The "Fast Fashion" OEM Enterprise Is A Commercial Secret. What Is The Situation Of The Mainland OEM?

In 2006, when ZARA opened its first store in Shanghai, by 2016, the fast fashion brand landed in mainland China for 10 years.

"Fast fashion", as the name implies, means "fast fashion".

The speed of renewal is ZARA, H&M, UNIQLO and so on.

It is reported that mainland China has become ZARA and UNIQLO in the world's largest overseas market, as well as H&M's largest overseas market in Asia.

However, the latest semi annual report shows that in 2016, the fast selling group of UNIQLO parent company appeared the first half year-on-year decline in net profit in the past 5 years.

According to the first quarter fiscal year 2016 report issued by H&M group, sales in January 2015 and January 2016 and February increased by 10%, 7% and 10%, respectively, but the growth rate was the lowest in nearly 3 years.

The above annual report also shows that, compared with the previous years, the speed of its further expansion in various places has also slowed down significantly.

It can be seen that after the rapid expansion, fast fashion brands have entered the bottleneck of development. Is fast fashion brand really fast?

Asian developing countries, including China, are now almost listed as the main foundry areas of these fast fashion brands.

So what is the situation of the fast fashion brand's foundry in mainland China? How much is the impact of its sales profit fluctuation? How is their life?

What is the situation?

The form of domestic OEM is generally divided into two types: one is the garment processing factory which produces the finished products; the other is the supplier of surface accessories for the process.

In many coastal cities, the foundry enterprises of fast fashion brands occupy a certain number, but these foundry enterprises have been keeping a low profile, so they are not noticeable.

Reporters in communication with ZARA, H&M and UNIQLO 3 fast fashion brands concerned found that they had taboo about the term "OEM". When asked about the location of the OEM, they invariably pointed out that this was a commercial secret and could not be disclosed.

H&M, China regional public relations Project Manager Stella told reporters: "the information we have released mainly focuses on the brand terminal market and image building, and the details of production and processing will not be disclosed due to international collaboration."

The reporter once visited a manufacturing enterprise for a famous sports brand in France in Jiangsu and Zhejiang provinces. It is reported that the company also acts as an OEM for an international fast fashion brand.

In the on-the-spot investigation, the reporter learned that fast fashion brands are different from other brands. Due to the fast replacement of new products and the strict cost control, they are very cautious in the choice of production and processing enterprises.

Their qualifications for overseas foundries are very strict. Many international fast fashion brands tend to focus on suppliers or processing factories with relatively high reputation.

In order to provide the consumers with the most fashionable trend in the quickest reaction speed, the fast fashion brands often sign confidentiality agreements with overseas foundry enterprises in order to protect the interests of fast fashion brands after weighing the advantages and disadvantages.

And because of the special secrecy strategy, every component of a garment is usually arranged in different countries.

Li Chen, a journalist's friend, worked in a Taiwanese funded enterprise in Kunshan, Jiangsu, where she worked for UNIQLO. She said that OEM is not easy.

"Foreigners are very strict in testing, and they will not hesitate to return any small problems."

As for the quality problems of fast fashion brands exposed in recent years in China, she said that because of the high degree of recognition of fast fashion brands such as ZARA, H&M, UNIQLO and so on, the quality problems of single products tend to cause waves of rock, which is very risky for fast fashion brands to do foundry.

In particular, the fast fashion brand requires short delivery time, so it often takes time to work overtime to catch up with a hot product.

In addition, reporters in the interview found that ZARA, H&M and UNIQLO's fast fashion brands were conservative when they talked about expanding their stores.

As we all know, the impact of the rising wages of domestic workers and the rising cost of water, electricity, gas and land prices, as well as the pressure of environmental protection, and the increase in production input have great impact on the mainland's OEM enterprises.

Wu Donghua, a researcher at the China Gold think tank, pointed out: "when sales profits are under pressure, the cost increase and environmental pressure will make life for the mainland processing enterprises definitely difficult, and the spinning and weaving industry is more and more difficult to sustain the increasing cost pressure.

The profits resulting from the manufacturing industry have been reduced, allowing some bosses to choose to close factories and invest in other industries.

He said: "there were 4 factories in Dongguan, which originally made shoes for ZARA OEM workers. There were originally 10 thousand factories in Dongguan, and now they are closing down two factories, and the factory is compressed to 2000 to 3000 people."

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How big is the profit fluctuation?

In the past 10 years since fast fashion brands entered China, the cost of "made in China" has been rising steadily.

The rise in production costs makes

Having to rise in price has led to a change in the status of fast fashion brands labeled "cheap and good quality", which has changed in the minds of consumers. The earlier blind shop opened up the speed of expansion, resulting in oversupply and inventory production. The rapid rise of online shopping has intensified the price competition, and once again faced the challenge of fast fashion brand, which had "fast consumption of fashion at the expense of civilians".

These will inevitably affect their sales and profits.

As a result, many garment and shoemaking enterprises have pferred factories to Asian countries such as Kampuchea, Bangladesh and Vietnam in recent years.

In ZARA, H&M, UNIQLO and other brand stores, the reporter saw that the proportion of "made in China" has declined, while products from other Asian countries are increasing.

The most obvious thing is H&M, which is made almost exclusively by Bangladesh manufacturers in its basic products.

So what is the impact of Chinese mainland foundry enterprises on their profit fluctuations?

"The impact is definitely there! But in the long run, it is not a bad thing to reduce sales profits.

Just like a cold with fever, this is the warning message issued by the body, which can encourage the brand and OEM enterprises to adjust their development ideas appropriately.

In this regard, Li Chen told reporters: "take UNIQLO, the main reason for the decrease in sales profits is the change of sales mode.

In order to prevent the stock from happening, uniqo will launch discounted promotions on a regular basis, so although the overall sales volume of the uniqo has changed little, the sales profit has indeed been reduced.

From a positive perspective, this change in sales patterns can effectively prevent inventories. "

In this regard, Joy, head of ZARA media in China, said: "the 2015 annual report of ZARA as of the end of January is still good, and the 2016 annual report for the 1 quarter comes out in June this year.

In fact, I think there is no need to worry too much about the impact of cost increase and profit fluctuation. Compared with pure foundry enterprises, the development of foundry enterprises with their own brands and channels is steady and the production is relatively better.

In addition, a problem that we have to face is that the shortage of migrant workers caused by the change of new generation of migrant workers and so on has great influence on the mainland's OEM enterprises.

According to the survey data of Boston Research Institute, the labor cost of China's manufacturing industry accounts for 12% of the total cost, and this trend of growth is more and more obvious.

This data is much higher than Indonesia's 1%, India's 4% and Thailand's 5%.

In this regard, Li Chen told reporters: "China's current labor costs are not much lower than that of Japan. Therefore, UNIQLO has increased the number of orders for high-end fabrics made in Japan.

The orders we are getting now are actually decreasing compared with the same period last year.

This also gives us an inspiration that we must do better in service R & D, improve product quality and bargaining power.

This is very important for the long-term development of the mainland's OEM enterprises. "

For this reason, some large scale foundry enterprises compete for the introduction of advanced equipment, improve the level of automation management, and vigorously protect the interests of workers and build garden type production park.

Although the initial investment is large, this is one of the most effective ways to alleviate the shortage of migrant workers.

Although fast fashion brands are being tested at present, there are still rigid demands in the market. Many enterprises actively adjust their strategies to keep pace with the development of the times. Therefore, the whole industry chain is undergoing some positive changes.