Fila Korea: Hidden beneficiary of China’s guochao fashion trend

The burgeoning Chinese fashion fad, known as guochao, has pushed out or significantly reduced the popularity and influence of Western and other well-known foreign brands in the world’s most populous market.

German sportswear company Adidas and its US rival Nike saw a plunge in their online sales in China last year in particular, amid Chinese consumers’ boycott of their products for taking a stand against the alleged forced labor in northwest China’s Xinjiang Uygur Autonomous Region.

Even before that, plenty of foreign fashion brands fell victim to China’s rising trend among young consumers, dubbed millennials and Gen Zers, of favoring homegrown labels such as Li-Ning, a stylish local sportswear brand named after one of China’s most famous athletes.

However, some foreign brands, including Fila Holdings Corp., are benefiting from younger Chinese consumers’ embrace of domestic products.

Fila Holdings, formerly Fila Korea Ltd., is a South Korea-based company engaged in the manufacture and distribution of sports casual clothing, footwear and accessories.

The company handed over its business rights in China to Anta Group, better known as Anta Sports Products Ltd., in 2009. In return, Fila receives 3% of Anta’s annual sales as a design fee every year.

According to Korea’s government data, Fila Holdings received 59.6 billion won ($48.6 million) in design fees from Anta in 2021, up from 45.9 billion won in 2020 and 38.5 billion won in 2019.

Fila’s Chinese sales increased to 1.97 trillion won in 2021, up 52% from two years earlier, amid the Chinese fashion trend of guochao.

“China’s local brands have grown rapidly in the past few years, riding the guochao fever. Fila, which belongs to Anta Group’s brand lineup, is also winning the hearts of Chinese consumers,” said a fashion industry official.

CHINA’S ‘NATIONAL WAVE’

Guochao, a combination of the Chinese word “guo,” meaning nation and “chao,” meaning fashion, has become an industry buzzword in recent years, as Chinese millennials born between 1980-95 and Generation Z born between 1995-2010 became the main followers of the trend.

In the past, anything “Made in China” used to get snubbed or frowned upon with negative connotations of poor quality.

But Chinese youth, born and raised when the country’s economy and wealth were taking off, were quickly attracted to a new mix of contemporary design and nostalgic cues that China’s domestic brands offer with high quality.

Earlier this week, China’s second-generation fast-fashion company Shein was valued at $100 billion following a recent funding round, which has made the online retailer worth more than two globally famous brands, H& M and Zara, combined.

China’s Anta Group recently said it expects its annual sales to grow at about 15% in the coming years on the back of the guochao trend.

Anta’s market capitalization of $25.1 billion ranks fourth in the global fashion industry, following market leader Nike ($202 billion), Lululemon ($45.6 billion) and Adidas ($38.8 billion).

KOREAN FIRMS IN CHINA

The rise of guochao poses a challenge to Korea’s leading fashion brands as well as other foreign brands operating in China.

F&F Co., a Korean outdoor clothing retailer, has been successful in China with the popularity of Discovery Expedition and MLB brands among Chinese youth.

F&F, the Korean distributor of the US outdoor brands Discovery and MLB, saw its China sales rise to 305.4 billion won in 2021, about 28% of the company’s total revenue of 1.09 trillion won.

Shares of F&F, listed on the Kospi, closed flat at 770,000 won on Friday, down 21% from an all-time high of 979,000 won on Dec. 29, 2021.

Some analysts attributed the share price fall to investor concerns over F&F’s growth potential in the Chinese market in the face of the rising guochao trend.

E-land Group, a Korean retail conglomerate, sells clothes for women and children in China, but hasn’t been aggressively promoting that the products are “Made in Korea.”

Write to Jeong-Cheol Bae at bjc@hankyung.com
In-Soo Nam edited this article.