The Apparel Market In Switzerland
Summary With a population of 7.5 million people and one of the highest per capita GDPs in the world, Switzerland is a small but, nevertheless, attractive market for American clothing companies. As Switzerland is located in the heart of Europe, among the fashion capitals of Paris, Milan and London, the Swiss can be considered fashion conscious. All major apparel brands are represented on the Swiss market.
In 2006 the total size of the Swiss clothing market was approximately US $ 6.6 billion. Domestic production covers only about 3 % of the total market demand. Switzerland’s apparel industry has been in the throes of a painful restructuring and downsizing process, primarily as a result of fierce competition from low-wage countries. Unlike in the EU and USA, Swiss producers have not had protection from import quotas, and, consequently, they have had to adjust rapidly to international competition. Imports of high-end clothing are dominated by the neighboring countries Germany, Italy and France; whereas, mass-produced apparel mostly stems from Asian countries. The U.S. size of the market share is hard to determine, since most U.S. apparel is imported via third countries. The relative importance of U.S. apparel of this type is much higher than is evident from raw statistics, since many U.S. labels originate from overseas production facilities.
The Swiss market trend is clearly towards functional yet fashionable apparel. The market slogans are “functionality goes fashion” and “fashion meets performance”. U.S. exporters with high quality products can be very competitive in the Swiss market. Emphasis should be placed on U.S.-made, trademarked products. Market Demand
According to the largest Swiss market research company, IHA-GfK, the total size of the Swiss apparel market in 2006 was approximately US$ 6.6 billion (8 billion Swiss Francs) in retail sales. Slightly over 10%, 820 million Swiss Francs, was spent on underwear/lingerie and pajamas.
Following several years of recession in market demand, in 2006 the downward trend halted. An economic upswing and increased consumer confidence have had a positive impact on the Swiss apparel market so that sales in 2006 stayed stable over 2005. Substantial pressure on the margins is certainly the main reason for several years of recessive market demand with the consumer receiving more clothing every year for less money. The pressure on prices and margins and the pressure from low wage countries will continue. According to the Swiss Textile Federation, “Decisive contributory factors to business success, therefore, remain the pursuit of a corporate strategy, the ability to detect and implement fashion trends, efficient cost management and convincing marketing.”
Domestic production covers only a small portion (about 3-5 percent) of the Swiss apparel market and concentrates mainly on high-end and niche products. The Swiss apparel industry was exposed to intense competitive pressure from low wage countries at a very early stage and unlike the EU and the USA, was not protected by import quotas. The main supplier countries for imported clothing are Germany, Italy, China and France. As most U.S. clothing is supplied through third countries, the actual U.S. market share is difficult to determine.
Although there is an overcapacity and intense competition from the imports of low wage countries, there is a continual demand for functional yet fashionable clothing meant not only to be worn for sports activities, but also during leisure time (functionality goes fashion / fashion meets performance). U.S. suppliers already holding a respectable market share in this clothing segment may find further attractive market niches.
It must be taken into consideration that that the Swiss Federal Customs Office refers to the supplier country and NOT to the country of origin when publishing import statistics. Hence, the statistics give a distorted picture of the true market share. However, the above table clearly indicates the steady increase of imports and exports.
The relatively high export statistics, however, cannot all be attributed to the domestic apparel industry. A number of Italian luxury designers have to be credited for a significant amount of exports from Switzerland. Through favorable taxation policy, order, security, and efficient Swiss administration, the canton of Ticino been able to attract many high fashion brands from Italy, including Versace, Zegna, Armani, and Gucci with the associated labels Yves Saint Laurent, Alexander McQueen and Sergio Rossi, to operate logistics from this Italian-speaking region. Some of these companies even produce their products in this area. “Fashion Valley” is, therefore, a very appropriate nickname for the Ticino. Best Prospects
Young and trendy sportswear and casual clothing (e.g. Esprit, Banana Republic)
Jean wear (e.g. Levi’s, Lee)
Well-known street wearbrands in the middle price range (e.g. Gap, Liz Claiborne)
High-end designer brands (e.g. Donna Karan, Ralph Lauren)
Environmentally friendly apparel made from natural fibers (coconut, bamboo, corn, Merina
wool, organic cotton, etc.)
- Apparel made of high-tech fibers (functional wear)
American apparel, sportswear in particular, has a very good, trendy image in Switzerland. The demand for leisure and casual wear has increased continuously over the past few years. Although U.S. suppliers have never really gained a strong position in the European market for classic dress and sportswear, they have been able to increase sales of sports and leisurewear in Europe. New and trendy outfits that originate from various U.S. sports, including in-line skating, snowboarding and street ball, have spurred sales of U.S. products in this niche.
The Swiss are very environmentally conscious, and continual discussions about the climate change have increased people’s awareness. As a result, the demand for natural fibers and products that are produced using environmentally friendly methods is growing steadily. Most of the big clothing distributors have, therefore, introduced special ‘natural’ lines of apparel that are very popular with consumers. High ethical standards, such as no child labor, are also very important to Swiss consumers, who are willing to pay a bit more for clothing whose production is in line with these environmental and ethical standards. Sales of fair-trade-certified clothing have increased steadily. Products certified by the Swiss-based fair trade organization, Max Havelaar, are becoming increasingly popular in Switzerland. The Max Havelaar label is now applied to some apparel products with cotton textile content, including T-shirts, underwear, towels, socks and stockings. www.maxhavelaar.ch
Key Suppliers Domestic production/suppliers:
Due to expensive labor costs, manufacturing in Switzerland is only possible for high value items. For this reason there is a strong concentration of high-end niche products. Swiss textile manufacturers are world renowned for their innovative and intelligent high-tech fabrics always featuring new and enhanced properties, ranging from breathable, water and wind-proof moisture management fabrics to stain and flame repulsive, UV protective, tan thru, aerodynamic and reflective fabrics. However, the Swiss market share for finished apparel is very low. It is estimated that Swiss apparel manufacturers supply only about 3 to 5 percent of the total market demand and are mainly active in the underwear segment (Calida, Hanro, and ISA). Most Swiss apparel manufacturers outsource labor-intensive production processes, leaving only design, marketing, sales and logistics in the country.
Swiss textile manufacturers export over 80 %, which is why Swiss-made fabrics can often be found on fashion catwalks around the world. Typical examples of Swiss-made fabrics are the wedding dress of Prince Charles’ wife, Camilla Parker Bowles and Saudi Arabia King Fahd’s traditional head cover. Most of the Swiss manufacturers are members of the Swiss Textile Federation. A complete list of these members can be found at http://www.swisstextiles.ch/verband/mitglieder/default.htm
Since local production of finished apparel is insignificant, the market is heavily dependent on imports. According to Swiss customs statistics, about 80% of imports come from European countries, the main suppliers being Germany, Italy and France. Only 18% of apparel imports are reported to stem from Asian countries. These numbers, however, do not reflect a realistic picture of true market share. Shopping around town indicates that probably more than 50% is produced in Asian countries. The reason for this discrepancy is that Swiss Customs statistics refer to the supplier country and not to the country of origin. The same is the case for U.S. apparel, which transits via third countries. These products are not captured in the import statistics as imports from the United States. Hence, the actual U.S. market share is hard to determine. Some of the major Swiss clothing retailers, particularly those specializing in low-price clothing, eliminate the intermediate trade by importing apparel directly from the manufacturers, enabling them to cut costs.
According to the Association of the Swiss Fashion Stores, there are between 2,700 to 3,000 clothing sales points. The industry provides jobs to approximately 110,000 people. The fierce competition has pushed a lot of small boutiques out of the market, but at the same time the retail floor space for apparel has continued to expand. Due to the over saturation of the market, the challenge retailers face is the maintenance of favorable margins at ever shrinking average prices. It seems that every year the consumer can get more clothing for less money than the year before. It is said that prices have dropped over 10 % in the last three years.
While high-end designer labels can usually be found in special boutiques around the top shopping areas of the major cities and at the Zurich Airport, mid-priced apparel is usually sold at department stores, large clothing stores, and boutiques. Low-priced clothing is distributed through clothing discount shops, mail-order-houses, and the two major retailers of food and household goods, Migros and Coop.
As a result of Switzerland’s high standard of living, wages and overhead costs, the Swiss retail trade in the field of apparel adds a margin of 100-140% to the prices obtained from the wholesaler. The high-end apparel brands are often sold with a mark up of as much as 300-400 percent. A Swiss clothing importer will add approximately 30-40% and an agent, 15-20% to the price obtained from the supplier.
Importers/Distributors usually have open accounts with their U.S. suppliers and normally pay within 30 days from the date of invoice. Once a business relationship has been established, the costly letter of credit procedure can be avoided.
Since turnover time tends to be very short and stocking distributors do not want to keep extensive inventories on hand, a reliable and fast repeat order service is very important. This can best be accomplished through the operation of a central warehouse in Europe.
An important factor in establishing successful business relations with Swiss companies, frequently mentioned by trade sources, is the option of ordering small quantities of a specific item instead of having to procure huge amounts at a time. U.S. companies should remember that Switzerland, with its population of 7.5 million, is small and that adjustments to minimum order requirements are absolutely essential to the successful penetration of this market.
Switzerland’s limited market size, high salaries and leasing costs are all factors making it difficult for a Swiss master franchisee to be profitable. With shrinking margins in many sectors, the generation of substantial returns from a franchise operation is becoming more and more difficult. Thus, this investment strategy is continuously becoming less attractive. A further factor that makes franchising challenging is that financing is readily available to the Swiss who wish to operate their own distribution or retail stores in Switzerland. Only rarely can a franchise concept be implemented directly from the United States. For these reasons, a US franchiser needs to show flexibility when entering the Swiss market.
U.S. companies seeking to license their brands to Swiss companies should have realistic expectations regarding royalty guarantees and fees. As with franchising, it is important to take into consideration the relatively small size of the market (ten times smaller than that of Germany) and to adapt licensing fees accordingly. Given high production costs, Swiss companies are usually not able to manufacture their products themselves and instead subcontract to Asian companies. Labor-intensive production is usually outsourced, while design, distribution and marketing remain in Switzerland.
At present, the “shop-in-shop” concept is extremely popular in Switzerland. The market situation for clothing retailers in this country is difficult, forcing firms to be cautious when it comes to further investments. For the supplier, the shop-in-shop concept offers quick coverage of a defined sales territory at relatively modest cost.
Thanks to the continuously increasing concentration of computers and the spread of broadband Internet, about 60% of the Swiss population over the age of 14 uses the Internet on a regular, more than once-a-week basis. There are currently over 1,200 online merchants in Switzerland alone. While in 2005 only about 1.03 billion Swiss Francs worth of goods were sold over the Internet, that number increased by 16% in 2006 to 1.2 billion Francs and is expected to keep on growing.
Swiss consumers have strong purchasing power and are generally well informed about the latest trends in fashion. Particularly young people are keenly aware of fashion and very brand-conscious. They are, however, not always sure of the correct or fashionable way to wear their clothes. Both the younger and older generations are willing and able to pay high prices for well-known labels. However, Swiss society is very multicultural and has a 20 % share of foreigners who represent a much more price-conscious buying group.
In general, buyers between the ages of 25 and 50 are the most relevant consumer group for apparel since they have the most money to spend. Design, quality, functionality and price are the most important factors in this buyer group’s purchase decisions. However, a trend not to be underestimated is the growing demand of designer clothing even by younger children. Targeted advertising and campaigns have fueled this demand, and experts believe that designer clothing is a market that has not yet been fully exploited.
The most common method of market entry into Switzerland is through the appointment of a local company as an agent. Most of these companies have been in the business for a long time and have gained the knowledge and experience necessary to counsel foreign suppliers on developing a market for their new products. The agents distribute either through their own shops or through department stores, boutiques, special clothing stores and the like. Many agents have a permanent showroom and office at the ‘TMC - Textile and Fashion Center’ in Zurich. The center features permanent showrooms in various buildings near Zurich International Airport and houses more than 350 companies/textile agencies. In addition to the agencies that exclusively represent one or a number of suppliers, there are the independent agents who sell their own individual collections to the retailer.
For an American company interested in entering the Swiss market, finding and selecting the right person or firm for representation is important and sometimes difficult. Market entry programs available through the Commercial Service (CS) at the U.S. Embassy in Bern, Switzerland, offer an excellent way for American firms to penetrate the Swiss apparel market. The Gold Key Service, which entails a modest fee, provides scheduled appointments with pre-selected potential agents or distributors. For more details on the facilitation services offered by the CS please consult the following website: http://www.buyusa.gov/switzerland/en/ or contact your nearest U.S. Export Assistance Center from the Department of Commerce.