A Group Of Data Reveals The Poor Performance Of China'S Textile And Apparel Industry.

Recently, the Ministry of industry and information released a set of data to reveal the poor performance of China's textile and apparel industry.

Data show that in 2019 1-8, the garment industry above Designated Size Enterprises 13660, the total operating income of 10738 billion yuan, an increase of 2.1% over the same period, the total profit of 56 billion 300 million yuan, down 1.1% over the same period. Enterprises above Designated Size have completed 16 billion 100 million garment production, down 1.7% from the same period last year.

The total retail sales of consumer goods in China totaled 262179 billion yuan, an increase of 8.2% over the same period, of which the total retail sales of clothing products above the quota reached 607 billion 300 million yuan, an increase of 2.9% over the same period last year. The online retail sales of physical goods in China amounted to 50745 billion yuan, up 20.8% over the same period last year, of which 19.7% grew by year-on-year. The export of clothing and accessories was 99 billion 400 million US dollars, down 4% compared to the same period last year.

What needs to be pointed out is that compared with the consumer goods data of cosmetics, the apparel industry is much weaker. According to the category, from 2019 to August, the growth rate of footwear and knitwear and cosmetics increased by 3.2% and 12.7% respectively, representing a 5.7 percentage point decrease and a 0.1 percentage point increase compared with the same period last year, which showed a strong demand for cosmetics and a continuous bottoming of footwear and clothing. 1

In addition, it is worth mentioning that the weakness of the clothing industry seems to have long been revealed.

According to statistics from the National Bureau of statistics, sales of clothing and cloth fell in varying degrees from the fourth quarter of 2017. Clothing sales in 2018 were 54 billion 60 million, down 24.8% from 71 billion 910 million in 2017.

At the same time, the statistics of China's commodity sales released by the China Federation of Commerce and the China National Business Information Center also showed that in 2018, the volume of retail sales of clothing in major retail enterprises nationwide decreased by 4.2%, and the growth rate slowed down by 8.4 percentage points compared with 2017. In addition to the increase in the number of sportswear retail sales, the retail sales of other categories of clothing were less than that of the same period last year.

It should be noted that in the overall consumption expenditure, the proportion of people used for clothing consumption is also lower. According to the National Bureau of statistics, in 2018, the per capita clothing consumption expenditure of the whole country was 1289 yuan, an increase of 4.1% over the same period last year, and the growth rate was 1.2 percentage points faster than that of the same period last year. In the same period, the per capita consumption expenditure of the residents increased by 6.2% in real terms, and the growth of daily necessities and services, transportation and communications, education, culture, entertainment and health care was much higher than that of clothing consumption. In 2018, the proportion of clothing consumption per capita in the national consumption expenditure was 6.5%, down 0.3 percentage points from the previous year.

There are signs that people are buying fewer clothes. Curiously, what is the reason why the clothing industry is not popular?

On the one hand, the environment of foreign trade is deteriorating, and China's textile and clothing exports continue to slide. Influenced by Sino US trade friction, the export volume of textiles and clothing in China decreased by 2.49% to 177 billion 400 million US dollars in the 1-8 months of 2019. Among them, the total export volume of textiles increased by 1% to 79 billion 400 million US dollars compared with the same period last year. The total export volume of clothing and accessories decreased by 4.3% to 98 billion US dollars compared with the same period last year.

In addition, the devaluation of the RMB will suppress the latter export prices. Affected by the deterioration of the foreign trade environment, the RMB exchange rate has continued downward since late April. In October 8th, the spot exchange rate of US dollar to RMB reached 7.07, which was 5.68% compared with 6.69 in April 17th. Although the export prices of short-term leading companies are still relatively stable in dollar denominated prices or there is a certain contribution to exchange earnings for short-term performance, the continued depreciation of the renminbi will trigger the possibility of a new round of price reduction.

On the other hand, the price of raw materials has changed significantly in the latest year in recent years. The price of cotton has dropped from 16000 yuan / ton to 12600 yuan / ton, or 21%, and the price of polyester staple, polyester filament and viscose staple fiber has decreased by 32%, 29% and 29% respectively. The decline in raw material prices has increased the price discounts of terminal products, and has further eroded the profit margins of the relevant enterprises.

Besides, there is another factor to note, that is, the change of consumer habits.

In recent years, with the influx of Zara, H&m and other fast fashion and personalized brands, the habits and concepts of consumers have changed. The direction of the clothing consumer market has changed. It has shifted from a single consumption oriented demand for sheltering and cold comfort to the consumption trend of fashion and culture. This has led to the phasing out of mass production in the past and transformed into a continuous and innovative production mode that meets the needs of consumers. But in this way, the cost of production batch will be enlarged, and the selling price of single garment will also be raised, which will make consumers fall in love with them.

However, it is doubtful that the boom of the garment industry is hard to recover.

In fact, it is not. Recently, many brokers have published research reports, predicting that the performance of the leading companies in the garment industry will improve in the third quarter, and will be fully recovered in the fourth quarter. Among them, China Merchants Securities pointed out that, stimulated by consumption promotion and corporate tax reduction and fee reduction policies, as well as the reduction of base and leading operation, the leading income growth has shown signs of quarterly improvement. It has strong brand power, obvious differentiation of product differentiation, high level of channel operation refinement, and high efficiency of supply chain management will continue to outperform the industry's growth trend.

This is mainly manifested in the obvious differentiation of the track. In 2019, Q3, cosmetics, sporting goods, children's wear and high-end leisure leading brands were running well, and their revenues were in the 20%-30% growth range. The high-end women's clothing product strength and VIP management and operation capabilities continued to strengthen, and the same shop marking line was stable. It was predicted that the same number of shops would grow in double digits, while the public leisure Semir, Hai Lan's home, Taiping bird and business men's clothing nine Mu Wang expected to maintain a single digit growth.

In addition, China Merchants Securities also said that the valuation of the current brand industry is only 14X, at the bottom of history. Taking into account the low base number and the Spring Festival advance factors, Q4 sales can be warmer and warmer. We need to select the track to invest in sports products, such as Lining, Anta, Volkswagen and children's wear, Semir, and high-end shops.

In the process of slow recovery of the industry, some of the stocks that are steady can be given attention.

Lining (02331.HK): Lining is one of the leading sports brand enterprises in China, founded by Lining, a famous gymnast. Since its establishment in 1990, after more than 20 years of exploration, Lining has gradually grown to represent China's leading international sport Brand Company. Li Ning Co adopts multi brand business development strategy, besides its own core Lining brand, it also owns Lotto brand, Ai Gao brand and heart brand. In addition, Li Ning Co also holds Shanghai red double happiness, wholly-owned acquisition Kaisheng sports.

According to the financial report, in the first half of 2019, the company realized revenue of 6 billion 255 million yuan, an increase of 32.6% over the same period last year, and the net profit from its parent company increased by nearly two times to 795 million yuan. Among them, online sales increased significantly, and the income of Lining 19H1 from the electricity supplier was 1 billion 360 million yuan, an increase of 38.3% over the same period last year.

Semir apparel (002563.SZ): the company is a brand clothing enterprise featuring the virtual operation, featuring a series of adult casual wear and children's clothing. The company's main products include the two series of "Semir" and "balbala". At present, it is one of the few garment groups in the domestic leading position in the two fields.

According to the financial data, in the first half of 2019, the company achieved a revenue of 8 billion 219 million yuan, an increase of 48.57% over the same period last year, and realized a net profit of 722 million yuan, an increase of 8.2% over the same period last year. Q2 single quarter revenue and net profit were 4 billion 102 million yuan and 375 million yuan respectively, representing an increase of 35.81% and 5.68% respectively.