Li Lang "Upgrading Quality Does Not Raise Price" Stabilized The Position And Entered The Adjustment Stage.

In the clothing market, the market capacity of women's clothing is far higher than that of men's clothing. Judging from the apparel industry cycle, China's apparel industry ended its high growth period in 2012 and entered a period of adjustment.

More than just women's clothing, in recent years to cope with the slowdown in the industry pressure, many men's clothing enterprises have been forced into the throes of transition. It is a common practice for Chinese men's clothing enterprises to cope with adversity by introducing younger brands, increasing investment channels and joining price wars. However, not all men's clothing enterprises can go smoothly in the serious homogenization of products and fierce competition. For example, the fashionable men's wear brand CABBEEN (02023-HK), once fashionable, has been developing slowly in the market that has been fighting for a long time. The performance in 2019 has turned a great setback.

Similarly, 01234-HK, another man's clothing brand listed in Hongkong, has not embarked on the development of CABBEEN. China's brand slogan "simple and not simple" seems to be used in the company's development path.

In China's 2019 performance report, its financial data are quite bright. During the year, China's revenue was 3 billion 659 million yuan (RMB, the same below), an increase of 15.5% over the same period, and its annual profit was 812 million yuan, an increase of 8.1% over the same period last year.

It is worth noting that the performance of China's Le Lang is also increasing. In 2013 -2016, the performance of China's Li Lang continued to retrogress along with the overall downturn of the domestic garment industry, and gradually stabilized the recession until 2017. The performance in 2019 was the result of stable growth in China.

Before 2017, in order to reverse the declining trend, China made many changes, including cleaning up inventory, upgrading product design, and distributing a single brand. Judging from the scale of business and performance, although China's Lun Lang does not have a strong brand like the 600398-CN, 002029-CN and other men's brands, it still holds the danger of being abandoned by the market.

Then, in the year of 2019, what kind of "smart plan" did China take on the road of recovery?

Found their own characteristics.

It is an indisputable fact that the differentiation of brand men's clothing industry has intensified in China, and the gap between men's and women's brand listed companies is also getting bigger and bigger. Today, with the slowdown of economic growth and the fierce competition in the industry, the theme of the development of men's clothing enterprises is transformation and expansion, and only the two can pull their historical course longer.

To adjust the strategy and find a breakthrough, China's real estate looks like its own men's brand giant, because almost any industry presents more patterns and directions in the changing era.

The financial Club found three major factors for China's success, namely, the light business brand strategy, the strengthening of consumer identity and the "new retail" mode, which is also the "three carriages" of the company's development.

Facing more potential consumers: light business brand. In 2017, the company adjusted its business strategy in depth and launched the "LILANZ" light business series to target young consumers, mainly in the second tier cities.

China's light business series uses the mode of consignment sales, which reduces agency inventory pressure, reduces the worries of opening stores, and promotes distributors to accelerate the opening of stores. In 2018 and 2019, there were 212 independent stores and 290 companies in the light business series.

Light Business Series sales also led to the overall sales of China, and increased profits.

Consumer identity: simplicity, fashion, value for money. Simplicity and fashion, China has always been more knowledgeable. In terms of value for money, China's Li Lang has laid out such a strategy: upgrading quality without raising prices, improving product cost performance.

In the aspect of quality improvement, China's main purpose is to design, process and use materials. In the 2019 sales, the original ratio remained at about 70% of the target level, and the proportion of unique fabric products developed by the company was further raised to nearly 50%.

Catering to the trend of the times: "new retail" mode. Compared with CABBEEN, which has little regard for online sales, China has worked hard on its online business. In recent years, China has stepped up drainage through various brand promotion activities to promote the growth of e-commerce sales. At present, China's first 2020 spring and summer IP joint products have been launched.

Huaxi Securities Research Report estimates that China's power business income in 2018 is around 59 million, 2019H1 is around 98 million, and it is estimated that the total revenue in 2019 will reach 200 million, which will achieve double growth. The proportion of electricity supplier income in the next 3 years is expected to reach 10-15%.

But at the same time, it is worth noting that under the impact of the epidemic, offline stores have encountered unprecedented challenges. Online companies with layout are undoubtedly able to offset some of the negative factors. China's e-commerce business is growing fast, but the scale is not large. Some enterprises in the industry have accounted for 30% of the electricity business revenue.

At the expense of gross margins

There is no doubt that it will not be easy for China to grow in a challenging market for several years, because the company knows what problems it faces and how it needs to achieve its goals.

In this regard, CABBEEN is obviously somewhat disappointing. Because of the failure to keep pace with the times, relying too much on a single mid-range brand and adding price war to constantly weaken its profits, CABBEEN even lowered its head to the market in its annual report: "especially the mid-range brands like ours will face greater challenges in the future."

We can not fully affirm that China's development strategy is entirely correct, because light commerce and two factors "upgrading quality and not raising prices" are the fundamental reasons for China's profits being diluted. Let's take a look at the gross profit margin of China's first place. In 2016 -2019, the gross profit margin of the company was 41.3%, 41.5%, 41% and 38.4% respectively. This also caused the company's net profit margin to fluctuate more sharply, compared with 22.2% in 2019 and 25% in 2017.

Although the product is more competitive, but the supply price is difficult to rise, and the cost of raw materials, labor costs and other aspects are rising prices, thereby bringing down the Chinese gross profit margin. And light business gross margin is relatively low, in the case of a substantial increase in sales volume, the company's gross margin has been weakened.

In addition, China's stock has attracted investors' attention. In 2019, its inventory reached a high level of 689 million yuan, an increase of 1.9% over the same period last year. So China has been increasing its strength in recent years, but it will affect gross margin. Providing sales rebate subsidies to distributors in order to promote their discount sales of 2019 autumn and winter goods is one of the factors leading to a decline in gross margin in China's 2019 year round.