- 1.Beijing United Family Hospital Turns Twenty: a conversation with Roberta Lipson, CEO
- 2.U.S. – China Education Relations: past, present, and future
- 3.Fast Fashion and the Pursuit of a Global Market
- 4.Dealing with China – An Indian Perspective
- 5.Will All Roads Lead to Beijing? Risks and Challenges in China’s “Belt” and “Road” Plan
- 6.Editor’s Note
Metersbonwe is a company with humble beginnings. In true rags-to-riches form, founder Zhou Chengjian created a brand that is now a household name across the country. Now, he is looking outward, and the company faces its greatest challenge yet. In the approximately 22 years since Metersbonwe was founded, the company has been successful in capturing business from the growing Chinese middle class by combining fashionable products with affordable prices through the utilization of the “fast fashion” model. However, over the past few years, the company’s fortunes have shifted. Plagued by financial woes and a corruption scandal, a company that was once ripe with opportunity seems to be balking at the prospect of international expansion.
Metersbonwe can attribute its success to an ambitious leader, economic reforms, and a rising middle class. However, the integrity of its leader recently came into question. Last year, Zhou Chengjian became embroiled in a corruption scandal brought to light after his mysterious disappearance. His disappearance turned markets sideways and led to many questions, but few answers were given, and the repercussions of the entire ordeal remain unclear to this day. Furthermore, Metersbonwe is beginning to struggle in the market in which it initially found success. The popularity of foreign fast fashion brands continues to rise in China, and domestic brands are being pushed aside in favor of global chains with prestige and brand recognition. Metersbonwe must find a way to keep these fast fashion brands at bay and reassure Chinese consumers that it is the brand that epitomizes both the quality and upward mobility they so desire. Only then will it be able to support a global campaign with any chance of success.
A Portrait of a Leader
Metersbonwe (měi tè sī bāng wēi) was founded in 1995 by Zhou Chengjian. A self-made entrepreneur, Zhou was born in 1965 to a family of farmers in the eastern Chinese city of Lishui (Waldemeir 2015). After quitting school at the age of twelve, he began working as a tailor while starting his first clothing business (Waldemeir 2015). This first business was bankrupt by 1985 and went bankrupt again after Zhou restarted it a year later. Neither of these bankruptcies deterred Zhou; he says his ambivalence toward past failures can be explained by the Chinese saying that “ignorant people fear nothing” (Waldemeir 2015). Zhou’s purported ignorance paid off, and he found success almost immediately after founding Metersbonwe in 1995. Today, Metersbonwe operates almost 4,000 stores in China, and Zhou is one of the richest men in the country, with an estimated worth of more than $2 billion (FT Confidential Research 2016; Waldemeir 2015).
Metersbonwe entered the Chinese market at a seminal time when privatization in the country was just beginning. To “jump into the sea” and become an entrepreneur was incredibly risky, but Zhou possessed the vision and drive to do just that. He says the shift from a planned economy to a market economy caused a high demand for products, and “If you were brave enough, and your performance wasn’t too bad, you could be successful” (Waldemeir 2015). However, Zhou admits that this model of success is no longer viable today. To succeed, entrepreneurs must possess professional skills and a deep knowledge of consumer demands (Waldemeir 2015). Furthermore, Zhou believes that Chinese entrepreneurs will be successful if they are “tireless in starting up, restless in development, and relentless in innovation” (Tan 2011, 97). Zhou’s realization that he cannot hope to succeed using the same tactics he used two decades ago is encouraging, and his sentiments mark him as a leader who is willing to adapt to and overcome the challenges that the 21st century business environment presents.
What is Fast Fashion?
The fast fashion industry is a relatively recent phenomenon characterized by the speed with which clothing goes from runway to retail. The most successful fast fashion brands cultivate streamlined and sophisticated value chains with the ability to bring designs to fruition over the course of only a few weeks. The speed with which styles arrive in stores stokes demand and guarantees quick turnover of products, thus ensuring fewer markdowns (Loeb 2015). Rather than restocking, fast fashion brands replace sold out products with new styles, so consumers must buy a product as soon as they see it because they may not see it again. Some of the most well-known fast fashion brands include Sweden’s H&M and Spain’s Zara, which are also a few of Metersbonwe’s biggest rivals.
Metersbonwe fits the fast fashion niche by constantly churning out new styles at incredibly low prices. Zhou Chengjian estimates that the company releases 3,000 designs each year (Tan 2011, 97). Fast fashion brands also cater to a wide variety of demographics, which is why Metersbonwe not only specializes in men’s, women’s, and children’s apparel, but also in footwear, accessories, home, and beauty (Nelson 2014).
A Recipe for Success: Institutional Reforms and Favorable Demand Conditions
Economic reforms have played a considerable role in the success of Metersbonwe. Because the company has always been privately held, founder Zhou Chengjian controls all aspects of the company, allowing him to turn his vision for Metersbonwe into reality. Metersbonwe’s founding in 1995 coincided with the second phase of economic reform in China. The first phase began in 1978, two years after the death of Mao Zedong, and ended in the mid-1990s (Kroeber 2016, 104-105). During this time, resources were reallocated from the public to the private sector, and private sector activity quickly expanded, but the legal basis for these private businesses was unstable. The second phase of reforms brought with it private property rights, fewer restrictions for corporate organizations, and a diminished role of the state in private business (Kroeber 2016, 105). Firms in the private sector benefited greatly from these reforms, and the number of private businesses continued to increase, as did private companies’ share of industrial value added. In 2007, the private sector share of value added was 63 percent of total production (Kroeber 2016, 106). The second phase of reforms concluded in 2008 at the onset of the global financial crisis.
Metersbonwe entered the retail industry at a time when consumer demand in China was just beginning to escalate. Since the beginning of reforms, GDP per capita and purchasing power parity have continuously grown, allowing consumers more freedom than ever in their financial decisions. Despite relatively slower GDP growth over the past several years, China is poised to become the world’s largest apparel market in 2017 (Fung Group 2014). This trend is explained by the continued growth of disposable income in both urban and rural households. According to the Fung Group, disposable income grew by seven percent in urban households in 2013 (2014). In rural households the growth was larger, reaching nine-point-three percent in 2013. Clothing purchases made up 10.6 percent and seven-point-two percent of total annual expenditure in urban and rural households, respectively (Fung Group 2014). With a middle class estimated in 2012 at approximately 328 million people and rising, one can be certain that Chinese consumption will only increase (Kroeber 2016, 188). Metersbonwe would not exist without the institutional reforms that occurred in China in the latter half of the 20th century. Put simply, the company was in the right place at the right time.
Strategy, Criticism, and Changing Consumer Trends
Metersbonwe is a company that subscribes to the belief that there is never a weak market, only weak management (Tan 2011, 97). With this in mind, the company takes great measures to invest in its employees through the Metersbonwe College, which is located at the company’s Shanghai headquarters. Students at Metersbonwe College are all store employees. They are exposed to a variety of lecturers from professors to business executives (Tan 2011, 98). The purpose of Metersbonwe College is simple: to train the company’s future senior executives. Additionally, founder Zhou Chengjian takes steps to ensure employee morale is high. Employees are granted access to an anonymous company forum, which Zhou often browses to evaluate complaints and suggestions raised by workers (Tan 2011, 98). Employees also are encouraged to share opinions through an internal company newspaper. Each of these aspects of the employee experience showcases Metersbonwe’s strategy of effective leadership in building the foundations for a successful business.
Regarding production, Metersbonwe has formulated a strategy in which costs are minimized when they can be, but company executives are willing to spend on technology and intelligence when necessary. Low value-added processes such as manufacturing and sales are outsourced through franchising or the enlistment of consulting firms, respectively (Tan 2011, 97). High value-added processes such as research and development, channels, and logistics are given special attention and greater expenditure.
Metersbonwe often utilizes celebrities and public figures for its ad campaigns. This is a strategic move, as Chinese consumers are very receptive to marketing campaigns featuring influential people. If a popular Chinese entertainer is seen as the face of a brand, consumers are likely to respond by buying the brand’s products. Not only does Metersbonwe hire pop stars to act as spokespeople for the brand, but many also serve as fashion consultants (Ying 2011, 97).
One reason Metersbonwe has become so profitable is its focus on entering second- and third-tier cities (Faber 2012). With first-tier cities oversaturated and the brand’s losing luster among the big-city young, Metersbonwe made a lucrative push into second- and third-tier urban centers. These markets have yet to be penetrated by global brands such as Zara or H&M, and as a result, Metersbonwe has been able to achieve brand recognition in smaller markets. While successful in building a consumer base in smaller cities, Metersbonwe is not viewed by youth in first-tier cities as prestigious in the same way that international brands are (Faber 2012).
However, it appears that Metersbonwe’s recent efforts have not been entirely effective in capturing the consumer base it desires. In the beginning, Metersbonwe appealed to cost- and style-conscious Chinese consumers. Now, as tastes refine and brand image is paramount, consumers’ attitudes toward Metersbonwe have begun to sour. In an interview, Xu Weidong, vice president of Metersbonwe, expressed the company’s desire to become a “global value brand,” and help establish China as a global exporter of style (Faber 2012). However, young consumers in China’s top-tier cities do not view Metersbonwe in the same light as Xu would hope. These shoppers are adamant in their distaste for the company and its products, stating that its clothes are cheap, ill-fitting, and more suitable for high schoolers than the 18-25 demographic the stores target (Faber 2012). The young people quoted in Bennett Faber’s article for Cargo Collective would prefer to shop at stores such as Zara, H&M, and American Eagle (2012). Clearly, it is a problem when a store’s products do not appeal to its target audience. Judging by the reactions of consumers, Metersbonwe must focus more on branding. Recent ad campaigns have sought to update the brand’s image by not relying solely on celebrity spokespeople to attract young consumers. For example, in collaboration with Hong Kong label Subcrew, Metersbonwe launched a viral video campaign featuring subculture characteristics such as graffiti, skateboarding, and action sports (Faber 2012). Additionally, the company collaborated with iconic Japanese photographer Yasumasa Yonehara on a t-shirt and has featured underground Chinese talent on other t-shirt lines. Through these attempts to update its image, Metersbonwe appears to make a departure from its original target audience in hopes of wooing label-savvy consumers from first-tier cities such as Shanghai and Beijing (Faber 2012).
Further Challenges to the Company: The Technology Boom
In 2013, Zhou Chengjian outlined plans to expand beyond China, pledging to open stores in New York, Tokyo, and London within three years (Schuman 2013). These plans were put on hold when the company began to encounter financial problems. Up until 2011, Metersbonwe’s profits grew more than 30 percent annually (Nelson 2014). Since the explosion in popularity of e-commerce in China, Metersbonwe has struggled to keep up with online retailers such as Alibaba. As a result, the company lost 95 million yuan ($14.9 million) over the first half of 2015. In attempts to combat this, Metersbonwe declared a private placement plan to raise nine billion yuan ($1.4 billion) to be spent on the construction of an online to offline platform, data support, and industry chain integration (Flannery 2015). However, in December 2016 the company announced it was scrapping the private placement plan in response to “changes in market conditions” (Reuters 2016).
Metersbonwe’s online to offline integration initiatives are both extensive and impressive. In addition to developing a website, the company has developed a mobile portal, social media presence, and various in-store initiatives. All stores have free Wi-Fi and support mobile payment, while some store branches have touchscreen devices (Fung Group 2014). Additionally, shoppers have the option to scan a product’s QR code with their phones, where they will then be directed to the store’s product page on Banggo.com, the store’s online platform. From there, shoppers can view full product information and shop online if they choose (Fung Group 2014). Finally, the company has attempted to make the transition from offline to online as seamless as possible by integrating online and offline prices and ensuring there are no discrepancies between the two. Metersbonwe has also learned how to utilize technology to monitor quality control and gauge customer satisfaction. In the company’s flagship stores, remote-controlled videotaping allows executives at the company’s headquarters to observe sales associates’ customer interactions, customers’ reactions to products, and the way products are displayed in stores (Tan 2011, 97). While it can be argued that any company hoping to compete in the 21st century must undergo a certain degree of technological innovation, Metersbonwe’s extensive efforts have proven the company’s ability to adapt and directly confront pressure from competitors.
Zhou Chengjian’s Fall from Grace
Despite his leadership achievements, Zhou Chengjian’s reputation recently took a beating. On January 6, 2016, Zhou was reported missing. His disappearance was reportedly related to President Xi Jinping’s anticorruption campaign (Waldmeir 2016). In response to Zhou’s disappearance, Metersbonwe immediately suspended trading shares on the Shenzhen Stock Exchange. It was later alleged that Zhou conspired with Xu Xiang, then-manager of Zexi Investment, to manipulate Metersbonwe shares ahead of a 2015 stock market crash (Yang and Zhai 2016). Zhou returned to work a week later, and Metersbonwe officials have given no explanation.
It may seem strange to many that a high-profile businessman would be taken into custody on suspicion of serious criminal charges, only to be released with no explanation given and no apparent punishment. However, these circumstances have become something of a trend, as several other wealthy Chinese businessmen have been arrested in a similar fashion over the past few years. The disappearances cause instability in the Chinese stock markets, but have varying effects on the men who are arrested (Straits Times 2017). The president of China Minsheng Banking Group, Mao Xiaofeng, resigned for “personal reasons,” after a January 2015 stint in custody, where it was reported that he was assisting with an investigation (Straits Times 2017). In Zhou’s case, the aftermath was subtle, and there have been no further reports about his disappearance.
While it does not appear that there will be any further ramifications for Zhou’s behavior, the entire ordeal undermined both his credibility and integrity. For someone who built his empire through determination and hard work, it comes as a disappointment that he might take advantage of his arduously won power to manipulate his company’s stock price. His humble beginnings seem forgotten, and the entire controversy has tarnished his image as a visionary leader. Although additional repercussions do not appear to be evident, the controversy should not be ignored, as it also underscores the tenacity with which President Xi has conducted his anticorruption campaign.
Conclusions: Global Market Entry and the Future
Per a statement by Metersbonwe, 2016 was a year for product innovation, brand upgrade, good governance, and bravery (Metersbonwe Official 2016). Despite strong competition from online retailers and other fast fashion brands such as Zara and H&M, Metersbonwe experienced a sharp increase in online sales and opened 235 stores in 2016 alone (RLI 2016). It appears that the fall from grace of the company’s leader will not spell the end of the company; rather, 2017 will be a return to business as usual as Metersbonwe hopes to build on the success it experienced in 2016.
It is unclear whether Metersbonwe still plans on expanding into Western markets. However, if it wishes to do so, it might be best if it first expanded into Southeast Asian markets where tastes are similar and labor remains inexpensive. If the company does this, it will likely be able to replicate the success that it has continuously found in smaller Chinese cities where few international brands have established a presence. By introducing themselves into markets with limited penetration, Metersbonwe will cultivate brand recognition and loyalty before other brands begin to consider those markets.
In conclusion, Metersbonwe is a company that has achieved success through considerable drive and determination, and a certain degree of luck. Zhou Chengjian was fortunate to found the company when he did, and economic reforms in China allowed him to leverage favorable demand conditions to his advantage. Popularity and a prominent presence in second- and third-tier cities have proven strong enough to counteract Metersbonwe’s dwindling popularity in first-tier cities, and as a result, the company remains the most popular Chinese casual wear brand (FT Confidential Research 2016). Though faced with setbacks, the company has displayed the tenacity to bounce back as well as the desire to remain successful. In this way, Metersbonwe truly epitomizes the modern-day Chinese brand.
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