Exception Turns 20, and Its Two Businesses Are Headed in Completely Different Directions

One is a womenswear retail brand that already looks tired; the other is an experiential space that style-conscious young people love. Which path will Exception take — and which one can it take?

Mao Jihong wore a dark Chinese-style long robe over a black vest, thin black-rimmed glasses and a black felt hat. On the red pillar behind him: "Born Exception, at home in Fangsuo — from China to the world."

On the evening of November 25, the clothing brand Exception marked its 20th anniversary together with the fifth anniversary of Fangsuo Bookstore. At the 1,800-square-meter Fangsuo in the basement of Guangzhou's Taikoo Hui, about a quarter of the floor had been cleared and split into three zones — distinguished guests, media, and VIP customers — holding some 150 people. Nine staff members stood in the dark holding hand lamps and read two poems aloud: Zhou Mengdie's The Instant and Furukawa Shuntaro's Morning. Then the emcee introduced Mao Jihong, founder of both Exception and Fangsuo, and he walked out.

In a speech that ran more than an hour, Mao looked back over his clothing and bookstore businesses without giving a single figure. The word he used most was "culture." Seated in the guest section were the director Jia Zhangke and the artist Huang Yong Ping, whom he called "representatives of Exception's VIP customers." And "none of this was done to maximize commercial profit. It carries my own feelings and ideals. I want to build China's best cultural brand, and run China's best institution for cultural people."

Mao Jihong and Ma Ke founded the designer womenswear brand Exception together in 1996. In 2011 Mao opened Fangsuo Bookstore in Guangzhou and brought in former Eslite Bookstore founder Liao Meili to run it. In 2012 he teamed up with Yohji Yamamoto to launch an Exception sub-brand, YMOYNOT. In 2015 he leased four buildings in Hengshan Fang in Shanghai and opened Hengshan · Heji, a coffee shop, clothing store and bookstore in one — dubbed "mini Fangsuo" by the media and the public — run by Linghu Lei, former creative director of the magazine Life (《生活》).

There is no public information on how any of these businesses are actually doing now.

The last time Exception disclosed sales figures was seven years ago: annual revenue of about 300 million yuan, gross margin close to 30%. It now has more than 100 stores across the country. Fangsuo's Guangzhou store reportedly broke even in 2014, when it drew more than 2.3 million visits for the year; it has since opened in Chengdu, Chongqing and Qingdao. YMOYNOT has more than 30 stores. At Hengshan · Heji, open only a year, books, coffee and stationery account for 60%, 10% and 30% of sales respectively, and the Tianping Road building has drawn as many as 2,000 visitors in a single day.

But Exception's main business — clothing retail — has less and less room to maneuver. The shrinking department store industry has directly undercut its sales channels, and clothing is the category hit hardest.

Fangsuo and Hengshan · Heji, which sell a lifestyle aesthetic, are another matter. Mixed-format retail is still fairly new in China. This kind of store, which tests a buyer's taste and a team's planning, pulls in more and more young people, and has become a selling point that commercial landlords look for when they recruit tenants.

In their marketing, Fangsuo and Exception both reach for the same kind of adjectives — "unconventional," "cultural heritage," "steadfast," "sense of mission," "free spirit." But one look at their respective audiences shows these are two completely different businesses.

As a Womenswear Brand, Can Exception Keep to Its Aloof, Niche, Artsy Path?

Li Lihua, 45, a Guangzhou native who runs a culture company and earns more than a million yuan a year, has been an Exception customer since, in her words, "Mao Jihong and Ma Ke opened their store on Nonglinxia Road in 1996." "There weren't many clothing brands to choose from back then, and Exception stood out. It was original design, the clothes were roomy, no waistline, and they suited a certain kind of personality — different from everyone else. When I was buying a lot, I might take home half of every season's new collection."

1996 was a somewhat special year. Before then, most homegrown brands in China's clothing market made sportswear or business formalwear — Li-Ning, Peak, Anta, Shanshan, Youngor — while womenswear belonged to foreign labels such as Etam, Only and Eland. Only after the government rolled out a support policy called the "famous brand strategy" in 1995 did local womenswear brands like Gloria and Peacebird appear.

The country's first crop of original designer brands came along at the same time: Hongying, Jiangnan Buyi, Bo. Exception was one of them.

For shoppers who had few options, these brands did open up a second aesthetic alongside the colorful, curve-hugging clothes of Etam and Gloria. The fabrics were mostly cotton and linen. A garment's structure often looked deliberately unclear, the line between top and bottom blurred, the left and right panels cut asymmetrically, the cloth twisting and threading through itself. The colors were plain and understated. This loose, spare look was taken as a new "artsy style," bringing to mind Sanmao and Chyi Yu, and some said it had a flavor of "Eastern aesthetics."

What else set Exception apart was how it ran the brand. It carefully built an image that was aloof, niche and full of cultural feeling: it never hired a brand ambassador, never bought media ads, never took part in sponsorship deals, and preferred to hold its own exhibitions and runway shows. When it did work with well-known figures, it favored artists and cultural names such as Zhang Qianqian, Zhu Zheqin and Jia Zhangke.

Li Lihua remembers the VIP gatherings held two or three times a year. "They'd invite twenty or thirty VIPs, have them drink some red wine and listen to a talk with a few cultural figures, then ask for feedback on the designs."

Exception was just as strict about its sales channels. In 2004, while newer ready-to-wear brands such as Ochirly, Ayilian and La Chapelle were expanding their store networks, Exception cut back from 100 stores to 60 and, over the following years, raised prices from 500-800 yuan to 1,000-3,000 yuan. Every store was also remodeled, and some became "ecosystem stores" that sold cultural goods, books and coffee as well — the point being to run fewer stores and make each one more profitable.

Chen Ying, 40, who works for a foreign company in Beijing, first heard of Exception in 2006, when she saw its remodeled storefront at the China World Trade Center. "It wasn't very big, but it was designed in an unusual way. There were stacks of books beside it, the lighting inside was very dim, and it felt quiet."

The "photosynthesis" among scarce stores, steep prices and cultural marketing even left some shoppers with an illusion.

"Exception and Jiangnan Buyi are not the same thing at all. Jiangnan Buyi is a purely commercial ready-to-wear brand; the clothes come off an assembly line. Everything Ma Ke made is one of a kind — you can keep it in your closet and wear it for decades. Last year cocoon coats were in, this year it's H-line coats, but Exception doesn't follow that. Wearing it makes you feel special," Han Li, 35, a Shanghai native, told QDaily.

It all looked like smooth sailing. When Peng Liyuan wore Exception on a state visit in 2013, the public even took it as the brand's breakout moment. But a bigger problem for Exception as a clothing brand went unnoticed: its two lead designers had left, one after the other.

Ma Ke ran Exception's design from 1996 to 2006, Ban Xiaoxue from 2010 to 2012. The first set the brand's aesthetic foundation; the second held to that established style while also opening an "art line." After leaving, each started a label of her own — "Wuyong" (Useless) and "BAN XIAO XUE" — and the latter has since opened more than 30 stores.

"Honestly, I have bought less these past few years than I used to. One reason is that prices keep going up — I feel like they raised them another notch after Peng Liyuan wore it in 2013. The other is that it doesn't look as good or as special as it did. Look, there's similar design right across the way," said Li Lihua, pointing at Ein, a clothing brand directly opposite Fangsuo.

No one knows how many of Exception's die-hard fans the two departing designers took with them, but a shortage of design talent does look like a real problem for the brand. Not long ago Mao Jihong said his next move would be fashion education, to train more good designers.

The womenswear market has changed as well. There are more and more affordable-luxury brands at the same price point, and more and more online brands selling the same cotton-and-linen artsy look. On Taobao, Huimei Group — founded in 2008, known for "cotton and linen," and the parent of the Taobao-native brand INMAN — saw sales grow fifteenfold between 2010 and 2013, to 1.12 billion yuan.

Traditional department store retail, meanwhile, has been shrinking. In 2013 the 38 listed A-share department store retailers made a combined net profit of 10.892 billion yuan, half of Alibaba's. Of the 54 listed A-share department store companies in this year's third quarter, only 18 grew revenue. Remember that most of Exception's 100 stores sit inside department stores.

Chen Ying lost interest in department stores and hasn't browsed Exception in a long time. "I'm busy enough as it is. If I go shopping now I only go to a shopping mall — after I buy things I can take my kid to eat and then to a play center. There's really nothing to look at in a department store anymore; the brands are all more or less the same."

A sales assistant at an Exception store in Beijing told us that in recent years the store's sales have rested mainly on VIP customers. They are concentrated between 40 and 50 years old, and walking in the door basically means buying — one visit can carry out 30,000 to 40,000 yuan of goods. "It may have something to do with where the store is, but our walk-in customers really have dropped."

Old customers may be drifting away; whether new ones can pile up fast enough is an open question. Exception has opened WeChat and Weibo accounts, but the brand's marketing has not really changed. As described at the top of this story, it still uses text, video and exhibitions to repeat how much it cares about culture and about "love of country and home" — a way of talking that lands better with "the previous generation."

"I don't think anyone sticks to one brand anymore," Li Xue, who had come to Fangsuo with her 22-year-old daughter to buy books, told QDaily. "I used to buy a dress or a jacket from Exception now and then, but now my daughter and I mix things together — Uniqlo, H&M, some export-overrun shops on Taobao and WeChat."

Li Yi, 28, wore a black felt hat, a loose black coat and a plaid skirt, and looked a little "artsy." Her Taobao shop selling health supplements brings her more than 60,000 to 70,000 yuan a month, but she has no plans to casually spend 3,000 or 4,000 yuan on clothes.

"Day to day I still like fast-fashion brands like Zara and H&M, where you can try all kinds of styles for very little money. One or two Exception pieces really did catch my eye — I once spent 2,000 yuan on a white dress at the Teemall store, but I hardly wear it, because there's never an occasion for it. Even fewer people my age wear the brand. The clothes are long and big, which may not suit shorter women, and the colors are mostly dark. People who get it think it's stylish; people who don't think it has no waist."

Brands like Exception started looking for ways to change long ago. Jiangnan Buyi, for one. Its founder, Li Lin, overhauled the brand in 2001, moving it from a "forest girl" look to everyday city wear. It took the English name JNBY, aimed its products more squarely at 25- to 30-year-olds, and grew bolder about fabrics beyond cotton and linen. Last year it held a 9.6% share of the domestic designer-brand market, the largest of any. This October it listed in Hong Kong.

Exception's own changes have been slow and careful. It launched menswear, but sells it in only a handful of stores. It seems to want more customers, yet doesn't want to look like a mass brand: its latest move was into China Central Place, a high-rent complex packed with luxury labels. Among brands of the same vintage, Bo has opened 700 stores nationwide and Jiangnan Buyi more than 600, while Exception still has 100. The other two are already on Tmall; Exception is still weighing whether it is ready for e-commerce. All this slowness is explained as "wanting to preserve the brand's spiritual core."

"At the start we were a fairly niche brand, and we seemed a bit removed from the general public. That's not really true — we keep opening up our attitude, keep strengthening the experience, and we come closer with warmth," Li Yu, the head of the Exception brand, told QDaily. How exactly it is "coming closer," Li Yu did not explain.

As a Lifestyle Brand, When Will Exception Make Money?

In 2011 Mao Jihong opened Fangsuo Bookstore in Guangzhou's Taikoo Hui. He then expanded to Chengdu's Taikoo Li, Chongqing's Sunshine Century Mall and Qingdao's MixC — all high-end malls — at 5,500, 2,400 and 3,400 square meters respectively. This looks like the answer he found to Exception's stalled growth.

"Exception is, after all, a relatively narrow brand. It skews female, and menswear only just launched. Fangsuo is for everyone; any age, either sex, anyone can experience it. The channel this platform gives us is enormously useful — it lets more people find out about Exception," Li Yu told us.

Fangsuo Guangzhou sits at a corner of the basement level of Taikoo Hui, wedged between an Under Armour and a Lacoste, and its dim lighting makes it stand out all the more. The whole store is shaped like a long, narrow cave: books on the right, a long exhibition strip down the middle, and on the left, in order, a clothing section (mostly Exception), a lifestyle goods section, a coffee section, and the rest of the book section. Its promotional copy carries phrases like "the most beautiful bookstore" and "public cultural space for the city" — the same phrases that come up again and again around Zhongshuge or Sanlian Bookstore's public-welfare library by the sea.

Yang Li, 36, brings her seven-year-old daughter to Fangsuo every week: she likes the talks held there regularly, her daughter likes reading in the children's picture-book corner. "Guangzhou used to have no particularly comfortable cultural space — the biggest thing was Xinhua Bookstore. Now we finally have a cultural landmark." Yang Li is also an Exception VIP.

Wang Nian, on the other hand, comes for good-looking porcelain and accessories. Wang Nian, 27, works in a clothing store in Guangzhou's Taikoo Hui, had the Saturday off, and brought relatives visiting from Dongguan to look around Fangsuo. After more than an hour she bought herself a 2,000-yuan watch from the Japanese brand C-Brain, its face painted in mineral pigments. "I especially love this colored stone dial," she said, shaking her wrist. "I think it's decent value — it's a Japanese brand, after all, and the face is handmade."

By Li Yu's account, Fangsuo was not a sudden whim. The idea was already there eight years earlier, when Exception opened its first "ecosystem store."

That store sat on the third floor of the SOGO department store in Beijing, more than 700 square meters, with the storefront designed by the Hong Kong artist Anothermountainman. It, too, looked like a huge cave. At the "mouth" stood a large wooden board carved with Exception's English logo, "EXCEPTION." The lighting was very dim; the uneven ceiling was covered in a patchwork of large beige linen panels. The space formed an upside-down "L," with big black metal racks scattered through the front half selling Exception and Yohji Yamamoto's sub-brand "Y's for Living," and cultural goods, porcelain and books laid out side by side in the back.

But the non-clothing part of this ecosystem store was only 200 square meters. We went on a Friday evening and found that the space allowed just one brand to sell there, a Taiwanese label called Hansheng Lane; the coffee bar had no coffee, only tea; and the books were shelved carelessly — Bing Xin's children's literature collection Letters to Young Readers, for instance, sat with Taiwanese travel writing. Between 6:30 and 8:30 that evening, not one customer came in.

If Exception wanted to use the non-clothing section to draw and grow foot traffic, it plainly needed a bigger, more carefully planned space.

When Fangsuo opened in 2011, Anothermountainman was again the art consultant, and to run the place they brought in former Eslite Bookstore founder Liao Meili. This time the non-clothing section, which had taken up only 30% of the "ecosystem store," became the main event, filling close to 90% of the floor. To attract customers like Yang Li and Wang Nian, Fangsuo put real effort into what it stocks and how it displays it.

According to materials Fangsuo provided, the lifestyle goods section carries more than 60 brands across six themes: natural and eco-friendly textures, textiles, paper goods, design highlights, design stationery, and children's toys. They are laid out more like an art show, each brand with its own open counter and an explanatory write-up. Beside the Taiwanese soap brand Bangka Soap, for example, is a guide titled "How Should I Choose the Right Soap for Me," with recommendations broken out by oily, normal and dry skin and by body, face, head and feet. Beside the Japanese brand Daxi Lacquerware is a description of how lacquer is made by hand. On the counter of the coffee-equipment brand Kalita sits a copy of The Complete Handbook of Coffee Knowledge.

The book section also stays niche. A Fangsuo PR representative told QDaily that the store's calling cards are foreign-language books and Taiwanese editions, with imports making up as much as 40% of the selection. There are also dedicated areas for foreign magazines, children's picture books, food and design, to set it apart from a traditional bookstore. The buyers are called "bookstore editors" and are expected to have read deeply in their assigned field: whoever handles art books, for instance, must know the authoritative editions of Chinese and Western art history.

Fangsuo has clearly copied Eslite Bookstore's "mixed operations" model. Books may take the most work, but the main profit does not come from them. Just as at Eslite's multi-format stores, where books occupy only 20-30% of the floor, at the 1,800-square-meter Fangsuo in Guangzhou books take up about 600 square meters, with the rest given to clothing, coffee and lifestyle goods.

Zhang Ping, general manager of the research center at Yingshi Group, explained the reasoning in an earlier interview with QDaily: against a 10-30% margin on books, cultural and creative products run at 40-50%, and coffee drinks at 75%. Clothing is the highest of all, reaching 300%. On top of that, bringing in other brands generates rental income.

To pull in more people, Fangsuo, like Eslite, holds a steady stream of cultural events. Official figures say the Guangzhou store has held more than 600 events since 2011, six to eight a month on average, with guests including Bei Dao, Chen Danqing, Liang Wendao, Chai Jing, Jia Zhangke, Ann Hui, Pai Hsien-yung and Yan Lianke, plus book signings. Partly because of this, Fangsuo Guangzhou draws three to four thousand visits on an ordinary day and at least seven to eight thousand on holidays, and books' share of total sales has risen to 35%.

For Mao Jihong, turning a clothing store into a bookstore also cuts rent sharply. As we noted in an earlier story, high-end developers are glad to bring in bookstores for their power to draw crowds. In mature commercial property projects in Beijing, a bookstore pays about a third of what a restaurant on the same floor pays. Jin Weizhu, chairman of Sisyphe Culture Communication Co., which owns Sisyphe Bookstore, has even told the media that some bookstores pay only 10% of a mall's usual rent, and some pay nothing.

Hengshan · Heji, which opened in Shanghai's Hengshan Fang in 2015, takes the form of four freestanding Western-style houses scattered across different blocks, but its profit model is much the same.

The buildings belong to Shanghai Hengfu Investment and Development Co., a subsidiary of the state-owned Xufang Group, and stand at No. 8, Lane 890, Hengshan Road; No. 880 Hengshan Road; No. 326 Tianping Road; and No. 4, Lane 890, Hengshan Road. After Hengshan · Heji opened, it named the four, respectively, The Red Couture (an Exception womenswear concept store), Dr. White (a magazine museum), Mr. Blue (a store for Exception menswear and other men's brands), and My Black Attitude (a store for Exception's sub-brand YMOYNOT and home goods).

"If Fangsuo is a city plaza, Hengshan · Heji is more like a city living room: the space is smaller and more private, and it's closer to the city's streets and neighborhoods. It's like a magazine in three dimensions. Besides books, film, coffee and clothing, we also draw other brands in to take space or borrow it for events — Hermès, for instance, held a talk here recently," Linghu Lei told QDaily.

Han Li, 35, the Shanghai native, lives near Hengshan Road. She finds Fangsuo more of a "one-stop shopping space," while Hengshan · Heji is looser and more relaxed. "The space is smaller — you can't buy a small gift, a book and clothes in one trip the way you can at Fangsuo. But the different buildings have different themes, so it's nice to wander through when you have nothing to do."

Whether the people drawn by all this will buy Exception's clothes is another question entirely. From what we saw at Fangsuo Guangzhou, the customers are mostly young people and families. The book, coffee and lifestyle goods sections are packed; the clothing section on the other side sits empty.

"I know Fangsuo and Exception come from the same founder. Their model feels a bit like MUJI — after home goods they went into bookstores and hotels, and they've built up the brand's culture. That's great," Wang Lele, 25, told QDaily. She comes back to browse roughly every other week, buys a cup of coffee, a book or a pen, and stays an hour or two. As for Exception's clothes: "Looking is enough. Too expensive, and not practical to wear."

As a bookstore business in its own right, this model — a huge range of goods, low sales per square meter — also means such stores can only break even inside large commercial spaces with heavy foot traffic. Eslite's expansion into Eslite Spectrum in Suzhou is, at bottom, a three-dimensional billboard for a property business. Bear in mind that Fangsuo Guangzhou took three years to stop losing money. And at Hengshan · Heji, open for one year, "the numbers are good, but the monthly rent plus management fees and utilities are still absurdly high for a bookstore." Whether the ever-larger Fangsuo stores in Qingdao, Chongqing and Chengdu make money is unknown.

More bookstores of the same kind keep appearing, too. Yanjiyou, which closed a Series B in September at a valuation of 1 billion yuan, uses the same mixed-operations model and opened a 3,600-square-meter store in Beijing this summer. Yang Zansong, a partner at Xinghan Capital and an investor in Yanjiyou, told the media they plan to open 66 stores nationwide in 2017. Eslite has opened in Suzhou and Shanghai and is in talks for Shenzhen, Guangzhou, Nanjing and Hangzhou. A MUJI bookstore arrived in Shanghai late last year.

Bookstores look to have entered a new round of the property scramble. All of which recalls Photosynthesis Bookstore, which ran the same "books plus coffee plus crafts" model, had revenue of 100 million yuan and 19 branches in 2007, and collapsed outright in 2011 after mismanagement and a cash crunch.

Besides, the model is not especially hard to copy. Even Xinhua Bookstore, long seen by the public as a by-the-book chain, recently hired a design firm called Fenghe Muchen to turn its ground-floor store in the Jindi Science and Technology Park of Baoding's High-tech Industrial Zone into a fresh Japanese-style space, with a coffee shop and a tea room added.

Qu Huiyu, who returned to work in Chengdu after finishing a master's degree in Beijing in 2015, is not a fan of mixed-operation bookstores.

"Half of Fangsuo's floor is clothing, high-end stationery and gifts, and books are the other half. Among the books, the imported magazines are wildly overpriced — one issue of The Economist costs 90 yuan. The Taiwanese editions are placed right by the entrance, probably because they're finely bound, expensive and profitable. But look closely and most of those Taiwanese books are travel, lifestyle or other fast-food culture. Several times I've come here looking for a book and couldn't find it — which is out of proportion to how big Fangsuo is," Qu Huiyu told QDaily.

"As China's overall economic level rises, people's needs climb gradually from the bottom up. First you have to solve safety, eating, having enough. It rises step by step, and in the end we'll become an institution that supplies a high-quality way of life," Mao Jihong said in a recent interview.

But Fangsuo, whose margins are far below those of a clothing store on its own, still cannot solve Exception's livelihood problem. If the main business keeps shrinking and young shoppers keep drifting away, where is Exception to place its future? Before he can "build up Chinese culture," that may be the question Mao Jihong has to answer first.

*At the interviewees' request, Li Lihua, Han Li, Li Xue, Li Yi, Yang Li, Wang Nian and Wang Lele are pseudonyms.

Cover image and inline images from the official WeChat accounts of Fangsuo and Hengshan · Heji, on-site photography, and Weibo @EXCEPTION