Smith Barney, Semir Busy Sales Promotion, Jiangnan Buyi Busy Returns

This spring, a sudden public health incident disrupted people's normal pace of life. It also pushed many enterprises in the retail, catering, tourism, film and television industries to press the "pause button".

Clothing industry is no exception. In order to cope with the epidemic, garment enterprises have adopted various methods. Among them, the most common thing is to temporarily close down stores. For example, Giordano (00709), a Hong Kong stock, announced in February 10th that the company would temporarily close 111 stores in the mainland of China until February 13th. In February 13th, Fang Fang Fang Holdings (01388) issued a notice in February 11th, saying that due to the suspension of the shopping centers of some of the shops, the corresponding stores were also suspended. Some clothing enterprises take the initiative to attack, donate donations to fight against the epidemic, such as Bosideng (03998) voluntarily donated 150 thousand high-quality feather clothing to the epidemic area, and even took part of the production capacity for medical protective clothing production.

From the operational level, on the one hand, the majority of garment enterprises will have multi-channel layout, and companies can sell products through online channels, such as A's 002269.SZ and Semir 002563.SZ. From the perspective of investors, I believe many people will think that discount promotions are reasonable. However, not all garment enterprises are keen to promote sales in a very special period. Some companies even require dealers to return products. The company is Jiangnan cloth (03306).

　　 Dealers are required to return the goods.

Zhitong finance and economics APP noted that in February 7th, Jiangnan Buyi said to the group dealer's letter that in view of the epidemic situation, for the spring 2020 new products, Jiangnan Buyi will adjust the return rate of 2020 spring products including JNBY, CROQUIS (sketch), less, jnbybyJNBY and POMMEDETERRE (Peng MA) to 100% (2020 spring special return policy), and the group will ask all dealers to refund all the products of some styles in advance.

Affected by this news, Jiangnan Buyi share price has continued to remain weak in the near future.

In the view of Zhitong finance and economics APP, Jiangnan Buyi announced that the proportion of dealer returns should be adjusted, mainly for two reasons. First, to protect the interests of dealers, so that dealers could have more sufficient funds to deal with public health incidents in special times, and avoid backlogs on products. The two is to prevent dealers from promoting the products through discounts, thereby reducing the brand premium.

For Jiangnan Buyi, it is probably not difficult to accept a company's losses in the short term because of its unresistable factors, but it is difficult to decide if a company wants to "hurt the brand".

From a market perspective, the size of the designer's brand market increased from 11 billion 100 million yuan in 2011 to 44 billion 900 million yuan in 2017, with a compound growth rate of 26.2% during the period. To achieve this growth, the designer's brand has unique design style and high recognition.

However, there is a paradox between the continuous growth of the designer's brand revenue and brand positioning, that is, once the single brand is moving from mass to mass, it will weaken the loyalty of the customers to the brand and further restrict the growth of the revenue scale.

If Jiangnan cloth is used as a template, the development mode of designer brand enterprises should first ensure that their brands have enough brand premium, and secondly, they need to launch more brands quickly.

According to the 2018/19 financial year's report, as of June 30, 2019, the company's brand portfolio includes three stages of ten brands, of which 6 brands are launched from 2016 to 2019.

It is worth noting that in order to expand the scale of operation, Jiangnan Buyi was further liberalized in the 2018/19 fiscal year. During the period, there were 1397 outlets in mainland China, a year-on-year growth of 147, and 43 outlets in Hongkong, China, Taiwan and other international and regional markets, with a net growth of 3.

Because of the decline in the proportion of self owned stores, the gross profit margin in the 2018/19 financial year fell to 61.23%, down 2.52 percentage points from the same period last year, the lowest level in nearly five fiscal years.

From this point of view, the gross profit margin has been "hurt" once in the south of the Yangtze River, and it seems that it is unwilling to hurt it again, so that dealers can only return some products for a long time.

　　 "Return" determines or has a greater impact on short-term performance.

Then, how much impact will this "return event" have on Jiangnan cloth? Because the company did not disclose the exact amount, it is not easy to speculate. But the brands involved in the return include the three main brands JNBY and CROQUIS (sketch), less and jnbybyJNBY.

In the 2018/19 fiscal year, the JNBY brand contributed 1 billion 879 million yuan revenue to the Jiangnan cloth, accounting for 56% of the company's total revenue, and three growth brands contributed 1 billion 408 million yuan in total revenue, accounting for 41.9% of the company's total revenue.

As far as sales territory is concerned, the income from the mainland of China in the 2018/19 financial year is 3 billion 325 million yuan, accounting for 99%, and the sales revenue from other regions is only 1%. In other words, companies do not have too many overseas sales channels to diversify sales risks.

If we say that we need to carry out the "cold winter" in the south of the Yangtze River, we need to test the company's "fat".

The cash and cash equivalents on the company account were 216 million yuan, down 35% compared to the same period last year. Fortunately, the company's current liabilities are mainly accounts payable, contractual liabilities and calculated expenses and other current liabilities. The overall assets and liabilities ratio of the company is 38.2%. Considering that Jiangnan Buyi stores are mainly distributors' stores, and self operated stores and online self operated channels should be able to sell products that involve returns. Therefore, we can generally judge that there will be no big problem in the short term.

Generally speaking, Jiangnan cloth clothing is a good time to worry about distributors. I hope that the hard time will soon dissipate and let the once again "white horse" in the garment industry go again.