Alan Fang – Novo CEO Interview
It seems Alan Fang – CEO of Novo Holdings has always been ahead of the game. He launched Novo Concepts – one of China’s biggest multi-brand fashion retailers back in 2003, way before China was hot and the floodgates of global fashion brands coming to China opened. Then in 2010, he launched Novomania – China’s only independent fashion and accessories trade fair, to help fashion brands enter and explore the China market.
As a retailer, distributor and trade show operator focused on the urban youth demographic, Alan and his Novo teams are well versed in all matters of the fashion industry in China. Recently Maosuit interviewed Alan about the growth of multi-brand stores, consumers and the current state of the China fashion market.
What motivated you to start Novo Concepts and then the Novomania Trade Show?
I started Novo Concepts in 2003 by chance. A great location came up during SARS which led to the shop. In the beginning it was very tough, I went to Europe to source brands, but no one believed in us, yet slowly it all came together and evolved.
Now both our mission and store DNA is aimed inspiring the youth and creating the coolest shopping experience for our target customers. Our stores and merchandising act as the company’s centerpiece that offers our perspective on fashion thorough which customers can explore, experience and find ways to express themselves.
The Novomania idea was formed in 2009 and we held the first show in 2010. It was started to naturally extend our DNA of inspiring youth across the range of fashion, accessories and watches etc. Now consumers have access to everything online, but they still want to see and touch them for real. Novomania was perfect for this.
Its said that the multi-brand store sector cant grow in China until consumers are ready. Yet you cant build a consumer base without the stores, so it’s a catch-22 situation. What is your take on this?
Multi-brand stores will become the solution for niche and independent brands entering China and this chicken and egg (what comes first) scenario isn’t that clearly defined.
Fashion victims [in China] already know all about global brands even if they aren’t sold officially in China. We need to be able to educate consumers and if you believe China will self educate it will be a very slow process.
If brands [including multi-brand stores] keep waiting to enter China, the costs will just continue to rise. Now In the US and Europe times are tough, so the timing is right to sew seeds and invest in China. No matter what, you’ll still need one to two years to build up, to educate, learn how to merchandise for China and find partners etc.
One of China’s biggest issues for developing multi-brand and department store retailing is the absence of buyers in China. How to address this issue?
Actually there are lots of buyers in China, but they are tucked away in tiny side street stores that they own, operate and do their own merchandising etc. They create the displays, own all the stock and take the merchandise risk if it doesn’t sell. They even use Taobao to move any products that can’t be sold in the store.
So it’s not true that there are no buyers, they just aren’t formalized into the fashion ecosystem or work for big companies. They are independent and so [are overlooked] and don’t get invited to the usual industry trade events.
We believe that once given the opportunity, these independent and small shops will [be willing] to take the risk and have the courage to stock international brands we bring in through Novomania.
Maosuit Note: This is absolutely true. Independent stores and buyers have existed in China for decades and they often source merchandise directly from factories or from the grey market including wholesale markets. They have long acted act middlemen who fulfill consumer’s needs for fashion products that were always made in China, but never officially available in China
How much localization do brands need to do for China?
In the beginning it’s not really necessary. If you only have a few stores then no need to alter products for China too much. Once you want to grow beyond 10 stores you need to customize sizes and merchandise for China, there is even merchandising differences between the North and South. Also, you may need to do subtle modifications to products while still maintaining the proper brand image, while catering to Chinese tastes. Once this is done you can increase to 40 – 60 stores across first, second and even third tier cities.
How is the market for distributors now in China?
A pure distribution model for China is becoming less and less viable because of increasing rents and decreased margins on imported products. Many brands still choose to use distributors to learn the [retailing] system, but it’s no longer their core business strategy.
[For distributors] it’s becoming more and more difficult and to stand-out you really need to find a category killer [brand]. The international fast-fashion brands have already changed the game for distributors in China because consumers now expect fashion to be cheap; meanwhile their value demands are always increasing.
As a distributor in China, you also need an agile supply chain engine that can do replenishment, open stores, manage logistics and handle designing capabilities. So it’s not so much about cost, it’s about speed!
Some brands entering China have very high expectations and want to open 200-300 stores each year with the help of distributors. Some distributors make promises just to get the distribution rights for China, but cant execute on these commitments at all.
Licensing your brand in China provides another alternative, but it’s very dangerous to your brand identity.
What are Chinese consumers doing these days?
Chinese consumers are still not that sophisticated. While, fashion originality – driven by different philosophies comes out of cities like Paris and New York, for Chinese, their tastes aren’t so profound and fashion habits don’t go that deep.
Chinese don’t have a way of thinking or philosophy behind what they are wearing. They don’t ask asking themselves “why am I wearing this that way”. In terms of what they wear and what is available – its all here already and all available on Taobao.
In China people sway and have little loyalty to brands. Partly this is because the brands don’t lead with identity; they just go with what sells each season. But if you don’t have a clear philosophy your brand won’t be clearly understood
We try to provide an alternative [cultural] education and this is where our group philosophy and brand feeds into everything we do. We are offering a different perspective to young people and let them have an opinion which will cause the industry to grow organically.
Chinese are slowly embracing creative industries and design schools are becoming more buoyant. We like to think we play a part in encouraging the ecosystem and are now running a university program for young designers. We promote an alternate career path in fashion etc. and bring in speakers to give a different perspective.
Some predict that China will be the world’s biggest market for e-commerce by 2015. Do you agree?
I agree in the direction of E-commerce in China, but it may take longer than three years. Will China be the biggest market in the world? Yes!
China doesn’t have a legacy of stores like other countries [that affect shopper’s behavior]. Therefore there’s no existing [brick and mortar] stores [infrastructure] to prevent brands wanting to do e-commerce but worried about damaging their store’s reputation or affecting in-store sales etc.
In the future, 30-40% of brand’s sales in China could come from e-commerce. Having your own brand website is important for image, but it will probably only achieve low sales. Brands need to work with other e-commerce portals like TMall and Taobao that have massive traffic and really convert this into sales.
Everyone also has problems with warehousing and logistics, so they need to find partners and solutions for these too.
You just secured a $30 million investment from KKR – a leading global investment firm. What does this mean for Novo?
The market is tough right now and some brands are only growing at single digits and hurting with inventory and decreasing margins. There is a general slow down in store openings [leaving excess inventory] and developers are not rushing ahead with new malls as they were the last few years.
Overall, brands are becoming more conservative and distributors are buying less. For many, 2013 looks bleak and even into Q1 and Q2 for 2014 many will act cautiously.
For us to receive this investment now shows the confidence KKR has in Novo as a company, our management and our systems. With this investment and everything (retail locations) now discounted we are looking for opportunities to expand and open more stores.
What does 2013 have in stall for Novo?
We plan to open 30 new stores with sizes from 2000- 3000 sqm. across China and are investing a lot into our systems so they all merge. We will continue to do our own buying and also take some merchandise on consignment and concession models.
We will continue to target the 15-35 year old demographic and its our customer’s needs that are driving our decisions (more than the brands). We want to offer variety and platform to choose from. We plan to promote our concept of inspiring youth as opposed to just promoting brands.
For Novomania, in the beginning it was an idea and so just tried to do it and see how it went to make some noise. Now its taking form and we want it to become the trendy show for all Asia. To be the one trade show for all Asia you have to have a massive market to tap into and only China has it. We want to invite the best buyers from around the globe to see the worlds best brands. We want Novomania to be a festive event incorporating youth – not just a trade show.
Thanks to Alan for speaking with Maosuit