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Cost Rises, Giordano Is Completely Fading Out Of Garment Manufacturing

2008/7/3 11:05:00 16

Cost Rises Giordano Is Completely Fading Out Of Garment Manufacturing

Cost rises, Giordano is completely fading out of garment manufacturing

Giordano International (00709, HK) announced yesterday that it will sell its main garment manufacturing Affiliated Companies PlacitaHoldingsLimited51% rights and interests.

According to the trading agreement, Giordano sold placita21% interest at HK $22 million 900 thousand for the first time, with an estimated yield of HK $12 million 600 thousand, and the remaining 30% of the equity interest was sold in option mode.

Abandon production to external procurement

There are indications that Giordano is slowly dropping out of garment production under the pressure of operating costs.

At the beginning of last month, Giordano has just completed its equity reduction paction for fast global garment (Hongkong).

After the completion of the paction, Giordano's fast global interest was reduced from 49% to 9.9%.

In an interview with the daily economic news yesterday, Giordano assistant chairman said that the company will gradually reduce its garment manufacturing business and focus on developing the retail business in the mainland.

He pointed out that Giordano's competitive advantage lies in the design and marketing of clothing, rather than the production of clothing products. Therefore, the long-term strategy should focus on the development of profitable retail businesses.

According to the data, Giordano is stepping up its efforts to make purchases abroad, laying a groundwork for the gradual stripping of production business. Giordano chairman and chief executive Liu Guoquan also revealed before that they would prefer to purchase abroad, and internal purchases dropped from 25.7% in 2006 to 16.2% last year, of which 13.4% of goods purchased from Placita were accounted for.

The profit of garment making is lower.

It is understood that the cost of clothing products mainly includes fabrics and accessories, wages, fuel power, depreciation and so on.

The cost structure of general clothing enterprises is: raw materials such as fabrics account for 70%, wages account for 18%, fuel power, depreciation and others account for 4% respectively.

In the context of inflation, the cost of clothing has risen significantly since the beginning of 2007.

According to the survey, since the beginning of 2007, raw materials such as fabrics have risen by more than 5% in the cost of garment manufacturing, and wages and fuel power have increased by more than 10%.

It is estimated that the manufacturing cost of garments will increase by at least 5.7%.

Giordano has reported in the report that the business environment of garment manufacturing industry is becoming increasingly difficult.

In the past two years, clothing raw materials and operating costs have increased, which has also affected the profitability of Placita, resulting in a decline in its marginal profit margin.

Giordano's 2007 annual report shows that the turnover of garment manufacturing business in this year has gone back 2%, with a gross margin drop of 11.9%, which offset some of the contribution of retail and distribution businesses.

For Giordano, the sale of production business, one to prevent continued losses, two of the amount of the paction can be used to expand the retail business.

How can we ensure the quality of production after we have completely quit the production business?

Giordano spokesman said that the company has a professional procurement team, will track all production links.

The concern is that, as early as December 2005, SACOM, a university student in Hongkong, published a survey report on Giordano's suppliers in the mainland, pointing out that Giordano lacked supervision over its brand foundries, and that the rights and interests of workers were damaged and violated the labour law.

"There are widespread violations of wages and working hours in the mainland of four suppliers in the mainland," Giordano said.

SACOM spokesman Qiu Zi Hui said in an interview last night that the survey conducted in the year was mainly aimed at a comparison between Giordano's direct factory, Shenzhen tiger garment factory and representative factory. Its investigation found that Giordano had double standards for directly affiliated factories and foundries.

Retail business is bullish

As early as in 2006, FastRetailing, the famous Japanese clothing brand UNIQLO parent company, had contacted Giordano's management and offered a purchase intention. It once caused Giordano's stock price to be very good, but later FastRetailing decided not to buy it on the ground that "Giordano's stock price failed to reflect its business status and intrinsic value" at that time.

In June 2007, media pointed out that ZARA and Spanish retailer ZARA also considered acquiring the controlling stake of Giordano.

Until now, no company has concluded a takeover agreement with Giordano, but behind its repeated acquisition is its excellent retail business in the mainland.

Some analysts pointed out that the decentralization of shares and no single major shareholder is a major reason for Giordano's popularity. Since its founder, Li Zhiying, sold 27% of the remaining rights and interests in February 1996, Giordano has no single major shareholder but has become a company owned by the fund.

Besides, Giordano's apparel retail business in the mainland is another key point to attract buyers.

In 2001, the mainland replaced Hongkong as Giordano's main market and became the fastest growing market.