The Necessity Of Business Development Lining First Built A Factory

In May 22nd, Lining group's Guangxi supply base was officially launched. Lining, chairman and acting CEO Lining of the board of directors, said that it targeted the development and manufacture of cluster supply bases including raw materials, sports shoes and sportswear. This is the first time since Lining was founded in 1990 that he built his own factory and entered the manufacturing link of the upper reaches of the sporting goods supply chain.

Unlike several domestic brand rivals, Lining used to outsource production models. The brand of Jinjiang, represented by Anta and XTEP, was built by self built factories and began to take the road of branding. It began to cooperate with other factories in the process of scale development. At the beginning of Lining's establishment, it was brand driven. It had always outsourced production. Now self built factory is also an inevitable choice for business development.

Lining disclosed that in December 2018, the Guangxi supply base project was officially finalized, and the annual production of five million pairs of sports shoes was officially signed. In February 2019, a total of four production lines were put into operation, and now there are more than 900 production teams. In the future, Lining also plans to set up an annual production of 10 million sportswear items. In the 2018 earnings report, which was released in March 2019, Lining mentioned that "we are leasing shoes production factories in Nanning, Guangxi province. The goal is to gradually precipitate the core competence of the industry in the Lining system, and enhance the capability of its own supply chain management and R & D knowledge application."

By the end of 2018, Lining's cash flow increased by 44% to 1 billion 672 million yuan compared with the same period last year. Lining, who has fully recovered in the past three years, has achieved more success in the retail transformation. At the same time, he has more sufficient financial strength and management ability to sort out and deploy the upstream industry chain.

Lining, chairman and acting CEO Lining of the board of directors, said: "the value chain of the whole sporting goods is very long. Before, I tend to light assets and make brand ends. After years of operation, we still need to extend our capabilities to both ends, one is retail channels, the other is the production of garments and shoes, so that we can find a more efficient and sustainable mode from the production to retail brand management value chain."

Lining himself has always favoured home Guangxi. The first Lining Sports Park operated by Lining sports fund and operating in China is located in Nanning. For the reason to choose the first self owned factory located in Guangxi, Lining himself said that in addition to giving back to her hometown, the geographical location of Nanning ASEAN headquarters can radiate the Southeast Asian market, while Guangxi faces the whole Southern China market and Guangdong, Hongkong and Macau.

In order to operate South market more efficiently, Lining set up the Southern China District in 2018 to achieve more accurate and fast operation of Southern China market. In 2018, Southern China's revenue accounted for about 12% of Lining's total revenue, compared with 40% in the north and the south. There was still a huge gap in the area, but 36.1% of the region's business growth was the fastest, showing great room for growth.

The advantage of outsourcing is small investment and low risk, but the production link needs to give profits to the cooperative factories, and the control is inconvenient. The cost of building land, construction, equipment, labor and so on is high, but the cost can be diluted for a long time, and the profit of the production link can be grasped in the hands of oneself, and it is stable and controllable.

For a brand, products, marketing and channel stores are "Facade". It directly reflects the brand image. It is a content that consumers can directly participate in and feel. But production is a behind the scenes link. It is not brilliant at all, and few consumers are concerned about it, but its importance is self-evident. For most brands, just like the need to directly cooperate with distributors to maximize the utility of channels, self built factories and outsourced factories also need to work together to produce an efficient and scientific production mechanism. This tests the accuracy of an enterprise's judgement of the market and its ability to control and control the supply chain.

Supply chain management and control includes fast developing capability, raw material and flexible production capacity, strong production organization capability, quick payment ability of orders, and suppliers with fast replenishment capability and new push capability. As Lining said in his earnings report, it is necessary to "reasonably reduce the proportion of futures orders through segmented production, evergreen rolling replenishment and other new modes, and increase the rapid development and production of spot fast replenishment products, so as to meet the needs of consumers for the best-selling products of the company and increase business opportunities."

Lining did not disclose the cost of the self built plant. He said that although the financial cost of self built factory would increase, it must be invested, because in addition to the profit margins in the production process, and the core technology of its own process was precipitated into the self built factory, "self run part" must be the most valuable and most creative, designing and testing space for us.

At the same time, Lining stressed to the media that the upstream production link would not be expanded without restraint. He thought that if all the production came from self built factories, the adjustment and flexibility of the retail market would be weakened and it would be difficult to catch retail opportunities. Taking Anta and XTEP as an example, Anta's brand self-made shoes and clothing accounted for 33.3% and 13% respectively in 2018, while XTEP and XTEP were 46% and 13% respectively. Lining hopes that the Guangxi plant will account for 1/3 of the capacity of the group in the future.

In 2018, Lining's gross profit margin was 48.1%, second only to Anta in the four major domestic sports brands, but its net interest rate was only 6.8%, far below Anta's 17% and XTEP's 10.3%. Self built factory will enable Lining to have stronger control over the profit of production, and in the long run, it will contribute to the improvement of profit margin.

In terms of macro data, the growth rate of clothing shoes and hats and needle textiles was only 3.3% in the first quarter, ranking the third in all categories. The growth rate of this category was 9.8% in the same period in 2018, and 8% in 2018. In April 2019, there was a negative growth in clothing, shoes and hats and needles and textiles. These data show that the overall growth rate of clothing shoes and hats and needle textiles has decreased significantly, showing a downward trend. Faced with such a market situation, equipped with self built factory will help to grasp a stronger initiative.

This time Lining began to build his own factory, which will make the comparison and competition of supply chain management more intense in terms of products, brands, channels and marketing.

Lining, who has been revived through the retail transformation, has obviously adjusted the structure of the channel in 2018 through the topic of "China Lining". In 2018, there were 4838 Lining dealer stores, an increase of 117 compared to 2017, with 1506 retail outlets, a net decrease of 35 compared with 2017. This time goes into the upstream production link. We can say that Lining is constantly adjusting himself to consolidate his internal strength. Under the multi brand strategy, Anta has acquired Amer Sport to continue to expand its brand size and move towards internationalization. At the same time, it is also building logistics center as a logistics backstage and commodity big data center. XTEP, which has undergone three years of adjustment and transformation, and has received many reports on its running events, has also won the development, marketing and distribution rights of Merrell (MAI LE) and Saucony (St. John's) brand shoes, clothing and accessories in mainland China and Hong Kong and Macao, and is planning to buy K-Swiss, Palladium and Supra brands for $260 million to open multi brands.

It can be seen that under the general trend of the overall downward trend of the shoes and clothing market, although the major brands have not shouted out the "cold winter" is coming, they are consolidating the internal strength and enhancing the market competitiveness of their brands and products.