The latest USDA report included few changes in global supply and demand figures, but described important shifts in trade expectations. The global production figure for 2013/14 was revised 657,000 bales lower, from 117.8 million bales to 117.2 million. The largest country-level revision for the 2013/14 crop was for the U.S., where persistent drought conditions in Texas pulled harvest expectations 500,000 bales lower, from 14.0 million to 13.5 million. The global consumption figure for 2013/14 declined 258,000 bales, from 110.4 million bales to 110.2 million. The largest countrylevel revisions in mill-use were for India (-250,000), Bangladesh (-100,000), and Vietnam (+100,000). The relatively small changes to production and consumption figures resulted in a marginal revision to the estimate for global ending stocks (-254,000 bales, from 92.7 million to 92.5 million).

Revisions to trade estimates indicate that more cotton will be shipped in 2012/13 than previously estimated (+1.7 million bales, from 45.2 million to 46.9 million) and less cotton will be shipped in 2013/14 than previously estimated (-1.1 million bales, from 39.5 million to 38.4 million). Driving the revisions to trade figures were changes to expectations regarding Chinese import demand, with the 2012/13 figure revised 1.8 million bales higher (from 18.3 million to 20.0 million) and the 2013/14 revised 1.0 million bales lower (from 12.0 million to 11.0 million). In terms of exports, Australia (+500,000 bales), the U.S. (+350,000), India (+200,000), and Turkmenistan (+150,000) are all expected to ship more cotton in 2012/13 than previously estimated. Projections for 2013/14 deliveries declined for Australia (-500,000 bales), the U.S. (-500,000), and Brazil (-200,000), but were increased for India (+200,000).

These revisions to trade figures highlight a principal uncertainty that has been facing the cotton market for the past couple years. With a large proportion of recent Chinese harvests flowing into the government’s reserve system, a major question facing markets has been how will the Chinese government choose to supply mills – through releases from reserves or through imports. If more cotton is pushed out of reserves, it would mean lower imports, higher ending stocks in exporting countries, and downward pressure on world cotton prices. If less cotton is moved out of reserves and more imports are permitted, the implication is lower ending stocks in exporting countries and upward pressure on prices. The revisions in this month’s report suggest that existing expectations regarding imports were too low and that stocks in exporting countries will be pulled tighter in 2012/13 than previously estimated. This is a likely reason why New York futures prices moved higher with the release of the current USDA report.

Following this month’s reduction in the Chinese import forecast for 2013/14, the USDA is forecasting a 18.1% decline in global trade in the upcoming crop year (-8.5 million bales, from 46.9 million in 2012/13 to 38.4 million bales in 2013/14). Even with the projected reduction in trade volumes, ending stocks in countries outside of China are expected to decrease slightly in the coming crop year (-1.2 million bales, from 34.9 million to 33.6 million). Last crop year, early USDA estimates for 2012/13 proved to be too low. The forecast made in June 2012 was 13.5 million, 6.5 million bales below the current figure. If the current forecast for 2013/14 Chinese imports also proves to be too low, there would be upward pressure on world cotton prices as stocks draw tighter in countries outside China.

At the center of the uncertainty surrounding Chinese import volumes are Chinese cotton policies that maintain high prices for Chinese growers and mills while concentrating global supplies in China. At a recent conference, ranking officials from the National Development and Reform Commission (NDRC), the organization charged with managing cotton policy, and the Chinese Cotton Association (CCA) indicated that reform efforts were underway and that new cotton policies could be instituted in the 2014/15 crop year. In the meantime, the same general policies that were in place during the 2012/13 crop are to be extended into 2013/14. Therefore, global price direction could be expected to continue to be heavily influenced by Chinese import demand for the next several months.

The boundary between in-store and online apparel shopping is vanishing in the minds of consumers. Offering a seamless or “OMNI-CHANNEL” retail experience to U.S. apparel shoppers across all avenues they browse and buy clothing can help protect a retailer’s or brand’s competitive advantage. Explore the latest findings about apparel shopping behaviors, preferences, and concerns and discover ways to optimize influence and sales across various retail touch-points.

[quote]Karmaloop’s Aisha Slay, director of customer service, says the online retailer keeps extensive analytics of all online customer communication — emails, calls, chats and message boards — to help perfect its site, policies and merchandise.  Issues are taken “extremely seriously,” Slay says, with reps first responding to the customer by email or phone, and then directly to the site where the feedback was posted.

“We never take the ‘wait and see’ approach with any complaint,” Slay says.  “First, we try to identify and/or replicate the issue.  Emails are worked 24/7 with most issues being responded to within 3-to-6 hours. If an issue is found, our merchandising team and buyers work efficiently to get it corrected. Furthermore, customer complaints and call reasons are tracked daily to monitor trends.”

More than one-third of consumers (37%) say they “always or sometimes” write product reviews online for apparel purchases made either online or in-store, up significantly from 25% in November 2010, according to the Cotton Incorporated Lifestyle Monitor™ Survey.

While (53%) of consumers say they are just as likely to write a review about a garment they were satisfied with as one they were dissatisfied with, the Cotton Incorporated Customer Comment Project reveals that approximately eight out of 10 customer ratings across all retail channels are positive.

The project looked at a collection of more than 200,000 customer comments available on the product pages of 25 key retailer websites, covering mass market retailers, chain, department and specialty stores, online-only retailers and sports specialty stores.

Kantar Retail’s Anne Zybowski, vice-president of retail insights, says comments boards are “definitely” a high priority for retailers, especially for industry leaders.

“On some boards, comments run from product-specific merchandise issues all the way to broader customer service problems and how they’re being handled,” Zybowski says.  “In fashion, with so [much product] turning over so quickly, merchants look at reviews online and take action based on that.  We’ve seen some retailers whose redline or clearance items correlate with a product’s negative online review.”

The quick action on the part of these retailers may be partly due to the fact that 81% of consumers say online apparel reviews are “very or somewhat” believable, and 71% say they are influential, according to the Monitor.  And more than seven out of 10 consumers (71%) read product reviews right on retailer or brand websites, followed by e-commerce (45%) and social media (17%) sites.

The Doneger Group’s Tom Julian, director of strategic business development, says today’s consumer is in control, and swift retail reaction is now part of the service model.

“At recent industry workshops, many executives acknowledged the importance of real time and immediate action for all social media efforts,” Julian says.  “They also say each social media platform has a different purpose: some are for buzz; others can be for retail transaction; others are for brand accolades.  Executives need to have a plan and position for each.”

While most of the comments reviewed for the Customer Comment Project were favorable, denim was lowest on the positive scale, and activewear was highest.

From 2011 to 2012, positive customer ratings for denim increased from 72% to 74%, pants increased from 76% to 77%, and activewear increased from 80% to 81%, while positive customer ratings for knit shirts declined from 80% to 78% and dresses declined from 80% to 74%.

Cotton Incorporated’s Customer Comment Project also revealed consumer dissatisfaction with negative textile issues, such as shrinking, wear and tear, stretch recovery, pilling, fading, odor, wrinkling, and static cling.  According to Monitor data, the majority of consumers say they are very or somewhat bothered when any of these issues occur in their garments.

Zybowski says retail response to negative comments varies from putting the product on clearance, to contacting the brand to make changes.

“They also have the option to change the product description on the product page, being more transparent about the item,” Zybowski says. “But if it’s a product quality issue, it’s a supplier or internal organization problem.  To fix it, they need to go back to the R&D part of production with quality testing.”

Karmaloop says if a customer does not have a history of similar complaints, the company will immediately offer a replacement and/or compensation.

“If we receive multiple complaints regarding the same brand, we always make our buyers aware so they can reach out to the maker,” Slay says.  “All our items are 100% authentic and received directly from the vendors. Although merchandising is directly responsible for maintaining consistency with sizing and quality, we work closely to ensure consumers are made aware of any and all complaints and inquiries.”

Ultimately, comment boards allow the retailer to learn more about what the consumer likes – or does not like.

“Many brands are able to monitor their customers on an ongoing basis — the number of times they’re writing, complaining, etcetera — and there is an art to data base management,” Julian says. “All information is relevant in this global, online world…and helps to connect the brand to the consumer.”

Employment: The U.S. economy added 175,000 jobs in May. This month’s increase was about 30,000 higher than estimates for the past two months and represents the second largest monthly increase this calendar year (added 332,000 positions in February). Revisions to figures for March (+4,000, from +138,000 to +142,000) and April (-16,000, from +165,000 to +149,000) indicated that 12,000 fewer jobs were added than previously estimated. Through the first five months of 2013, 946,000 jobs have been added. Over the same period in 2012, the figure was 1,024,000. In 2011, it was 889,000. Despite the expansion in payrolls, the unemployment rate increased marginally, from 7.5% in April to 7.6% in June. The reason the unemployment rate can increase when jobs are added is because of labor force participation. The unemployment is defined as the ratio of Americans with jobs over the number Americans looking for jobs. Last month, 420,000 Americans joined the labor force, and this increase was a primary factor behind the slight rise in the unemployment rate. In May, initial claims for unemployment insurance, which is an indicator of layoffs, averaged near 340,000. Values below 400,000 are associated with job growth.

Consumer Confidence and Spending: Since the recession, there has been slow and inconsistent improvement in consumer confidence. In May, however, the Conference Board’s Index of Consumer Confidence rose 7.2 points and reached its highest level since February 2008 and thereby marked its highest point since the onset of the financial crisis in September 2008. Likely factors contributing to the improvement in consumer attitudes are rising home prices, record stock prices, and a gradually improving labor market. Gasoline prices can also affect consumer confidence, but the national average has been increasing in recent months and may have prevented further improvement in consumer attitudes. In the latest weekly data ($3.71/gallon for the week of June 7), gasoline was about 10% higher than it averaged in January ($3.38/gallon). In the latest data from the Department of Commerce, estimates indicate that overall spending was flat in April relative to March, increasing only 0.7%. Year-over-year, overall spending in April was 2.1% higher. Figures for apparel spending were more positive. In April, clothing spending increased 1.3%. This marked the second consecutive monthly increase of more than one percent (+1.7% in month-over-month in March). Year-over-year, apparel spending was 3.7% in April.

Consumer Prices & Import Data: Retail apparel prices, as represented by the CPI for garments, declined for the third straight month in April. At its current level, the CPI indicates that April prices are 1.7% below the highest point set (January 2013) since the 2010/11 spike in fiber prices. Import prices have been stable in recent months, but in the latest seasonally-adjusted import data for April, average prices per square meter equivalent (SME) of cotton-dominant apparel imports rose $0.05 (from $3.47/SME to $3.52/SME). This marked the first time since May 2012 that average import prices moved out of a relatively tight range between $3.43/SME and $3.47/SME. Cotton-dominant import volumes increased 3.2%, but remained slightly below the quantity imported in January and February (seasonally-adjusted data). Further improvement in the U.S. economy could lift consumer confidence and spending and bring import volumes higher in coming months.

McKinsey’s Nora Aufreiter, senior partner in marketing and sales, and retail practices, says social media remains largely about discovery and advocacy versus transaction.

“Almost three quarters of consumers rely on social networks to guide purchase decisions, and photo-based interfaces like Pinterest, Tumblr, etc., have really driven engagement,” Aufreiter says, saying reports show significant increases in traffic and conversion when products are posted on these sites. “Social will continue to play a role in commerce, just not how it was first imagined.”

Almost 10% of consumers say they start shopping for apparel online using social media websites, up significantly from 3% in 2010, according to the Cotton Incorporated Lifestyle Monitor™ Survey.  Additionally, among consumers who read customer reviews when shopping for clothes online, nearly a fifth (17%) read them on social sites.

To that end, ModCloth is covering its bases with a presence on Facebook, Twitter, Pinterest, Tumblr, Instagram, Google+, Vine and Rdio.  And it has its own social platform on the ModCloth site itself.

“We love being a part of the conversation in all the places our customers are,” says ModCloth’s Martha Smith, social media editor. “It helps us understand what’s exciting them and what they care about. We have different content strategies for all these social platforms, because the community is different in each place.”

Not only is each community different, but their spending patterns also differ.  A RichRelevance study shows Pinterest shoppers spend on average $170 per session, compared to Facebook’s $95 and $70 among Twitter consumers.

Besides the various social platforms, ModCloth’s own site offers “Be The Buyer,” a program where shoppers can vote to “pick” or “skip” potential ModCloth-exclusive items.  And customer feedback often leads to design changes to make the piece “more perfect.”  The company’s style gallery allows fans to upload outfit pictures, give “loves” to their favorites and shop the looks.

Consumers are becoming increasingly more comfortable offering their opinions.  More than one-third (37%) say they “always or sometimes” write apparel product reviews for purchases made online or in-store, the Monitor finds, up significantly from 25% in November 2010.

At L2, a New York City-based digital think tank, Maureen Mullen, head of research, says such consumer input has led to changes in the social media ranks.  “We see Tumblr, Twitter and Foursquare as declining in relevance. The upstream traffic they send to retailer e-commerce sites and their brand penetration in terms of programming has waned significantly over the last 12 months.”

Meanwhile, visual platforms have exploded.

“Instagram tops all platforms in terms of engagement and is the first to really lower the barriers to strong user-generated content,” Mullen says.  “And traffic from Pinterest is ‘rich,’ meaning it converts at a substantially higher rate than other categories.”

More than 7 of 10 consumers (71%) say apparel reviews are “very or somewhat influential,” up significantly from 61% in November 2010, the Monitor finds.  And 81% say online apparel reviews are “very or somewhat believable.”

Accordingly, ModCloth’s Maggie Glover, head of community, says, “Our community members are the most valuable contributors we have.”

With 1.1 billion users worldwide, Facebook remains a retail must, Mullen says.  Plus, Facebook Exchange ads, launched in user newsfeeds last August, allow likes, comments and sharing, which broadens brand recognition in addition to sales.

Meanwhile, Google has overhauled its own social platform, Google+, into a multi-faceted user experience.  Christian Oestlien, product management director for Google’s display advertising, described at last week’s Internet Week NY how Google+ recently partnered with TopShop during London Fashion Week: Google Hangouts allowed viewers to watch TopShop runway shows; a TopShop app let users instantly select runway items to build and share their own collections on Google+; and TopShop buyers used this data to help stock stores.

Efforts like TopShop’s are valuable, as the Monitor shows 58% of consumers typically start online clothes shopping at retailer/brand websites, followed by retailer/brand emails (33%), e-commerce only sites (29%) and search engines (29%).

“TopShop got several hundred thousand followers from this effort,” Oestlien said.  “And it got about a 50%-plus reshare rate.”

Technology is allowing retailers to get ever closer to their customers.  Consider Custora, one of Time Inc.’s 2013 “10 NYC Startups to Watch.”  Its marketing analytics help online retailers identify and retain high value customers.

“The product analyzes sales data and predicts which customers are likely to return, what products they’re likely to buy, how much they’re likely to spend and more,” says Custora’s Corey Pierson, CEO.  It also reviews behavior, based on where the customer was acquired.  For example, “Customers acquired through Facebook might tend to purchase different types of items compared with those acquired through Twitter.”

McKinsey’s Jennifer Schmidt, partner in marketing and sales, and retail practices, says it is important to note each program’s demographics and user behaviors.

“A smart retailer will identify the social sites and media communities that their core customers are on — for example, Instagram for the luxury community — and tailor their campaigns accordingly.”

The global retailer H&M is committed to using sustainable cotton; its goal is to grow its usage from 11.4% to 100% by 2020, says Catarina Midby, H&M’s head of fashion and sustainability communications.

[quote]“The way we see it, fashion is not that fast anymore,” Midby says.  The company’s Conscious program includes apparel collections made from sustainable materials, as well as a range of green initiatives.  “Neither do trends change very fast nor do we produce our collection very fast. We focus on quality and personal style. Our greener materials are organic, recycled or cellulosic (derived from plants). We have goals and strategies for energy, water, chemicals and much more.”

But sustainability still remains a grey area for consumers, who expect it but are not always willing to pay more for it. Because while more than half (57%) of all shoppers say “sustainability” claims are influential to their apparel purchase, just 23% “always or usually” buy clothes marketed that way, according to the Cotton Incorporated Lifestyle Monitor™ data and the Cotton Incorporated 2013 Environment Survey.  Even fewer (15%) buy apparel positioned as “environmentally friendly.”

And just 26% are willing to pay more for clothes labeled as sustainable or environmentally friendly, according to Monitor data, though 51% say environmental friendliness is an important factor in their apparel purchase decisions, according to the Environment Survey.

However, consumers are willing to pay more for better quality apparel.  And when asked what “good quality” means when shopping for apparel, 64% said “durable/long lasting,” Monitor data reveal.  Additionally, when asked what “sustainable” means, 31% said “lasts a long time,” while 19% said “durable,” according to the Environment Survey.

Patagonia’s Todd Copeland, environmental product specialist, says durable products are more responsible in their utilization of raw materials and labor resources — something his company strives to make.

“But people change their wardrobe when fashion changes, or when they get bigger or smaller, or when they get tired of wearing the same thing,” says Copeland, who also works in collaborative groups like the Sustainable Apparel Coalition and the Textile Exchange.  “So clothing is still somewhere between a ‘durable’ product and a ‘disposable’ product.”

The Sustainable Apparel Coalition, which includes Cotton Incorporated as a member, is a trade association representing more than a third of the global apparel and footwear industries, formed to address current social and environmental challenges to the industry.  Last summer, it unveiled the Higg Index, a tool to measure sustainability.  It focuses on water use and quality, energy and greenhouse gas, waste, chemicals and toxicity.

Target, which has had numerous high/low fast fashion collaborations, adopted the Higg Index within parts of its supply chain.  Upon the Higg Index’s debut, Target’s Scott Lercel, director of social responsibility and sustainability, said, “This tool allows our teams to make better decisions, improve our supply chain and, most importantly, reduce our impact on the global environment.”

Inditex Group, the parent company of Zara stores, has a strategic environmental plan that aims reduce CO2 emissions by 10% in 2015, and by 20% in 2020 when compared to 2005.  It also intends promote eco-friendly alternatives in the development of new products and ancillary materials.

All of these corporate initiatives are significant.  Because even though just 33% of consumers are even likely to seek out environmentally friendly clothes, 69% would be bothered if they found out an apparel item they purchased was not environmentally friendly, according to the Environment Survey.  And 40% of consumers say they would blame the manufacturer if they purchased apparel and then found out it was produced in a non-environmentally-friendly way.

Midby says H&M understands that.

“We don’t really promote sustainability, but we do have long term plans and visions for a sustainable fashion future.”

H&M’s overall goal is to have all the cotton it uses to be sustainably produced by 2020.  It has also partnered with WWF to implement holistic water stewardship and set new industry standards.  And its Long Live Fashion initiative encourages shoppers to return old clothes to its stores.  From there, a sorting facility determines if they can be re-worn, reused by being converted to something like cleaning clothes or recycled. And in the aftermath of the deadly factory collapse in Bangladesh that killed more than 1,100, H&M and other companies who manufacture apparel there also signed a factory safety pact, vowing to overhaul health and safety measures.

Copeland says the recession accelerated the move from “throwaway” fashion.  In fact, the average shopper spends $70 each month on clothes, the Monitor finds, but these days, 67% prefer to skip trendy pieces and instead buy clothes that are higher in quality.

“With less disposable income, purchases are more deliberate,” Copeland says.  “This buying practice can influence more responsible production of goods, but it remains to be seen whether this is a long-term behavioral change.”

The world can thank Levi Strauss and Jacob David for using copper rivets to strengthen the pockets of denim work pants, creating the first blue jeans for the gold miners and pioneers of the late 19th Century.

“Levi’s jeans have become an American icon that has been woven and stitched deeply into our world’s cultural heritage,” says Erica Archambault McCabe, Levi’s style expert. [quote]“Time magazine even named the 501 jean ‘The Fashion Item of the 20th Century.’”

The average consumer owns seven pairs of jeans, a figure that has been consistent over the past few years, according to the Cotton Incorporated Lifestyle Monitor™ Survey.   The ability to dress jeans up or keep them casual has 76% of consumers saying they “love or enjoy” denim, with most wearing them about four days a week.

Men’s and women’s denim is a huge business, ringing up nearly $14.3 billion in sales in 2012, according to The NPD Group.  The women’s side grew 11% last year to $8.61 billion, while men’s saw a decrease of 0.4% to $5.65 billion.  Levi’s (27%), Lee (11%), and Wrangler (8%) continue to top the list of consumers’ favorite brands, according to the Monitor.

At VF Corp., which generated $10.9 billion last year, Lee, Wrangler, Seven For All Mankind and Rock & Republic are counted among the company’s 30 brands.  Lee and Wrangler each count as billion dollar businesses.

“Denim is an integral part of our company and really important as far as revenue,” says Scott Baxter, group president of VF’s jeanswear and imagewear businesses.  “People really love that piece of apparel in their closet, and we give compelling fits and styles.”

VF recently introduced a waterproof jean that will sell under the Wrangler brand.

“It’s geared to our western customer who does a lot of work outdoors — cowboys, farmers and ranchers,” says Angelo LaGrega, president of VF Jeanswear Americas.  “They love our jeans because they’re durable and comfortable, and now they come with waterproofing.  It’s a great piece of our business that’s innovative. We’re delivering better products that make their life better.”

To that end, VF performed thousands of body scans on women to understand female fit needs.  For men, VF’s new Modern Series by Lee pairs lightweight denim with stretch in a jean that “took the craftsman approach,” Baxter says.  “It’s been redesigned from the thigh up, and the fit is fantastic.”

Fit is very important to 75% of consumers, according to the Monitor, followed by comfort (68%), a flattering look (62%), price (58%), durability (52%), and quality (52%).  And wearers are split down the middle on whether they are more concerned that their jeans look good (50%) or are practical (50%).

While stars like Gwyneth and Halle have been spotted in drop crotch denim, the majority of consumers say they are likely to go traditional with relaxed fit (22%), boot cut (20%) and regular fit (16%).  Another preference: half of all consumers say having the jeans made in the USA would be important to them, followed by the jeans being an American brand (32%), according to the Monitor survey.

Imogene + Willie is one company that prides itself on both classic fits and U.S. production.  Compared to industry giants, it is a relatively new company that began just four years ago, designing and manufacturing premium denim in Nashville.

“The only thing that works for us is to listen to our gut and stay true to our philosophy: developing and producing classic, very good fitting, timeless products,” says Imogene + Willie’s Carrie Eddmenson, co-founder and president.  “Any time that we have wavered from that, in an attempt to react to what the market is providing, we fail.  But we cannot make our classics quick enough — they sell through immediately.  When we make a celadon and turquoise cropped jean…. we have to find room in storage for all of the excess goods that did not sell.  Timeless product wins in the end. Being who we are works.”

Tradition works for most consumers, too, who overwhelmingly prefer conventional colors like dark blue (75%), medium blue (64%) and black (55%). However, significantly more consumers say they are likely to buy gray (18% to 23%) and red (5% to 10%) jeans compared to last year, the Monitor finds.

Meanwhile, the granddaddy of all jeanswear is still unfurling new styles and innovation.  Levi’s limited edition Ekocycle + Levi’s 501 Waste<Less Jean for men blends cotton with “post consumer recycled content” — an average of eight recycled plastic bottles.  Later this summer, it will introduce REVEL, a women’s collection that offers patent pending shaping technology for a custom-like fit.  And of the iconic 501, Archambault McCabe says customers can choose from colors like mineral red, chalk blue and ivy green, and enjoy larger pockets to store a smartphone.

“It’s the same Levi’s 501 as always, like never before.  The future of Levi’s is bright and we’re looking forward to the next 140 years.”

McKinsey & Company’s Yougang Chen, principal, says e-tailing is generating significant incremental consumption.

[quote]“It is bridging the consumption limitation gap between big and small cities,” Chen says.  “Depending on the category and brand status, this could change the economic equation for doing business.”  ­

Apparel is the top item to buy online for more than three-fourths (77%) of Chinese consumers, outranking other product categories like electronics (69%) and cosmetics (50%), according to the Cotton Council International and Cotton Incorporated Global Lifestyle Monitor.

China’s e-commerce market is the second largest in the world, behind the U.S., with sales expected to reach $420 billion to $650 billion by 2020, up from $190 billion to $210 billion in 2012, according to a recent McKinsey report.

The report was leveraged with data supplied by the Alibaba Group Research Center and Taobao UED User Research, both of which are part of Alibaba Group.  Despite growing competition, Alibaba remains China’s e-commerce leader.  In 2012, about 212 million people shopped on Taobao, Alibaba’s consumer-to-consumer site, which is like eBay, while 155 million used Tmall, its business-to-consumer site that is comparable to Amazon.

China Market Research Group’s James Roy, senior analyst, says China’s e-commerce revolution holds potentially huge benefits for both large brands and mom-and-pop establishments.  China has a 1.3 billion-plus population, with more than 90% located in second- and third-tier cities.

An Alibaba Group spokeswoman confirms that lower tiers are quickly growing the company’s apparel sales.

“Transaction volume is being heavily fueled by online spending in China’s third- and fourth-tier cities, where e-commerce sales have been growing 60% year-over-year in 2012, compared with 40% growth in the country’s largest cities,” the spokeswoman says.  “Regions such as Sichuan, Henan, Hubei, Hunan, Chongqing province and so on are increasingly turning to online retail. The largest registered user demographic on the Taobao platforms is in second-tier cities (approximately 36%).”

The percentage of Chinese consumers who use the Internet as a source for clothing ideas has risen steadily (71% in 2012, up from 16% in 2003), according to the Global Lifestyle Monitor.  Not only are shoppers going online to buy apparel, but they are also using it to read customer reviews (59%), compare prices (59%), and browse the latest styles (58%).

Roy says even though annual sales growth has slowed along with the country’s GDP, e-commerce is a retail force.

“While annual retail sales growth used to regularly be in the 16-to-18% range, it slowed to 14.3% in 2012 and looks to be slowing to 12-to-14% for this year,” Roy says.  “While this is impacting brick-and-mortar retailers, business-to-consumer e-commerce is taking off and will continue to grow rapidly as more and more consumers start buying online, and increase the amount they order once they get used to the idea.”

Roy says B2C e-commerce transactions by value increased by an average of 100% per year in the last two years, and CMR expects it to increase by more than 60% this year.

On average, Chinese consumers say they spend about 2,244 RMB ($355) on clothes each year, up 32% from 1,700 RMB ($262) in 2011, according to the Chinese Consumer Survey.  And while more than six out of 10 Chinese consumers (63%) plan on purchasing the same amount of clothes in the coming year, a quarter plan to buy more.

Roy says apparel is one of the top products for China’s e-consumers — and one of the earliest to catch on — because younger people found they could get more variety and lower prices than in traditional stores.

But to take advantage of the e-commerce boom, brands and stores have to do more than merely create a shopping site.

“You need to create visibility and awareness through a major online platform, social site or fashion blog,” says McKinsey’s Jennifer Schmidt, principal.  “And you have to figure out the right fulfillment model — from regional distribution centers in Asia versus direct from the U.S. or Europe — as the Chinese customer expects speedy delivery times.”

Perhaps one of the most important factors in China’s rise in e-commerce has been the increase in mobile shopping.  McKinsey’s report says the average Chinese smartphone user has a higher tendency to shop online, and smartphone penetration is likely to increase to 23% in 2015.

The China Internet Network Information Center says those tapping into the web from phones and tablets rose 18.1% to 420 million.  Mobile commerce should be aided by the fact that the world’s largest mobile carrier, China Mobile, plans to spend $6.7 billion this year developing 4G technology, making Apple’s iPhone and iPad compatible with its system.

While Roy says technical hurdles might take time to overcome, Alibaba says the value of mobile purchases already soared 600% last year on Taobao Marketplace and Tmall.com.  Its growth was fastest in third- and fourth-tier cities (180%).

Says McKinsey’s Chen, “China’s 3G experience is still below that of the U.S., but as sites improve and apps make mobile shopping easier, it should become a major source of future e-tailing growth.”

Boston Retail Partners’ Perry Kramer, vice president, says retailers need to adapt.

[quote]“They need to execute better on their differentiators — price, quality, customer service, fashion — to remind customers what makes them unique, instead of pushing them away for showrooming,” Kramer says.  “And if the person browsing online is a frequent in-store or multi-channel shopper, provide them with coupons, reward points or other offers that cross channels.”

While online clothes shopping continues to grow, most consumers still buy the bulk of their apparel in stores.  A quarter of consumers (25%) shop for most of their clothing at chain stores, according to the Cotton Incorporated Lifestyle Monitor™ Survey.  This is followed by mass merchants (24%), department stores (14%), specialty stores (13%), off pricers (8%) and online (6%).  Consumers certainly browse for apparel online; nearly half of all consumers (48%) browse the Internet for clothes on their mobile or smart phone, and 22% buy apparel through their mobile device.

The fear that consumers are using their phones and notebooks to shop price is spurring the “race to the bottom” retail conversation.  But Revionics’ Kathy Beck, senior director for the retail consultancy, says that is not a solution.

“Amazon and Walmart can win at that, but very few can play the ‘lowest price’ game,” Beck says.  “However, employing in a ‘just looking’ charge could be very damaging, potentially preventing a shopper from even entering the store.”

Instead, Beck underscores the importance of engagement.

“We are living in a time where shopper engagement, and surprising and delighting the shopper in order to drive loyalty, is the only way to avoid the downward spiral of price competition and hyper-promotional activity. The shopping experience is a key differentiator that retailers can use to move that omni-channel, digital shopper away from thinking price is the most important decision factor. They can make the in-store experience so special and gratifying it trumps the convenience of online purchasing.”

Right now, 51% of consumers “like or love” clothes shopping, the Monitor finds.  More than 7 of 10 (71%) peruse the Internet for apparel, up from 66% in 2011.  And they spend about 105 minutes each month browsing online.  Yet, they shop in stores about twice per month, compared to once a month online, according to the Monitor.

Industry experts agree that the key to avoiding price matching is by engaging the consumer and creating loyalty to the store — not just to the discounts.

Swift Exchange is a new e-commerce currency firm that is looking to help stores increase consumer loyalty via a high-tech platform.  The program, targeted to launch later this year, will allow consumers who have reward points with multiple stores and credit cards — say, Delta, Chase and Best Buy — to combine those points and use them like cash at participating merchants, from large chains to mom-and-pop apparel stores.

“Let’s say a dress is selling for less down the street or on the other side of the mall,” explains Rob Jacobson, chief creative officer.  “This program will cut down on showrooming because reward points will allow shoppers to stay, use points instead of cash, and avoid the hassle of going elsewhere.  It will get participating merchants away from the price matching competition, and help cement customer loyalty.”

Beck says stores could also drive customer loyalty with retail’s four Ps: product, price, place and promotion.

“Retail got away from that for a long time,” Beck says.  “But now competition is fierce and companies are going out of business.  Shoppers are empowered, so you have to do everything to understand them — and use every tool available to get to them.”

Now may be an especially be a good time for retailers to look beyond deals and price matching. Nearly half of all consumers (48%) are “very or somewhat optimistic” about their personal financial situation, the Monitor shows, an increase from 46% in 2011.  Even if consumers choose to use their phones to comparison shop, retailers can benefit if they recognize most people only have a finite amount of time and energy to devote to clothes shopping.  Some consumers may want a good price (59%), but more important to the purchase are clothes that fit (77%) and are comfortable (68%).

“Retailers need to maintain focus on training their associates on product knowledge and sales techniques,” Kramer says.  “If a store associates experiences a person showrooming for one product, they should show them matching items.  Make the customer a deal and make it hard for them to leave empty-handed.  Especially in fashion, customers rarely have a single-item shopping experience.”

As for the $5 “just looking” charge?

“How you could determine if a person was showrooming or just texting the babysitter or a friend?” Kramer points out.  “Shopping in stores is still very much about the fun and experience.  Trying to pull a smartphone out of the customers’ hands is a great way to ruin that.”