Clothing Industry Companies Dilemma Reshuffle Upgrade Change

In April 10th, the renminbi appreciated again against the US dollar, breaking through the 7 pass at a single blow, closing at 6.9920 yuan, setting a new high since the reform.

However, just as the RMB exchange rate is "singing all the way", some export oriented apparel companies are plunged into a "trough": blocked exports, gross margins and declining performance.

In this context, how should Chinese clothing enterprises redesign their own beautiful future?

ZOJE shares in April 7th a performance pre cut announcement reveals the clothing industry and its related upstream and downstream industries are facing difficulties.

ZOJE shares said that under the influence of many factors, such as RMB appreciation, export tax rebate rate decline and export gross margin decline, textile and garment enterprises are facing difficulties in survival, reducing production scale and affecting the sales situation of the domestic market. The sales volume of the domestic market in the first quarter of 2008 decreased compared with the same period last year.

In fact, in the face of the appreciation of the renminbi, the domestic brand oriented clothing enterprises are not affected by the impact, and the pressure from export oriented enterprises is the biggest.

Last year, the trend of the RMB exchange rate in the rapid rise of the CPI also looked very impressive. At the end of the year, the RMB exchange rate was 1 yuan to 7.3046 yuan, an increase of 6.9% over the end of last year.

Moreover, the RMB appreciation accelerated in 2008. The people's Bank of China authorized the China foreign exchange trading center to announce that the RMB broke 7 in April 10th, and the central parity of RMB against the US dollar was 6.9920 yuan.

As ZOJE shares said, appreciation will not only bring direct exchange losses to textile enterprises, but also reduce the profit margins of garment enterprises to a certain extent, while reducing the price advantage of export products and reducing the volume.

The General Administration of Customs recently released statistical data. In the first two months of this year, China's textile and apparel exports amounted to US $16 billion 440 million, an increase of only 5.7%.

Over the same period, Guangdong's textile and clothing exports were 3 billion 520 million US dollars, a decrease of 11.3%.

According to the estimation of the relevant parties, RMB appreciation will be 1%, and the cotton textile industry profit will be reduced by 12%, the wool textile industry will drop by 8%, and the garment industry will be reduced by about 13%, that is to say, the garment industry with higher export dependence will suffer the most.

Although the data may be "exaggerated", the compression of profit space is indeed in front of enterprises.

According to the import and export status of products and raw materials, the main garment enterprises can be divided into three categories: the first is the relatively large proportion of export revenues, while the raw materials mainly come from domestic enterprises. These enterprises are in a net export state, and the negative impact of RMB appreciation is greater. The second category is that raw materials need to be imported in large quantities, and the enterprises that are mainly sold in the domestic market are basically in a net import state. The appreciation of RMB has a positive driving effect, which accounts for a small part of the whole industry. The third type of enterprises are mainly raw materials from the domestic market, while the enterprises whose products are mainly domestic sales, the appreciation of the renminbi has little impact on them, such as most private brand clothing manufacturers.

In a certain period, the trend of RMB appreciation is difficult to change. How should the clothing industry, especially the first type enterprises, deal with it, and whether it can successfully resolve the risk?

Industry experts give the answer: expanding domestic demand to achieve effective growth, large-scale reshuffling in industry, merger and control costs in the upstream and downstream industries, upgrading of industrial structure, upgrading of value-added products, and risk pfer through product pricing within a certain range.

In terms of expanding domestic demand, domestic demand has become a new profit growth point in the textile and garment industry in recent two years.

According to Guotai Junan Li Xian Xian, the average retail sales of clothing commodities in China increased by 28.7% in 2007, far higher than the average increase in the total retail sales of social commodities for the same period of 16.8%. Although the clothing price index in CPI continued to decline in 2007, it was more intuitive to show that the factory price increase of clothing products changed from 1% to 2%, and the year-on-year increase in January 2008 reached 2.2%.

He said that in 2007, the price index of clothing products of large retail business enterprises remained above 100 and reached a maximum of 142. This index represents high-grade clothing, while the clothing price index of CPI represents the mass consumption. The two indicators deviate from each other. It reflects that with the increase of per capita income level, the consumption of high-end products is increasing gradually, and the demand for cheap commodities is decreasing. This trend will continue in the rapid development of China's economy and the accelerating process of urbanization.

Compared with ordinary clothing, brand clothing will be more easily favored by consumers, and garment enterprises with their own brands and sales channels will surely win more room for development in the future.

In terms of intra industry mergers and acquisitions, clothing listed companies obviously have natural advantages.

Compared with peers, the financing channels of clothing listed companies are diversified -- more and more loans to banks, and equity financing, bond financing and other means.

Moreover, listed companies have amplification effect in brand communication.

Therefore, the low threshold clothing industry is likely to passively shuffle under the heavy pressure of RMB appreciation, thus clearing the obstacles for merger and acquisition integration.

As for the integration of industrial chain, the necessity and feasibility are obvious.

Just as today's hottest coal and power companies have similar shareholding equity, enterprises in downstream industries can choose to combine to reduce costs and increase sales volume when they face the compression of profit margins.

As for the upgrading of industrial institutions, it is indeed necessary for us not to face the background of RMB appreciation.

A listed company has made clear that by adjusting the structure of import and export commodities, not making low-grade, high-grade, appropriately increasing import ratio, doing more processing business, and doing more new projects to some extent, it has hedged the unfavorable factors on the macro level.

In terms of the risk of price shifting, the price increase will be greatly limited.