How did these Chinese clothing brands, which were once at the bottom of the value chain, move up the ladder?
On the contrary, some traditional domestic brands have bucked the trend and risen amid industry shocks.
Ordos (600295.SH), Peacebird (603877.SH), Bosideng (03998.HK), Anta (02020.HK) and Li Ning (02331.HK) in the past ten years The financial report shows that almost all net profits and operating income have experienced a “V” curve, hitting bottom between 2012 and 2016, then rebounding, and continuing to rise to this day.
Multiple brands, single focus
The turning point occurred in 2008. The global financial crisis occurred, the prices of cotton, oil and other raw materials fluctuated. At the same time, domestic labor prices continued to rise, and the RMB exchange rate appreciated, causing export sales of clothing to suffer heavy losses.
In addition to changes in the general environment, you also have to pay the price for your blind optimism. In the 2008 Olympics year, a sports craze hit the country. Shoe and apparel companies expanded aggressively amid optimism, buying brands and adding stores. The inventory crisis caused by radical strategies became more and more obvious a few years later. According to reports, in the first half of 2012, the total inventory of 42 listed clothing companies, including Li Ning, Anta, 361 Degrees, Xtep, and Peak, reached 48.3 billion yuan.
Clothing companies are experiencing sales and store closings one after another. As can be seen in Bosideng’s 2015 financial report, it adjusted its over-expansion strategy and reduced its number of stores from more than 13,000 to more than 5,000.
Faced with the crisis, most of the currently rising domestic brands chose a similar strategy at the time, that is, focusing on niche areas and building multiple brands.
The most typical one is Ordos. In 2016, Ordos Cashmere Group was split into four brands, all focusing on cashmere sweaters, but targeting high-end people, the middle class, traditional customers and young customers respectively.
Wang Zhen, who took office as chairman and general manager of Ordos Group a year ago, promoted this change. Wang Zhen is 40 years old this year, and his father Wang Linxiang is the founder of Ordos Group.
At the age of 15, Wang Zhen was sent to London to study, and was later admitted to Cambridge University. In 2005, she quit her job at the consulting company Roland Berger and returned to the group the following year to create the sub-brand “1436”.
In 2016, the results of a large-scale market survey showed that in the eyes of consumers, Ordos has vague brand recognition, aging, and weak product management and image management capabilities. Wang Zhen held a meeting with his team and decided to abandon the old path and reshape the brand.
“Today’s consumers need not only a functional product, but also a product that meets aesthetics and needs. If it cannot transform quickly, it will become a full-category, full-series, and functional product. Brands with a distinctive image will be eliminated quickly.” Wang Zhen said.
After splitting into four brands, some dealers lost some dealers, but Wang Zhen believes that this is also a screening of partners.
Unlike the fission of Ordos, Anta’s method of subdivision is acquisition. The information Anta Group showed to Southern Weekend reporters shows that it now has 23 sub-brands.
“Many brands belong to the ‘East is not bright and the West is bright’, which will form a good match.” Anta Group Vice President Li Ling told Southern Weekend reporters, “As long as it is sportswear , our brands are basically fully covered.”
“A brand cannot grow infinitely, it must have a fixed audience group, and no brand can meet everyone’s needs.” Li Ling Said that this is also one of the reasons why Anta acquires multiple brands.
The strategy adopted by Li Ning is “single brand, multi-category, multi-channel”.
In 2019, Anta Sports’ revenue was 33.9 billion and Li Ning’s revenue was 13.9 billion. In terms of government subsidy income, Anta received 1 billion and Li Ning received 63.89 million. The reason why the government subsidizes Anta is to “affirm its contribution to local economic development.”
In the financial reports of several companies, the proportion of export business of OEM sales is getting smaller and smaller. Wang Zhen said that currently export production accounts for 30%-40%, but the income is not even 1/10. “Export sales means you work for others and only charge a processing fee. It is completely different from the domestic market.” Ordos’ export orders are mainly to make up for the income in the off-season.
Return to direct operation
Take Anta as an example. In the past, it mainly used multi-level distribution and wholesale model, it can quickly seize the market with lower investment in the early stage. However, the disadvantage is that the headquarters has weak control over channels and it is difficult to understand the operating situation in a timely manner. Once downstream dealers have serious inventory backlogs, it will be difficult to survive, and the brand will also be affected.
Peacebird’s 2016 IPO report shows that it has vigorously expanded its direct sales model. In 2017, direct sales revenue (including online and offline) accounted for 65% of revenue.
In 2012, Bosideng’s down jacket business was self-operated, accounting for 17%, and wholesale accounted for 58%; in 2019, self-operated down jackets accounted for 59%, and wholesale accounted for 36%.
The same is true for Ordos. From 2016 to 2019, its directly operated and controlled stores increased from 493 to 634, and the number of dealer stores was around 600, a slight decrease.
Direct sales help brands master first-hand sales data, better control the terminal and coordinate the overall situation. Gao Lizhong, deputy general manager of Ordos Cashmere Group’s cashmere spinning divisionIt is expected that online sales will account for more than a quarter of the group’s business by 2022.
As of the close of trading on June 16, Inditex Group closed at 24.695 euros per share, with the latest market value of approximately 76.91 billion euros.
H&M sales fell by 50%
Swedish H&M Group, the world’s second largest clothing retailer6 The financial report released on March 15 showed that sales in the second fiscal quarter ended at the end of May fell by 50% to 28.66 billion Swedish krona (approximately RMB 21.841 billion), but the decline was smaller than expected because the epidemic restrictions in many markets have Starting to relax and stores starting to reopen.
▲Picture source: H&M official website
In this context, many fast fashion brands are also currently exploring sustainable development path of transformation. For example, Uniqlo is promoting environmental protection concepts this year. Currently, GAP is also simplifying its product configuration, focusing on the four pillar products of jeans, khaki pants, T-shirts, sweatshirts and pants.
As the epidemic gradually comes under control, the performance of domestic sportswear brands such as Anta and Li Ning has begun to stabilize. However, at the same time, fast fashion brands that are not waiting for death are also continuing to save themselves. Who can take the lead in the future with the profound management accumulated The operational barriers and brand matrix built to stabilize the moat and consolidate growth logic are still unknown for the time being.
Can the industry’s accumulation of energy bring about a continued increase in overall valuations?
Whether it is the competition with fast fashion brands or the performance of sportswear in recent years, it actually reflects the potential of this track. Not only that, the overall future of the industry is estimated The increase in value seems to be traceable.
First of all, the public’s awareness of exercise will further increase after the epidemic. Secondly, the increase in national income level will bring about an upgrade in the consumption of sports-related products, and the country is also increasing its investment in the sports industry. With policy support, it is foreseeable that China’s sports shoes and apparel market will continue to expand in the future, and is expected to continue to grow in the future.
However, it is worth noting that there are still some uncertainties in the epidemic. All in all, with the recovery of economic growth, the end consumption of sportswear will further recover, driving the industry’s inventory and discount levels to return to normalization. According to Goldman Sachs’ expectations, the compound annual growth rate of China’s sportswear market revenue from 2019 to 2025 will reach 10%.
So in the future, in an environment where the valuations of consumer goods leaders in other industries continue to increase, the overall increase in the valuation of sports apparel leaders is relatively reasonable. However, for some domestic sportswear brands, if they want to enhance their industry voice and bring better profit prospects in a fiercely competitive environment, they still need to develop in a long-term game. </p