Socks, two steps in consumption upgrade

China is the largest exporter of socks.

Datang Town, which has been developed for less than 30 years, produces more than 70% of the country's socks and 1/3 of the world's socks each year, so there is a saying that "When Datang's sock machines ring, the world will have a pair of socks." China's OEM factories also provide OEM services to international brands such as Adidas, PUMA, Okamoto, Decathlon, Uniqlo, and Muji.

Based on such a complete industrial cluster, socks have long become a fully competitive market in China. From various price ranges to material, pattern, design, function, and specific population segments, it covers almost all consumer characteristics and needs of all groups.

Socks sold on the street stalls: 5~8 mao/pair, 10 yuan/bundle, 10 yuan/8 pairs, 2 yuan/pair, 10 yuan/3 pairs;
Traditional clothing stores and Underwear Stores: 5 yuan/pair, 6~8 yuan/pair, 10 yuan/pair;
Home life stores such as MINISOR and MUJI: 10 yuan/pair, 20 yuan/pair;
Sports brands and Uniqlo: 27 yuan/pair, 39 yuan/pair; 20~30 yuan/pair, 60 yuan/pair;
Emerging home brands (such as Sakaoriya, Body.ing, Tutuanna): 99 yuan/4 pairs, 99 yuan/3 pairs, 20~30 yuan/pair;
Sock specialty stores (such as Happy Socks and Stance): high-end 100~300 yuan/pair, affordable 160 yuan/3 pairs, 80 yuan/pair, 120 yuan/3 pairs.
Different consumption channels correspond to different consumption needs and consumer groups.

01. Socks, two steps of consumption upgrade
The consumption upgrade and population segmentation of socks started earlier than other consumer goods that are widely concerned today.

As early as 2015, China's per capita socks consumption was comparable to that of Europe and the United States.

In 2015, Japan's per capita socks consumption reached US$37.3 per person, while the per capita consumption in Europe and the United States was US$20 per person, and China's was US$15.1 per person. If a pair of socks costs 5 yuan, Chinese people only replace 6 pairs of socks less than Europe and the United States each year.

(Considering that Japan has to take off shoes when entering and leaving some places, it is extremely embarrassing to show holes in socks. Japan's requirements for the quality and replacement of socks are much higher than those in China and Europe and the United States. It is more appropriate for us to use the per capita socks consumption in Europe and the United States as a comparison.)
The direction of consumption upgrade is nothing more than faster replacement frequency or higher price per pair, which are factors that promote the growth of industry scale (socks demand = quantity * price). When consumers changed from mending socks after they were worn out to throwing them away after they were worn out, such changes gave rise to low-end brands such as Nanjiren and Langsha. To this day, hundreds of thousands of socks are sold every month on Taobao and Pinduoduo, and the price is uniformly concentrated at 1~2 yuan per pair. This is the first wave of sock consumption upgrades - the frequency of replacement has increased.

As the world's largest socks consumer market, China's market space is undoubtedly huge and diverse.

But when we look for well-known socks brands in such a large market, the most common ones we hear are Tutuanan, Atsugi, Boots, Happy Socks, and Stance, all of which are from Japan, Europe and the United States.

Japan's TUTUANNA opened its first store in Shanghai Jiuguang Department Store in 2009. In 2013, the number of its domestic stores increased to 73; in 2014, it increased to 160 stores with sales of 369 million yuan; as of now, there are more than 400 stores in China.

TUTUANNA domestic store distribution

Similarly, Happy Socks opened its first store in Shanghai in November 2016, and expanded to 42 stores in three years; Stance also officially entered Tmall in 2016, and opened stores in Shanghai, Qingdao, Changchun, Changsha, Hangzhou, Chongqing, Jinan, Nanning, Nanjing, Shenzhen, Taiyuan, etc., and has opened 17 stores so far. They have harvested the second wave of dividends from the upgrading of socks consumption - the price increase of single and double pairs.

The second wave of dividends is represented by higher-priced socks stores & home furnishing clothing stores in shopping malls.

02. New socks model ①: Enlightenment from street stalls → socks stores
From the previous street stalls, to supermarkets, and now to the low-end online market, in the battlefield of socks, merchants basically only compete on one point: low prices.

In the first quarter of 2019, Datang Socks had an output value of 4.1 billion yuan and a total profit of 100 million yuan, with a profit margin of only 2.44%. The profit is so meager.
The cost of online socks companies that sell at 1 yuan per pair is mostly concentrated at 80 cents per pair. A group of companies that are limited to low-price competition will be eliminated in two or three years, and any fluctuations or changes in the wind direction of the company cannot bear it.

The directions of many socks companies to break away from low-price competition can be basically divided into three categories: ① Increase product differentiation and increase product added value; ② Derive to categories such as underwear; ③ Attract specific groups of people, specialize in specific people, and deeply cultivate the source market.

Most of the differentiated innovations in socks are based on Happy Socks.

Founded in 2008, Happy Socks is a star company in the socks innovation industry, focusing on creativity, color, art, and design. Socks are sold at prices ranging from dozens to hundreds per pair. But pure imitation cannot create a Chinese version of Happy Socks.

Most domestic innovative socks companies that focus on design cannot raise prices upward; downward, they are trapped in hundreds of new product SKUs every year in order to attract the most consumers. But they overlooked two points:

① Changes in the competitive landscape: Happy Socks, as the pioneer of floral socks, has become a fashion brand. It can compete with many imitators with its brand as a barrier, and its target consumer group can identify "Happy Socks" and "non-Happy Socks". However, emerging domestic sock companies, facing the sock industry with strong imitation ability and extremely short sample cycle, can only respond with a large number of new products and high-intensity inventory management every year, and are labeled as low-end versions.

② Channel model: Happy Socks' high customer unit price is enough to support the offline specialty store model, and tens of thousands of offline sales outlets and online channel marketing are also difficult for start-up sock companies to imitate.

It is difficult to increase prices. It is difficult to achieve a break-even point by establishing a special sock store for trendy socks with a price of 10 to 20 yuan per pair and a gross profit of 50% to 60% according to industry practice.

03. New Socks Model ②: Top Three Tutuanna, Sakamiya, and Body.ing
For most people, they may hesitate to spend dozens or even hundreds of yuan to buy a pair of socks, and the slightly lower-priced socks cannot support the profitability of a single store.

Therefore, after Tutuanna entered China in 2009, a model of selling "pajamas, underwear, home clothes, and socks" in shopping malls was derived. Such stores can be seen as an upgraded version of "Urban Beauty" or an extended version of "Socks Store", and socks are no longer the only main force of store flow.

This model allows the appeal of socks to return from design to comfort, and the price has also dropped from hundreds to tens of yuan.

Although Tutuanna, Sakamiya, and Body.ing, the top three companies that have expanded their territory with such a business model, are developing rapidly, they have inevitably encountered bottlenecks. It is inevitable that high-end products will be niche, but affordable products can be bought everywhere.

The three brands are similar in positioning and even price. Socks are generally more than 20 yuan, and pajamas are generally more than 150 yuan. The product characteristics are also mainly skin-friendly and home furnishing; there are slight differences in product structure. More than 60% of Tutuanan's revenue comes from products other than socks; Sakamiya's socks sales account for more than 50%, and Body.ing's home clothes account for an even higher proportion.

But these three seem to be in a situation where they are neither high nor low. There are more professional or lower-priced brands for buying socks, pajamas, and underwear; the "skin-friendly" positioning is unable to attract more customers; and the extremely low customer flow means that only high gross profit can offset fixed costs. Vicious cycle.

The final result is that even in first- and second-tier cities where high-consumption groups gather, the average income of such stores is 1.3 to 1.5 million yuan per year.

For the third way - focus on more segmented markets.

Such as sports socks, deodorizing socks, antibacterial socks, baby socks, diabetic socks, etc. These demands are neither rigid nor easy to be replaced, and it is not easy to expand. The per capita socks consumption in China is less than 100 yuan/person/year, and only a few people need deodorization and antibacterial socks. This part of the demand can be fully met by all-category socks brands.

04. What kind of socks companies are we looking for?
In the new model of socks sales, the exploration of socks stores and household daily clothing stores does not seem to be suitable for China's national conditions. The imitation of Tutuanan and Happy Socks has blinded many socks companies.

In 2018, 28.9 billion pairs of socks were shipped out of Datang, and 1 million orders were sold every day. According to the fact that Datang's socks production and sales account for 60% of the domestic market and 50% are exported, the scale of Chinese socks has reached 60 billion. In such a market, successful companies need to have the following elements:

1) Be in-depth: focus on socks, have their own unique product system and supply chain.

Socks themselves are a category that is easily covered and has random consumption. Home stores, clothing stores, shoe stores, jewelry stores, underwear stores, supermarkets, and online stores can all randomly divide up part of the market. Without differentiated products, most of them will eventually become a competition of distance and price. Such differentiation is difficult, but it is very core.

2) Achieve breadth: The product series covers all groups and functions. Men's socks, women's socks, children's socks; functional socks, business socks, sports socks, boat socks; long socks, short socks, etc. must all be covered. To go to the mass market, it is necessary to seize market share from the extremely fragmented socks market, and there is no need to position it in a more segmented market.

3) Target the mass market. The retail price should not be too high, so as to reach the broadest consumer group.

High prices increase the purchase threshold, and are destined to be only a niche market. And consumption upgrades are not only better products and higher prices; they are also better products at the same price. In the mass market, the perception of product power is becoming more and more obvious.

4) Make efforts both online and offline. Only doing a single e-commerce or offline channel cannot form a brand closed loop in the minds of consumers. In particular, we should pay attention to offline channels. Traditional distribution channels can be used as an auxiliary. We can open counters and stores in business districts with large offline traffic. The model can be made lighter, choosing atriums or smaller stores with lower rents.