The Global Garment Industry Is Entering The Cold Winter, And The Chinese Market Is Difficult To Become A Life-Saving Straw.

In May 27th, I.T (00999.HK) released its 2019 annual financial report. The report shows that during the reporting period, the company's revenue was HK $7 billion 719 million, a year-on-year decrease of 12.6%, gross margin of HK $4 billion 734 million, a decrease of 16.1% compared to the same period last year, a net loss of HK $746 million, and a loss of HK $747 million for the company's equity holders.

I.T is mainly engaged in sales of fashion and accessories, and is in the downstream of the apparel industry chain. The upstream suppliers of clothing industry, such as 002193.SZ, and the middle stream brands such as Adidas ( PINK:ADDYY International brands such as UNIQLO are also struggling.

As a result, in the winter of the global garment industry, many apparel giants are aiming at the Chinese market. But recently, many clothing companies announced that their financial results seem to have poured cold water on the garment industry. The Chinese market does not seem to be as optimistic as everyone thinks.

Global apparel industry is facing severe winter

Adidas, one of the sports giant brands, reported its first quarter net profit of 4 billion 753 million euros in the first quarter of 2020, down 19% from the same period last year, operating profit of 65 million euros, and net income of 26 million euros, a decrease of 96% over the same period last year. At the same time, the company also predicted that sales in the second quarter of 2020 would be more likely to fall, which is expected to drop more than 40% over the same period, and the operating profit will be negative.

In March 17th, Adidas announced that it would temporarily shut down stores in Europe and North America (including brand self owned stores and franchised stores) in consideration of the health and safety concerns of employees, customers and partners, so as to curb the spread of the new crown virus. This resulted in the closure of more than 70% of the world's stores in Adidas.

In mid April, Adidas issued a statement again, saying that almost all proprietary and dealer stores were temporarily closed in Europe, North America, Latin America, emerging markets, Russia and most parts of the Asia Pacific region. Wholesale and retail activities in the above markets were completely stagnant.

Due to large closes, Adidas stocks are soaring. As of the end of December 2019, Adidas's stock rose from 3 billion 450 million euros at the end of 2018 to 4 billion 90 million euros at the end of 2019.

Not only Adidas, but also one of the casual wear giants, UNIQLO, is unable to shake off the impact of the new crown pneumonia epidemic.

Recently, 06288.HK, the parent company of UNIQLO, announced its mid fiscal year 2020 report. According to the financial report, the comprehensive income of XXX group was 1 trillion and 200 billion yen in the six months from September 1, 2019 to February 29, 2020, a decrease of 4.7% compared with the same period last year, and net profit of 100 billion 400 million yen, down 11.9% from the same period last year.

In addition, XXX expects that in the 2020 fiscal year, the net profit of the company will decrease by 40% compared with the same period last year, which is the first time that UNIQLO has lost its profits for four years.

In the last few months, UNIQLO stores in mainland China and South Korea were temporarily closed due to the outbreak, resulting in a huge impact on the company's revenue. Data show: in March 2020, sales of UNIQLO China stores fell by about 40%, while the US and Europe fell by 50% compared with the same period last year, while Japan dropped 28%.

But recently, with the improvement of China's epidemic situation, UNIQLO's stores in China are gradually resuming operation since March. It is reported that the Chinese market is the second largest market after UNIQLO, which occupies 22.4% of the total revenue of the company. By the end of 2019, UNIQLO had about 750 stores in China.

China becomes a straw?

As a result, the epidemic of foreign countries has not yet passed the danger period, and the garment industry is still paralyzed. Many foreign clothing giants have stepped up the Chinese market.

"The global outbreak of the new crown pneumonia epidemic poses severe challenges, and even healthy running businesses can not be spared. At present, we are focused on coping with the current business challenges and focusing more on the opportunities we see in China's market recovery and e-commerce business. " Rothd, chief executive of Adidas, said (Kasper Rorsted).

Wu Pinhui, chief marketing officer of UNIQLO China, said in an interview with the media: "UNIQLO's 80-100 store opening plan will not change every year. In addition to a large number of stores in China, it is also the most important production base of the fast selling group of UNIQLO parent company, and 128 of its 242 garment processing plants are located in China.

In addition to the fact that the Chinese market has resumed normal consumption activities, Cheng Weixiong, founder of textile and clothing brand management and founder of Shanghai Liang Qi Brand Management Co., Ltd., explained the other reasons of the Chinese market in foreign clothing brand overweight. He said: "the proportion of China's market is increasing rapidly in global consumption. China's demand for emerging consumer market is more diverse. In Europe and the United States, the consumer market is relatively solidified. The worship of local market users to famous brands in Europe and America also makes international brands easier to accept than local brands.

At the same time, he also said: "China may not be able to save foreign garment enterprises, but at least in Europe and the United States market blocked, increase investment and maintenance of emerging consumer markets, this is the choice that any global brand will make."

Blue whale financial reporter interviewed Wang Wenhua, executive director of CIC consulting, who explained: "partial growth can only alleviate the declining trend of the global garment industry. The attention and devotion to the Chinese market can be expected in the future. The overall economic downturn at the world level is bound to affect people's spending, thereby affecting all aspects of people's clothing, food and housing. The Chinese market should be the first to emerge from the impact of the epidemic. The global clothing enterprises, especially the clothing brands that locate the masses, can maintain growth in the Chinese market. They also need to keep pace with the characteristics of the domestic consumer groups, including online and platform cooperation, online and offline system opening, localization of marketing, and so on. Otherwise, it is inevitable that there will be an atmosphere of unwillingness to leave the market.

In fact, the Chinese market does not seem to be as optimistic as we might think.

The world's largest clothing market, China, is expected to shrink by 15% this year, which is equivalent to the elimination of the market value of US $60 billion, and almost no retaliatory spending in April and May in the field of public clothing, according to Oliver Wyman.

Moreover, most European and American customers who have been served by many apparel trade companies have suspended or cancelled orders. So in order to save themselves, many foreign trade enterprises export to domestic market, but also try to broadcast "bring goods" and fight online.

With the shrinking market, the continuous influx of foreign goods, exports to domestic sales, the quantity of goods far exceeds the carrying capacity of the domestic market, it is difficult to digest at the moment, and the clothing industry will usher in a new round of price war. Faced with such a complex and grim situation, how should clothing enterprises break the situation?

? ? Wang Wenhua pointed out: "breaking the board is not an overnight job. It is necessary for garment enterprises to start preparation and accumulation in the early stage of business digitalization and online, to know more about the brand positioning consumers, to study their life and shopping scenes and habits, and to adjust the company's growth strategy in the canal and marketing by Digitalized tools. It takes a long time to think. The demand for clothing is always just needed, and the economy will gradually normalize with the control of the epidemic. The demand for clothing will gradually be released and the normal growth will be restored. Only the epidemic as a catalyst will change the future strategy and layout of many garment industry participants, and the future prospects can still be expected.