California Brands Look for a Route to China
Victor Cortese has never exported his clothing line overseas, but he is taking a good hard look at the wide-open consumer frontier offered by China.
“The consumer here is ver y fickle,” said Cortese, whose eponymous line of women’s blue jeans and T-shirts sells on the Internet and at military exchange stores throughout the country. “The American market is very competitive.”
Cortese believes his newest line, called Ponyboy, with moderately priced jeans that retail for $48–$68, might be just the ticket for clothes-hungry women in China who want a touch of American-made denim in their closets. “I like this opportunity. It sounds good,” noted the designer, whose headquarters are in Calabasas, Calif.
Cortese was one of a few dozen people who attended a Sept. 21 California Fashion Association seminar at the California Market Center on exporting apparel to China, a country with 1.3 billion people, more than four times the population of the United States.
Ilse Metchek, CFA’s executive director, noted that California had become one of the top design centers in the world, whether for apparel, furniture or architecture. “The ’Created in California’ [apparel] brand is a natural for China’s new middle market. They have quite a bit of Gucci, Pucci and Armani,” said Metchek, who ticked off a number of reasons California’s apparel industry shines.
Hollywood dictates fashion in California, not New York or Europe, she said. Los Angeles is less conservative than anywhere else in the United States, and the concept of specialty retailing is a growing sector in the state. The diverse ethnic mix of the movers and shakers behind the California apparel industry is an asset because of their global ties.
Frank Yuan, chairman and chief executive of ASAP Show Inc., who organizes a sourcing show twice a year in Las Vegas and takes groups of manufacturers to China to see clothing factories and representatives, noted that China is one of the fastest-growing economies in the world. “Ten to 15 years ago, Shanghai had only one skyscraper. Today, there are 387,” he said. “Basically, the Chinese consumer market is growing.”
That point was brought home by Yuanyuan Wu, the commercial consul at the Chinese consulate in Los Angeles. She noted that from 1978 to 2005, China’s gross domestic product increased 1,100 percent, with an average yearly rate of 9.6 percent. During the past two quarters of this year, the GDP has grown 10.3 percent and 10.9 percent, respectively, over the same periods last year. Retail sales of consumer goods in 2004 grew 13.3 percent, with apparel purchases jumping 18.7 percent.
Although cracking the Chinese market sounds like a surefire way for garment manufacturers to make money, it’s not always that easy.
Yuan noted that Chinese department stores are structured differently than in the United States. They operate on a consignment basis or a store-within-a-store concept, instead of buying apparel outright from manufacturers.
“In the U.S., we call them concession stores,” he explained. “The proceeds of the sales go to the department store, and then they settle [with apparel makers] maybe three months later. There is no way a small or medium U.S. company can go to a department store because they don’t buy directly.”
He suggested that the best way to get a toehold in the country is to work with small specialty stores, find a franchisee willing to open a store with your brand or find a licensee that will advance your product in China. “What they are looking for from you is the design, the knowledge of marketing and the knowledge of merchandising,” Yuan said.
To help finance exports, Herman Wong, first vice president at United Commercial Bank in Monterey Park, Calif., noted that the Export-Import Bank of the United States provides loans through commercial banks for U.S.-made products, made with 50 percent U.S. content, to be sold overseas. He said United Commercial has a $3.5 million loan authority with the Ex-Im Bank, which speeds up the loan-approval process with UCB underwriting the loan.
Wong noted that the Ex-Im Bank helped small and medium- sized exporters expand their collateral, allowing them to borrow against foreign accounts receivables and inventory. In 2005, the Working Capital Guarantee Parameters program covered 600 export-related loans to 104 countries. Mexico was the top export market with 127 loans, followed by China with 106 loans. Some of the most popular items exported to China under the loans were scrap metal, paper products, plastics, water treatment equipment, food supplements, cosmetic products and agricultural products.
“This program reduces the risk to make credit-worthy loans for export-related activities,” Wong said. “The loan can go to one deal or be a revolving line of credit.”
