China's fashion market, currently dominated by sportswear brands and local casual clothing brands, was worth around 400 billion yuan in 2010. Per capita spending among urban consumers was a low 1,150 yuan per year, roughly one-fifth of per capita spending in the United States and the United Kingdom, BCG said.

"Per capita consumer spending in China is still in the early part of the penetration curve compared with that in mature markets, giving China the potential to become an even more significant fashion market," the report said.

The low penetration rate means China will account for 30 percent of the global fashion market's growth over the next five years.

China's fashion scene is dominated by sports brands such as Nike Inc , Adidas AG (ADSGn.DE) and Li Ning who entered the market early and now have thousands of retail outlets spread across the country.

However, that could change as consumers across cities "trade up" and become more sophisticated, preferring a variety of brands to suit different occasions, BCG said.

BCG also estimates that companies would need to have a presence in 568 cities in China in order to reach 80 percent of the mid- to high-priced fashion market in 2020, up from 462 currently.

Rising incomes in China have led to a flood of fashion companies such as Gap and American Eagle Outfitters thronging to get a piece of the market.

But a fragmented retail distribution network and the inability of international firms to localise their products have led to exits of some consumer retail firms such as Best Buy and Home Depot . ($1 = 6.458 Chinese Yuan) (Reporting by Melanie Lee; Editing by Jacqueline Wong)