Investment Strategy: Differentiation Era Of Textile And Garment Industry And Certainty Of Brand Rise

1、 Sportswear brand

1.1 review: the awareness of domestic products has been improved, and the brand upgrading has been superimposed, and the domestic brands have continued to benefit

The Xinjiang cotton incident catalyses the substitution of domestic products, and the continuous rise of national confidence and national identity is a solid guarantee for domestic substitution. In March 2021, the Xinjiang cotton incident ferments, which leads consumers to switch from buying foreign brands to choosing domestic brands. From the disclosure of Taotao, it can be found that the sales of foreign brands represented by Nike and Adidas in March 2021 are far lower than those of domestic brands represented by Anta and Li Ning, and their duration is relatively long. We believe that the differentiation of domestic brands and foreign brands is an inevitable phenomenon, and the Xinjiang cotton incident as an emergency accelerated the process.

The continuous improvement of national self-confidence and national identity is a solid guarantee for domestic substitution. Take Hongxing Erke as an example. Due to donation, Hongxing Erke went out of the circle unexpectedly in July, which was considered to have family and national conditions, and its sales volume increased greatly. We believe that the industry with excellent management ability and brand culture identity is expected to enjoy the development opportunity period under the rise of dividend in the new era.

The internal upgrading of domestic sports brands is an effective guarantee of product strength. Taking Li Ning as an example, Li Ning, a fashion brand in China, has participated in fashion week for many times. The product themes released include "understanding the Tao", "Li Ning in China", "Xing", "standing in 30's" and "the art of sports", as well as "Li ningju" and "Li Ning" technology empowerment, which makes Chinese consumers see the strength and fashion sense of domestic fashion brands. From the change of Baidu Index, it can be found that during the fashion week, Li Ning received much more attention than Anta. At the same time, before the first New York Fashion Week, Li Ning and Anta received almost equal attention. However, after the fashion week, the attention to Li Ning was significantly higher than that of Anta. It is expected to increase brand influence by linking brand with technology and fashion Deepen brand image.

1.2 Outlook: under the background of strengthening the awareness of national sports fitness and the long-term upgrading of consumption, we can see the success of domestic sports shoes and clothing brand companies

Multiple factors superimposed to stimulate the national fitness movement wave, sports shoes and clothing market is expected to flourish. The intensive release of national policies reflects the special attention to the development of sports industry and national health. In 2019, the key policy opinions related to the sports industry include "healthy China action (2019-2030)", "outline of sports power construction" and "opinions on promoting national fitness and sports to promote high-quality development of sports industry".

The promotion of policies will stimulate the sports industry in the market. According to the data on the industry information network, after the issuance of a number of policies in 2019, the number of sports related enterprises registered reached 1.566 million, an increase of 816000 compared with that in 2018, with a growth rate of 108.80%. The industry prosperity and penetration rate are constantly improving, which helps to promote the sales of sports brands.

The purchasing power of sports fitness customers is strong. Take the gym as an example, the main force of sports healthy people is white-collar workers, who pay more attention to physical health and are more willing to spend in sports health and other aspects. With the continuous rise of education level, it can be predicted that the increase of audience groups, the consumption demand for sports apparel is expected to increase simultaneously.

The upsurge of national fitness is the complementary of the expansion of the whole industrial chain and the large demand. The increase of consumers' sports health awareness and the promotion of policies have led to the gradual improvement and vigorous development of sports related industrial chain, and the improvement of the industry will also enable consumers to create corresponding demand. China's national sports expenditure continued to increase, reaching 50.764 billion yuan in 2020.

According to Euromonitor International's data, China's sportswear market has been growing since 2013. Excluding the growth decline caused by the new crown epidemic in 2020, the growth rate of 2017-2019 has remained at a high level, 16.33% / 21.46% / 18.90%, respectively, and the growth rate has been maintained at 10% or above. Meanwhile, the scale of China's sportswear market will continue to increase in the next five years, However, the growth rate will slow down slightly and can still be maintained at about 10%. By 2025, the market size of sports shoes and clothing is expected to be close to 600 billion yuan. In addition, in China's shoes and clothing market, the proportion of sports shoes and clothing has been rising steadily since 2013, accounting for 13.31% in 2020. Compared with other clothing categories, the future development of sports shoes and clothing has more room for growth.

Sports shoes and clothing brands have strong ability to raise prices, create a good brand matrix, and the trend of increasing concentration is clear. The main consumer groups of sportswear are 19-34 years old. These consumers have strong perception of fashion trends and have extensive social contact with social networks. They are easy to be influenced by peers. They like to show their uniqueness and have a certain amount of disposable income to support purchasing behavior.

Anta is the representative of multi brand management in domestic brands. In addition to FILA and Descente, there are Salomon, Arc'teryx, peak performance, atomic, SUUNTO and Wilson. These brands cover fashion and leisure, fashion sports and professional sports, with a wide range, and they also penetrate the mass market, middle and high-end market, Through differentiated positioning category building to cater to multi-dimensional consumers.

2、 Comprehensive clothing brand

2.1 review: the efficiency of operation and management has generally improved, the fast reaction mode has blossomed, the inventory has decreased and the turnover has been accelerated

With the promotion of brand image, it is expected that many strong national clothing brands will be born in China. Many brand clothing enterprises continue to carry out brand culture construction, strengthen consumers' brand awareness and identity through multi-dimensional marketing mode, so as to strengthen brand image. Taking SEMAR clothing as an example, it focuses on the global marketing promotion and takes advantage of e-commerce advantages. In order to reach the core consumer groups, the SEMAR brand has improved its communication and hot spot persistence.

In the first half of 2021, SEMAR Brand Co branded strawberry Music Festival, the whole network exposed 160 million, and the flow of people and heat of the strawberry live SEMAR booth ranked first; It created a topic of "cattle turn to heaven and earth, Q you have good luck". The number of short videos played was 14 million + and the video completion rate was 13.25%, which was 7 PTS higher than the market level. The topic pages of microblog exceeded 160 million and the interactive reading exceeded 47000. In 2020, SEMAR brand cooperated with FPX of E-sports team and rapper singer Jiang Yunsheng to focus on E-sports and rap circles, bringing new circle breaking topics and traffic concerns to the brand.

With the efforts of management, quality and efficiency enhancement, comprehensive clothing companies have generally strengthened their management capabilities. In recent years, comprehensive clothing brands have focused on building flexible supply chain, such as Semir clothing and Pacific bird, established SCM supply chain information management platform, committed to the digital management of the supply chain. The content of fast response mode includes optimizing the structure of suppliers and controlling the list of qualified suppliers in all aspects. In addition, companies in the industry generally carry out digital tracking management of inventory, which can directly obtain the store sales data, understand the immediate needs of consumers, and realize fast order tracking; Rely on big data to adjust the production and transportation of products and accelerate inventory turnover.

2.2 Outlook: under the background that the industry has entered a mature stage, it is necessary to look at apparel enterprises with strong M & A capabilities to help build the second development curve

China's medium and high-end clothing market capacity is objective, in the comprehensive clothing brands, many enterprises choose to purchase some well-known overseas brands, in order to gain the company's business format. Take Goliath as an example. Since 2015, it has been irresistible to acquire overseas brands. As of 2020, it has 6 brands, namely, German high-end Laur è L, American luxury brand ed hardy, French designer brand iro Paris, British contemporary fashion brand self portrait, American designer brand Vivienne Tam, etc Jean Paul Knott, a Belgian designer brand, is taking shape.

3、 Women's underwear

3.1 review: new brands superimposed on new marketing to form a new normal

Its special attributes result in high conversion cost and strong brand stickiness. Girls in the bra market have a lot of concerns. The consumption pain points in the market include but are not limited to: complex size, too many choices, thick insole, uncomfortable, difficult to try on offline, easy to deform, easy to fall off the shoulder strap, rib pain after wearing for a long time, too much, online shopping error rate, especially stuffy summer, etc. (source: future think tank)

Recently, the more popular uberas size less underwear meets the needs of female consumers for underwear. The main feature of this product is that it has only one size, but it is suitable for A-C cup / 90-130 Jin / bottom circumference of 70-85 consumers. Through the standardized size setting, it covers the needs of most consumers in the market.

3.2 Outlook: as the general trend of channel reform, we can see that the e-commerce operation ability is strong and the omni channel laying situation is good, and the company's first mover advantage

Underwear consumption per capita and unit price per customer are expected to increase simultaneously. According to Euromonitor International's statistics, the number of underwear purchased by Chinese women per capita is increasing year by year, from 4 pieces / person in 2015 to 5 pieces / person in 2020, with a compound growth rate of about 5%. It is expected that 6.27 underwear per capita will be purchased in 2025. According to AI media consulting, in 2020, more than 50% of consumers in China will buy brassieres once a few months, only 2% of consumers will buy them once for many years, and the remaining 98% of consumers will have a demand for bras within a year. It can be seen that women's demand for bras has been at a high level.

The increase of per capita disposable income, the strengthening of the middle class structure, and the promotion of consumption upgrading. The per capita disposable income of Chinese women is on the increase. It is estimated that the per capita disposable income of Chinese women will exceed 50000 yuan in 2025. The average price of bras purchased is expected to increase with the increase of consumption level.

Offline channels are irreplaceable, and direct marketing DTC reaches terminal consumers. Underwear industry as a subdivision of the clothing industry, but also with the clothing industry needs the characteristics of store layout. Because consumers pay more attention to the quality and comfort of products when choosing underwear. Even if the size of online platform is smaller, there may be a certain deviation, which will make consumers feel uncomfortable. Therefore, consumers are more inclined to try on underwear in physical stores. Only when they try on underwear can they know whether the product is really suitable for them.

Thus, underwear enterprises in the distribution of channels is particularly important, is one of the sharp weapons to seize the market share of underwear industry. Taking Huijie and amo as examples, according to the 2021 semi annual report, the total number of Huijie stores is 2720, including 1216 Direct stores, accounting for 44.71%; There were 1504 outlets, accounting for 55.29%. In the half year of 2021, Huijie closed 125 stores due to substandard operation or market location adjustment. According to the 2021 semi annual report, as of June 30, 2021, Amoy has 2103 offline retail terminals, including 1675 direct marketing terminals and 410 distribution terminals.

Single customer economy is an important way of scale growth, and brand underwear manufacturers have strong expansion ability of the same category. Female consumers have strong consumption ability and willingness, and they are often responsible for the purchase of family members' personal clothing in the family. To improve the commodity structure and lay out various types of close fitting clothing, especially men's goods, is an important way for brand merchants to gain re growth, which is of great significance in this industry. Take Amoy, the industry leader, as an example, it provides a variety of consumption options other than brassiere. Through the matching effect of multiple products, it promotes the improvement of joint sales rate and customer unit price.

Market dispersion and low industry concentration: according to Euromonitor International, Cr5 in domestic underwear industry has been maintained at around 8% in the past 10 years. Cr5 increased continuously and grew rapidly before 2012-2015. After reaching a peak of 8.2% in 2015, it began to show a downward trend since 2016. So far, Cr5 has basically maintained at the level of 7.5%, indicating that the concentration of the industry head is low, But the leading enterprises are more powerful, can hold the overall share, at the same time, the internal competition is more intense.

From 2011 to 2020, the CR10 of domestic underwear industry is basically around 11%, but it has declined since 2016, indicating that other enterprises except the top 10 begin to seize market share from the top 10. It can be seen that the domestic underwear industry competition situation is more and more obvious and fierce. In addition to the top five brands with certain brand effectiveness, other enterprises are slightly inferior in brand construction, and consumers can easily switch to other brands.

Compared with the United States and Japan, the pattern is relatively stable. In 2020, the CR10 of Chinese women's underwear market is only about 10%, which is far lower than the level of about 70% in Japan and the United States, which indicates that the female underwear market concentration in Japan and the United States is very high, and the leading enterprises occupy about 2 / 3 of the market share. The existing head companies in the industry have great potential to seize the remaining market share.

4. Mid stream textile manufacturing and processing

4.1 review: the epidemic situation and upstream raw material price disturbance will not change and the industry will return to normal

The price of viscose staple fiber and cotton, the main raw materials of garment processing, was affected by the epidemic situation and supply side factors, and the rising trend of cotton price was still significant. Under the influence of many factors, the growth of terminal retail brands slowed down or even decreased, and the order shrinkage of downstream was transmitted to the upstream to a certain extent. In 2020, the turnover rate of accounts receivable and inventory of all enterprises will decline. The sales of brand clothing will be affected by the epidemic situation, which will lead to the overstock of inventory, and the payment settlement of midstream clothing manufacturers will be slower.

4.2 Outlook: under the background of the new normal of global manufacturing division, the performance of the middle reaches textile manufacturing industry may continue to grow steadily

Optimistic about strong customer binding and cost advantage of leading textile manufacturing enterprises. The main business model of shoe manufacturing and processing enterprises is to bind downstream customers. Take Huali group as an example. Its main customers are Nike, VF, Deckers, Puma and Columbia. According to Euromonitor International, the market share of Nike in China's sports shoes and clothing industry will reach 25.6% in 2020. The proportion of Nike's top 5 suppliers also increased, from 39% in 2015 to 51% in 2020, with a significant growth rate. Head brands have higher requirements on supplier selection. With the continuous improvement of concentration, head suppliers have the first mover advantage.

Southeast Asia's production capacity layout is an important part of reducing costs and increasing efficiency, and we are optimistic about the first mover advantage of large-scale enterprises. The main reason for the continuous transfer of domestic textile manufacturing capacity to Southeast Asia is the end of demographic dividend period. According to Euromonitor International Statistics, the hourly wage of China's manufacturing industry has increased from US $2.2/hour in 2011 to US $6.1/hour in 2020, far higher than that in Cambodia and Vietnam. According to the annual report of the company, the production capacity of Shenzhou International is located in Vietnam and Cambodia; Yuyuan group's production capacity is in Bangladesh, Myanmar, Cambodia, Vietnam and Indonesia; Huali group's production capacity is basically in Vietnam, Myanmar and Indonesia. The expansion projects in Vietnam and the new capacity projects in Indonesia are also under construction.

On the other hand, Shenzhou International announced that the proportion of employees in mainland China in the total number of employees gradually decreased, from nearly 70% in 2016 to about 50% in 2020, while the proportion of employees in Vietnam and Cambodia continued to increase. The number of Cambodian employees increased from 14.91% to 17.01%, and the number of Vietnamese employees increased from 15.93% to 32.26%, By 2020, the number of employees in Southeast Asia will account for nearly 50%, and it is expected that the number of employees in Southeast Asia will reach 60% by 2022.

(this article is for reference only and does not represent any of our investment suggestions. Please refer to the original report for relevant information.)

Selected report source: think tank for the future.