LONDON/SHANGHAI -- Facing the prospect of softening sales at home, U.S. and European mid-market and premium fashion retailers have been quick to remind investors in recent weeks of the potential of brand-hungry China.
But behind the headline figures of a surging middle class population and untapped consumer demand, the reality of selling clothes and accessories in China is proving more complicated.
Consultants AT Kearney in a newly published report bumped China into fourth place as the world's most attractive emerging economy, after several years starring in the top three, putting it below Vietnam, India and Russia.
Partner Hana Ben-Shabat said "high retail costs in large cities and growing competition" had decreased China's attractiveness.
That report followed a forum in London last month where leading retailers, including Swiss luxury goods conglomerate Richemont and Athens-listed fashion chain Folli Follie, raked over the challenges of trading in China.
They found soaring import duties, difficulties finding suitable property and keeping suitable staff, and differing tastes than Western shoppers, making the country a harder sell.
Vacheron Constantin, the Swiss maker of prestigious watches and a unit of the Richemont Group, closed a dozen shops in the past year in China, as it tries to focus on fewer cities and clients amid fiercer competition with rivals.
"Nearly every global brand is in China competing for a limited number of customers, and their expansion far outpaces the actual growth of the market. This has made today's competition landscape very unhealthy," Charlie Lai, managing director for the Hong Kong and China market told Reuters.
Billionaire entrepreneur Philip Green, owner of the Topshop chain and Britain's most successful apparel retailer, is considering the world's fastest-growing economy with caution.
Green, while looking at store sites in mainland China, told Reuters in an interview in April he didn't believe "running into any of these things in scale" was the answer with Chinese retail needing 5 to 10 years to become competitive on a world stage.
The main focus of his expansion efforts is the United States, the world's biggest and most advanced consumer market, where he sees more potential in the nearer term even with rising living costs crimping consumer spending.
Still, the attraction of China is clear to retailers as diverse as U.S. accessories brand Coach and Britain's largest clothes merchant Marks & Spencer.
Both have announced expansion in China after lowering targets for sales growth at home amid jittery consumer markets.
As U.S. and European apparel retail markets come closer to saturation, in China, the world's third largest apparel market worth US$84 billion, just 17 percent is organized retail.
It is also the world's third largest market for high end goods, after Japan and the United States, but that is founded upon purchases of the lowest priced trinkets at stores like Louis Vuitton not volume sales of US$10,000 handbags.
Average monthly spend in China is US$45 to US$90, much lower than in most countries, AT Kearney data shows.
An affluent middle class that regularly buys mid- to high-end apparel is emerging in urban areas, but these consumers will buy only up to three mid- to high-end pieces a year for special occasions like Chinese New Year or important meetings.
Around 50 percent of China's higher end spending is also made by Chinese travelling outside of the mainland who seek to avoid the 15 to 20 percent import levies. Alain Li, Richemont CEO for the Asia region, sees no near-term change to the levy.
Partnerships with locals are highly prized to ease a way with state officials and bag property in a booming market.
Yuki Tan, president of Folli Follie China, argues that spread of wealth means "the mid-market is the market for the future" with greater potential than the luxury goods market which grew by 20 percent in China last year from a low base.
But she acknowledges no one yet has cracked the model.
