Behind The Bankruptcy Of Rich Birds: The Clothing Industry Has Entered The Fatal Winter.

"Our goal is only one thing, that is, we hope that the company will continue to grow and become an internationally renowned shoe group company." There is no doubt that Lin Ping's "sole" goal of 01819.HK is temporarily unable to achieve.

Recently, the 3 year old bird has officially declared bankruptcy and delisting. The listed company, which has been suspended for three years for six years, has been known as 002154.SZ, 603555.SH and 603877.SH as the "four bird of the stock market" in China's apparel industry. However, since its listing at the end of 2013, its performance has shown a downward trend, and from 2017, it has been plunged into a quagmire of losses.

Some analysts pointed out that the current situation of the rich birds is the current situation of China's clothing industry. "This year may be the worst year for China's clothing and textile industry".

The first negative growth of Chinese garment enterprises

"Since 2016, the whole shoe and garment industry in China has been stagnant. It is thought that it will get better if you bite your teeth." A Hong Kong stock listed garment company executives reluctantly said.

According to the data released by the National Bureau of statistics, the total profit of Industrial Enterprises above Designated Size in textile and clothing industry in 2019 1-6 declined by 0.8 percentage points, which is the first negative growth in the data in 10 years. At the same time, in the above unit retail sales, clothing shoes and hats and needle textiles increased by 3% over the same period last year, and the growth rate was 6.2 percentage points lower than that of the same period last year.

It is easy to see that Chinese garment enterprises have released the first half of 2019 earnings reports, and the current business situation of the enterprises is not very satisfactory.

Metersbonwe, a casual wear brand in China, Metersbonwe (002269.HK) reported its annual revenue of 2 billion 699 million yuan in 2019, down 31.47% compared with the same period last year. Net profit attributable to shareholders of listed companies was 359.61% yuan, down 359.61% over the same period last year.

In the first half of this year, the company closed some direct stores, which has an impact on its performance. "At the same time, because of the factors affecting the commodity delivery period in the first half of the year (from the beginning of production to the shelf time), the impact of the 2019 spring and summer new product listing rhythm has led to a short term failure of the commodity market to meet the market demand in the short term, resulting in a significant short-term impact on the performance during the reporting period."

In terms of women's wear, the semi annual report released by La Natsu Bell, China's "giant" woman (603157, SH), showed that its net profit attributable to shareholders of Listed Companies in the first half of this year was 498 million yuan, down 311.2% from the same period last year. For the reasons for the loss, La Natsu Bell explained that the gross profit of the company in the first half of the year was 1 billion 115 million yuan lower than the same period last year. "The company's operating income declined significantly compared with the same period last year, and the company accelerated the digestion of the seasonal products, resulting in a decline in gross profit margin and a corresponding decrease in gross profit margin."

For men's wear, 603877.SH released its semi annual report in 2019, showing that net profit attributable to shareholders of listed companies was 130 million yuan in the first half of this year, down 33.06% compared to the same period last year.

It is worth noting that although some garment enterprises' performance has shown that the first half of this year's performance has gone up, but after careful analysis of the earnings report, the rapid growth of its performance has not much to do with the main garment business.

Take 002154.SZ as an example. In the first half of this year, the reported birds achieved 1 billion 430 million yuan in business income, an increase of 1.21% over the same period last year, and a net profit of 112 million yuan, an increase of 183.49% over the same period last year. However, the substantial increase in performance was mainly due to increased government subsidies, reduced taxes and fees, and delayed payment of brand agency fees, such as the 48 million 242 thousand and 500 yuan of government subsidies in the first half of 2019, which was only 71 billion 548 million yuan in the same period last year, and 208 million yuan in the first half of the year, compared with 23 million yuan in the same period last year. If we remove the above two reported birds in the first half of this year, the net profit of this year's birds is basically the same as that of the same period last year.

While Semir clothing (002563.SZ) and Hai Lan home (600398.SH) although the two companies in the first half of this year's financial reports show good results, but also noteworthy is that Semir's growth is mainly due to the acquisition of French children's wear group Kidiliz income and table. Data show that in the first half of this year, Semir's business revenue increased 48.57% to 8 billion 219 million yuan, and net profit increased 8.2% to 722 million yuan over the same period. Among them, Semir children's clothing revenue of 5 billion 212 million yuan, an increase of 81.66% over the same period, an increase far more than the 12.15% increase of its casual wear business.

In the first half of this year, Hai Lan's home revenue increased by 7.07% to 10 billion 721 million yuan, and its net profit increased 2.87% to 2 billion 125 million yuan, but its net profit was 2.87%, but the increase was the lowest since the listing of Hai Lan's home. But 8 billion 842 million yuan of inventory, 16 billion 56 million yuan of liabilities also let Hai Lan's home become the focus of attention in the clothing industry.

Garment enterprises are having a bad time, and footwear companies' life is even more difficult. According to the results, the listed footwear companies including BELLE, Daphne, red dragonfly, AOKANG, Saturday and 1000 degrees are not ideal in recent years. Among them, Daphne has lost four years and the performance of Red Dragonfly AOKANG has been dropping again and again, and last Saturday and last year's losses reached the highest level since listing. In addition, Qingdao Hengda Limited by Share Ltd, once one of the largest leather shoes manufacturers in China in 1984, was delisted from the new three boards in August 15th this year because of financial data fraud and letter violation.

Closing the shop to "winter" has become the first choice for many Chinese shoes companies. For example, Taiping bird and La Natsu Bell have already closed 111 stores, 556 franchises and 8 stores in the first half of this year. By the end of June 2019, La Natsu Bell had reduced net outlets by more than 2500 at the end of 2018 compared with the end of June 2019. In the first half of this year, the average number of outlets was over 13.

There is no doubt that in addition to the sporting goods industry, China's footwear industry is entering the biggest "cold winter" period in ten years.

Upstream textile industry suffered even more bleak

The overall downturn in the apparel industry has also begun to affect its upstream industry. June is the traditional off-season of the textile industry, but for this year's textile industry practitioners, this off-season seems to be exceptionally long. In an interview with Mr. Wang, who is engaged in textile trade in Zhejiang, he pointed out that compared with the past few years, the price, efficiency and order of grey cloth this year can be described as a "solid" decline compared with the same period in previous years. "The loom start up of production enterprises in some areas has dropped to the lowest point after the Spring Festival, and there is no sign of recovery."

In the textile industry, the number of days of grey cloth inventory is an important measurement data, and the high inventory of grey fabric is directly related to the difficulty of cash flow in textile enterprises. Data show that as of the end of July this year, Jiangsu and Zhejiang comprehensive billet warehouse exist 42.5 days, and this data in 2018 is 27.5 days in the same period in 2017 is 32.5 days.

Information from China textile net shows that most small and medium-sized textile enterprises have been forced to close down in the Yangtze River Delta and the Pearl River Delta region. "With the implementation of orders before and after the Spring Festival is coming to an end, orders for new orders are not enough at present, resulting in the unsmooth delivery of knitted fabrics and the rising stock market. Some textile enterprises in Guangdong are choosing to take full leave to reduce inventory," he said.

The same phenomenon also appeared in Jiangsu and Zhejiang provinces, according to the above-mentioned textile trade Mr. Wang, taking the textile production capacity in Changxing County, Zhejiang Province as an example, in the Changxin Textile City, almost 90% of the textile enterprises are doing the grinding cloth business, but at present, the load in Changxin area is about 8 percent, compared with the same period last year, it has dropped by about 1, and some enterprises even have a backlog of inventory, and the depressed market has also forced some textile enterprises to fight a "price war". "In the past, we could make sure that we earned 1 cents per rice cloth, and now we earn 2 points and 3 points if we have a list."

For the cold spell of the first half of this year, analysts who do not want to be named have pointed out that since 2016, due to the increasingly stringent environmental protection and safety supervision, some small and micro factories in the textile industry have been forced to move out or turn around. This has led to a tight production capacity in the textile market and also led to an improvement in the market. "But in fact, there is no improvement in terminal demand".

According to the above analysts, since 2012, the growth of total retail sales in China has been in the downward channel, and there has been a decline in demand for clothing, footwear and other industries. This has led to the fact that domestic market demand for textile clothing is not slowing down, but the textile industry of Southeast Asian countries such as India, Vietnam and Bangladesh is also constantly occupying the market of China's textile enterprises. The substitution effect is more and more obvious. "Under this background, with the continuous increase of production capacity of manufacturing enterprises, China's textile industry is turning from a supply strain to an overcapacity. In 2019, the textile industry as a whole suffered from declining orders, low profits and increased inventories. The final result is the overall decline of China's textile industry".

Nirvana and rebirth

In the industry view, the "winter" of the above-mentioned Chinese textile and garment industry will not be over in the short term.

Garment industry expert Ma Gang said in an interview that this round of China's apparel industry entered a downturn, resulting from a combination of reasons. "It is an indisputable fact that China's social consumer goods enter the growth and lay off the period. Apart from the environment, the problems encountered by every enterprise are different from each other."

Take La Natsu Bell as an example, in Ma Gang's view, when the main brand is not strong enough, blind choice of diversification is the main reason for La Natsu Bell's current predicament. "La Natsu Bell's rapid expansion in the early stage mainly depends on large-scale opening of stores, but the fast opening shop at the same time, La Natsu Bell's main brand store storehouse efficiency and supply chain system has not been well improved. On the contrary, large scale shops have brought huge inventory and high operating costs to La Natsu Bell."

Ma Gang pointed out that La Natsu Bell chose to diversify in the time of consolidating his own brand "moat". Data show that the number of La Natsu Bell's sub brands is as high as nearly 20, covering women's clothing, men's wear, children's clothing, etc. "La Natsu Bell's brand is much, but the distinction between each other is not clear, each brand does not have its own clear target audience, which leads to its large number of brands out of a loss, but the situation."

For Metersbonwe, Ma Gang believes that the difference between the US and La Natsu Bell is mainly due to the lack of a good coping strategy for UNIQLO, ZARA, H&M and other brands. "Mei Bang's high light period was 7.8 years ago. At that time, there were no international fast fashion brands such as UNIQLO, ZARA and H&M. But with these brands entering China, the short board of the United States is exposed. No matter whether it is the speed of new products or the way to distribute goods, the United States and the United States are all far away from these brands, and the brand is no longer suspense today."

It is learnt that although many domestic garment enterprises including Metersbonwe want to learn the fast fashion mode of ZARA and H&M, such as increasing the styles, reducing the quantity of single goods, shortening the replenishment cycle and supplying time, and reducing the selling price of related products, at the moment, not only one enterprise can succeed, but some enterprises even derive a series of other problems, such as rising cost and frequent quality problems.

The analysis points out that although China's garment enterprises are up to standard, they do not have the "software" of international fast fashion brands such as UNIQLO, ZARA and H&M, such as cost control and inventory reduction. For example, these multinational clothing groups have a group of original design and buyer teams, which can make the design internationalization and update quickly. At the same time, the whole production and supply system can control the cost and reduce the inventory while ensuring fast delivery and quick response.

Take the supply chain as an example, because of the large scale and the large number of brand shops, the "fast fashion" brand has absolute initiative in the "dialogue" with the upstream suppliers, and can get the corresponding raw materials at the lowest price and speed, which is currently unable to be done by domestic brands.

For the future development of China's garment industry, Ma Gang emphasizes that China's garment industry will usher in a period of deep adjustment. "This is like the sporting goods industry a few years ago. After fierce competition and full competition, some brands will be eliminated, and some brands will find their own way of development. At that time, the entire garment industry will usher in the overall reshuffle, and some enterprises will have a new lease of life, just like today's Lining and Anta."

Financial reports show that after several years of labor pains, Lining and Anta have ushered in their own high-speed growth this year. According to the financial report, Lining's sports business income increased 33% to 6 billion 255 million yuan in the first half of this year, and the net profit increased by 196% to 795 million yuan. Anta sports achieved 14 billion 810 million yuan in the first half of this year, an increase of 40.3% over the same period last year, achieving net profit of 2 billion 480 million yuan, up 27.7% over the same period last year.

If 10 years is a cyclical fashion trend, there is no doubt that the current Chinese garment industry is in the stage of a fashion trend coming to an end.

The report released by Roland Begg in August this year shows that China's shoe and clothing retail industry has entered a single digit growth stage, that is, the stock competition stage. The number of population after 90 and 00 has occupied 25% of the total population of mainland China. These new force consumers will become the mainstream of China's consumer market in the future. "90" and "00" consumer groups are influenced by factors such as growing environment and intergenerational concepts. They show totally different consumption concepts, consumption needs and consumption habits with those of 60, 70 and 80. Take the post-90s as an example, after the 1990s, self-consciousness awakened and grew more receptive to multicultural impact. As the Internet aborigines highly recognized the circle culture and sought the self-worth identification within the circle, they reflected more clearly in the consumption concept, such as self identity, recognition of paying the bill, heavy enjoyment of light ownership, and more willing to try new things.

There is no doubt that the transformation and upgrading of China's garment industry is imminent when the old garment enterprises collide with the personalized needs of new consumers. All along, the old and new brands of shoes and apparel retail industry are the fastest growing industries in China's consumer and retail industry, and the rate of change is still increasing and fast.

Ma Gang predicts that the depth adjustment period of this round of garment industry will not last too long, short for one year, and long for two or three years. China's garment industry will usher in a new reshuffle of the industry. With the gradual progress of the wheel of history, who will turn gorgeous into the next king in the future, who will be abandoned by the market place in front of us.