approximately 1.75 billion yuan).
                     Swiss, Palladium and                                                 The acquisition will be funded by internal funds and is expected to be completed by the end
                     Supra                                                                of July 2019.

       Koradior      Keen Reach,                     March          HK$2.4 billion        China’s womenswear retailer Koradior announced plans to acquire the entire issued share
                     a fashion group wholly          2019                                 capital and shareholder loans of fashion group Keen Reach from Hong Kong-based
                     owned by Hong Kong-                                                  investment firm Apex Noble for a total consideration of approximately HK$2.4 billion, of
                     based investment firm                                                which US$500 million will be paid in cash and approximately HK$1.9 billion will be financed
                     Apex Noble                                                           by the issue and allotment of 199 million consideration shares at the issue price of HK$9.5
                                                                                          per share. As of March 2019, Keen Reach owned fashion brands Keen Reach and Extra
                                                                                          Wisdom, along with high-end womenswear subsidiaries – Shenzhen Aoruina and Shenzhen
                                                                                          Naersi.

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                                              57
Selected M&A cases in China’s apparel sector, 2018 – 2019

       Acquirer         Target                Date              Transaction               Details
                                                                amount
       Anta             Amer Sports,          March 2019        4.6 billion euros         A consortium led by Anta Sports finished the acquisition of more than 90% of the issued and
                        a Finnish                                                         outstanding shares and voting rights of Finland’s Amer Sports for 4.6 billion euros.
                        sporting goods
                        company

       Fosun            Tom Tailor,           February          N/A                       In February 2019, Fosun Group announced a takeover bid for German clothing brand Tom
       Group            a German              2019                                        Tailor. Fosun raised its stake in Tom Tailor to 35.35% from 29% by acquiring new shares
                        clothing brand                                                    issued by the German company; the acquisition lifted Fosun’s stake over 30% threshold that
                                                                                          triggered a mandatory takeover offer under German law.

       Trendy           Denham,               January           N/A                       Trendy (China) Group Co.,Ltd., the parent company of domestic apparel brand Ochirly,
       (China)          a Dutch denim         2019                                        officially sealed an equity purchase agreement to acquire a majority stake in high-end denim
       Group            firm                                                              firm Denham Group B.V. According to the agreement, Trendy Group will acquire all the stake
                                                                                          of Denham Group B.V. held by Amlon Capital B.V. Following the acquisition, Denham’s
                                                                                          founder Jason Denham will continue to hold stake in Denham and to be the chief creative
                                                                                          officer of the brand, while Trendy Group’s senior vice president Andre Chen will serve as the
                                                                                          new CEO of Denham.

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                                             58
Selected M&A cases in China’s apparel sector, 2018 – 2019

       Acquirer         Target                Date              Transaction               Details
                                                                amount
       La Chapelle      Naf Naf SAS,          November          35.3 million euros        La Chapelle announced to indirectly acquire the remaining 60% stake in Naf Naf SAS, a
                        a French fashion      2018                                        fashion retailer under French fashion group Vivarte SAS, for 35.3 million euros (approximately
                        retailer                                                          278 million yuan) through its wholly-owned subsidiary. The move came after LaChapelle
                                                                                          acquired a 40% stake in Naf Naf SAS for 20.8 million euros (approximately 160 million yuan)
                                                                                          in April 2018.

       Semir            JWU, LLC, the         September         US$ 5 million             Semir announced to subscribe for 7.1 million shares of Jason Wu’s parent company JWU, LLC.
                        parent company        2018                                        for a total of US$5 million (34.73 million yuan). Upon completion of the investment, Semir
                        of New York-                                                      will hold an 11% stake in JWU, LLC. Meanwhile, Semir will also establish a joint venture with
                        based designer                                                    JWU, LLC. It will invest 45 million yuan into the JV, which accounts for 75% of the registered
                                                                                          capital. The JV will operate in China, Hong Kong and Macau for the brands including Jason
                        brand Jason Wu                                                    Wu, Grey Jason Wu, and other related brands developed by JWU, LLC. in the future.

       Semir            Kidiliz Group,        May 2018          110 million euros         Semir announced to acquire all the assets of French childrenswear group Kidiliz Group for
                        a French                                                          110 million euros through its wholly-owned subsidiary Semir International Group (Hong
                        childrenswear                                                     Kong) Co., Ltd. Upon completion of the transaction, Semir Group will take over the entire
                        firm                                                              Kidiliz Group with the support of its management.

Source: Media reports, companies’ official websites/ social media accounts/ apps; compiled by Fung Business Intelligence                                                              59
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