High inventory plagues China’s Fujian garment capital Jinjiang; Six leading sportswear producers, including Anta, 361 Degrees, Xtep, Peak, Li Ning and Dxsport have been forced to close more than 3,000 outlets across the country since last year, with heavy losses arising from their excess stock worth more than 3.72 billion yuan (US$594 million)

High inventory plagues Fujian garment capital Jinjiang

Staff Reporter, 2013-04-08

The city of Jinjiang in Fujian province is a major center of the Chinese garment and sportswear industry, but many of the businesses there are struggling to stay afloat owing to the heavy burden of excess inventory, reports the Beijing-based China Entrepreneur magazine.

Six leading sportswear producers, including Anta, 361 Degrees, Xtep, Peak, Li Ning and Dxsport have been forced to close more than 3,000 outlets across the country since last year, with heavy losses arising from their excess stock worth more than 3.72 billion yuan (US$594 million), said the magazine.The situation among the city’s other garment producers was not much better in the first half of 2012, with 17.7% of clothing companies suffering losses, up 5.3 percentage points from the same period in 2011, according to information released by the Ministry of Industry and Information Technology.

Leading producers Lilanz, Septwolves and Joeone seemed to be faring better than the rest last year by posting growth in both revenue and profit, although the upward trend slowed during the third quarter, said the report.

The industry overall has unsold inventory worth 38.2 billion yuan (US$6 billion), which accounts for three years of total sales revenue.

Septwolves chairman Zhou Shaoxiong has played down the negative reports, however, saying that suppliers normally keep a year’s worth of supplies in store in addition to six months’ of merchandise. He added that the inventory levels for men’s casual clothing are normal for the time being.

It is widely believed that the issue of heavy surpluses will trickle down from sports clothing to casual wear before it affects the broader men’s, women’s and finally children’s clothing markets. Many believe that discount sales being held in Jinjiang are designed to clear out inventory, with some vendors offering discounts of up to 90%, said the magazine.

Another problem plaguing garment makers in the city is that they have made very similar products without distinctive styles, and therefore failed to build brand loyalty among customers.

In order to establish its own style, Septwolves tried to promote the image that its products are sturdy and tough. The company originally specialized in men’s pants, but the company expanded its operations to shirts, coats and leatherwear while targeting a more sophisticated market.

Zhou told the China Entrepreneur that the company was trying to figure out what customers want before designing their products. At the same time, they are refurbishing their stores and improving services for shopkeepers to bring the brand in line with the new image of selling gents’ styles.

Although the company has not generated a proportionate return on its investment thus far, Zhou was not disappointed, saying “it is easier said than done.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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