Middle And Top Grade Garments Benefit From Inflation And Consumption Upgrading

Affected by unfavorable factors such as rising costs and impeded exports, the overall situation of textile industry is not optimistic this year, especially for companies with higher export dependence and upstream spinning and weaving enterprises.

However, Li Zhixian, a researcher in Guotai Junan, pointed out in his research report that under the background of inflation and consumption escalation, the apparel industry terminals, which are mainly domestic sales, and have higher gross profit margins and have brand and sales channels, are more benefited than the whole industry.

Income growth drives consumption upgrades

Domestic clothing consumption continues to heat up due to the increase in residents' income and the increase in consumption expectations under inflation expectations.

In 2007, China's clothing retail sales increased by an average of 28.7%, much higher than that of 16.8% of the total retail sales of social commodities in the same period.

In 2007, the per capita disposable income of urban residents was 13786 yuan, an increase of 12.2% over the same period last year, and the per capita disposable income of rural residents was 4140 yuan, an increase of 9.5% over the same period last year.

The growth of disposable income promotes consumption upgrading.

On the one hand, compared with food consumption, the proportion of clothing for urban and rural residents is increasing. On the other hand, the clothing price index of clothing consumption represents a continuous decline in clothing consumption, while the clothing and clothing price index of large shopping malls, which represents the middle and top grade clothing consumption, has been increasing, and the two have deviated from each other, reflecting that with the increase of per capita income, the public's consumption of high-end clothing has gradually increased, while the demand for cheap goods is decreasing.

In addition, compared with the urban residents, the consumption of clothing for rural residents accounted for a relatively low proportion of consumption expenditure. In the future, with the acceleration of urbanization process and the increase of rural residents' income level, the rural clothing consumption has a larger room for growth.

Middle and top grade garments benefit

Li Zhixian said that inflation has different effects on the costs of different types of enterprises.

Because the gross profit margin of brand channel companies is relatively high, the proportion of manufacturing cost is low, and the cost increase has little impact on the profit of enterprises. Besides, brand channel companies can easily pass the cost pressure through raising prices.

Inflation background, low, medium and high-end clothing can be partially raised by price or internal digestion to partially resolve the pressure of rising costs; in the context of consumption upgrading, in addition to 30% of low-grade clothing, the middle and upper grade clothing will be significantly benefited.

Because of the high proportion of raw materials and labor costs in selling prices, the profit margins of low-grade clothing products are small.

The proportion of mid-range clothing in the clothing consumption structure is about 65%, the proportion of manufacturing cost in the price is relatively low, the profit margin of products is larger, and the price elasticity is greater than that of low-grade products.

The income elasticity of mid-range clothing products is positive, and higher than that of ordinary durable consumer goods. Therefore, consumption upgrading has a great impetus to the consumption of mid-range clothing products.

The proportion of high-end clothing in the consumption structure is less than 5%.

Because of the high price and the small proportion of the cost to the selling price, even under the inflation background, the high-end clothing does not need to digest the cost by increasing the price, and the price fluctuation of the product is small.

The high-end clothing products also have positive income elasticity, but because of the smaller consumer groups, the impact of income changes on high-end clothing sales is not as significant as mid-range clothing.