The Light Asset Mode Of Hai Lan'S Home: Hidden Danger Behind Success

"Hai Lan home", a clothing brand that has been established for 20 years, has been hired as a spokesperson for a series of red hot students, such as Yin Xiaotian, Du Chun and Lin renewal, with a strong advertising campaign and a unique "light asset mode".

Up to the end of 6 this year, the series of brand shops of "Hai Lan Jia" opened up to 5491, including 4376 brands of "Hai Lan Jia", 827 "Ai Ju rabbit" brand, and 288 other brands.

This clothing company, which has been racing rapidly across the country and stepped up its layout and expansion, has achieved A share listing through shell technology.

After several years of expansion and operation, its market value expanded rapidly. As of November 7th this year, the market value of circulation was as high as 43 billion 500 million yuan, and became the first and leading benchmark enterprise of the garment sector in Shanghai and Shenzhen two cities.

While people are amazed at its rapid growth and expansion, the disadvantages and hidden worries behind a series of dazzling auras follow.

In addition to franchisees and suppliers Tucao's occupation of funds, Hai Lan's "light asset mode" has also been criticized.

This mode also brings high inventory and high debt at the time of fast duplication and rapid expansion of enterprises. Franchisees do not bear the risk of unsalable inventory, and Hai Lan home and suppliers sign the terms of return of unsalable goods, and do not bear the risk of tail goods. It is easy to cause franchisees and Hai LAN's home operation platform to be insensitive to product's unsalable products, and may ignore consumer demand, clothing quality and style.

In recent 3 years, the overall performance of shoes and clothing industry is not good. The revenue and net profit of Hai Lan's home has increased year by year, but its growth rate has been declining year by year.

Hai Lan home 2016 annual report shows that its revenue and net profit increased by 7.39% and 5.74% compared to the same period last year. Compared with the previous 2014 and 2015, the annual growth rate of revenue and net profit was 72.56% and 75.83%, 28.3% and 24.35% respectively.

Is the home of the sea more like a financial enterprise?

Hai Lan's home 2017 semi annual report shows: "in the procurement process, it mainly adopts the mode of retail oriented credit purchase, joint development, unsalable merchandise return and the two purchase, and becomes a community of interests with suppliers, making full use of the clothing production resources.

Commodities are mainly bought on credit, and monthly payments are made with suppliers to reduce the occupation of funds at the purchasing side.

That is to say, most of the products of Hai Lan's home are ordered from suppliers, and they are sold directly to stores, and accounts payable are relatively long.

The 2016 annual report shows that the balance of accounts payable at the end of Hai Lan home company is 7 billion 508 million yuan, and accounts payable turnover days are 267 days.

That is to say, in 2016, Hai Lan's home occupied 7 billion 500 million yuan of suppliers' funds, and the amount of time it spent was up to 267 days.

Hai Lan's family's previous affiliate mode has also been criticized repeatedly.

According to "China Economic Weekly" reporter understands, before 2014, Hai Lan's family's joining mode is, the contract period 5 years, the franchisee needs to take out 2 million yuan at a time, 1 million yuan as the deposit to the sea Lan's home.

In addition, franchisees only pay 60 thousand yuan management fee each year. The company guarantees that the guaranteed return of franchisees is 1 million yuan in 5 years.

After 2014, its affiliate mode changed to no more than 1 million yuan deposit, and the corresponding guarantee return was cancelled.

Hai Lan home's annual report shows that in 2014, Hai Lan's brand store was 3716.

Some financial experts believe that only one of these deposits can be raised by Hai Lan's home, which can raise more than 3 billion yuan. These deposits should be set up in accordance with the principle. When the franchisee withdraws from operation, they should be refunded.

A franchisee told the China Economic Weekly that they have repeatedly asked Hai Lan's home to announce whether the deposit has been set up and earmarked for special purposes, but Hai Lan's home has not responded.

For the promise of bottom income, Liu Maotong, chief counsel of Maoming law firm in Jiangsu, believes that this practice is innovation on the surface, but no one can guarantee the risk of operation. The operating platform attracts investors with pre tax profits of 5 yuan and 1 million yuan, which is more like a disguised form of borrowing and fund-raising.

If there is a problem in the operation chain of Hai Lan's home, it will be faced with great risk to join the chamber of Commerce.

In response to the above questions, the China Economic Weekly reporter sent an interview outline to Hai Lan's home to contact the responsible person to understand the relevant facts, but at the end of the press, Hai Lan's home did not respond.

Some people in the industry have commented that the quality of clothing products and the beauty of the design styles may not be very important for Hai Lan's home. How long it will take to settle the suppliers' accounts, how long they can occupy the franchisee's deposits, and how fast the storefront can expand is perhaps the key to the success of Hai Lan's home.

In this sense, Hai Lan's home seems more like financial enterprises than clothing enterprises.

Disadvantages of light asset model

The leasing sales are funded by the franchisee, and the factory is responsible for the construction and production. The responsibility of Hai Lan's home is only the middle brand propaganda and platform operation, and the large capital demand of the entire industrial chain is dispersed to thousands of franchisees and suppliers.

Hai Lan home annual report shows that in daily operation, its current assets accounted for nearly 80%.

According to the insiders, the above data can show that this mode of operation is a typical "light asset mode", and its biggest feature is the separation of ownership and management rights of franchisees.

As for the "light asset mode", according to the introduction of Hai Lan's home, it is mainly the franchisees who raise their own funds and go through business tax registration procedures in their own name, and are responsible for paying the related expenses. Franchisees have the ownership of the franchisees, but do not have to participate in the specific operation of the franchisees.

The sales settlement between Hai Lan House and franchisee is commissioned by consignment mode. Franchisees do not undertake the risk of unsalable inventory. After the final sale of goods, franchisees and Hai Lan's home business will agree on the revenue of Clearing Corp according to the agreement.

Some media analysis said that through such a "light asset mode", Hai Lan's inventory risk was passed on to many upstream suppliers.

To control the upstream product planning and brand management, downstream supply chain management and marketing network management, the middle part of the "product design, clothing production, pportation and distribution" links are outsourced, and the Hai Lan house itself plays only a role of looking for manufacturers to OEM production and opening up the upstream and downstream role of the apparel industry chain, and the risk on the expansion cost and path itself is greatly reduced.

In the annual report of Hai Lan's home, there is a similar statement: "the company has strong bargaining power with suppliers."

An insider interviewed by the China Economic Weekly said that the goods sold at the Hai Lan home were ordered from the supplier's account and signed the terms of return of the unsalable goods, and the unsalable risks of the inventory commodities and the consignment sales were indirectly pferred to the upstream suppliers.

"A large proportion of stocks are slow-moving funds, and Hai Lan's home has pferred the risk to the upstream suppliers. The pressure of garment manufacturers is indeed relatively large."

This "light asset mode" also brings high inventory and high debt while shifting operational risks.

The inventory turnover and occupation ratio after listing from Hai Lan home can be seen that in most of the time, its inventory accounts for more than 35%, sometimes even more than 40%.

Data from the first half of 2017 showed that the inventory balance of Hai Lan's home was as high as 8 billion 675 million yuan, of which inventory was 5 billion 792 million yuan.

Looking back at past data, the inventory of Hai Lan's home in 2015 was 9 billion 500 million yuan and 8 billion 600 million yuan in 2016.

The company's assets totaled 24 billion 377 million yuan in 2016, and its total liabilities amounted to 14 billion 268 million yuan, which accounted for a relatively high debt.

Market analysts believe that, on the face of it, with the increase in the number of stores and the high proportion and scale of inventories, if the market environment changes significantly or the competition intensifies, the inventory sales will slow down and the selling price will fall. The risk of the company will be highlighted.

At the same time, the company's "light asset model" will bring financial risks, and it will be prone to fraud and excessive packaging.

Zero R & D project

In 2002, when Hai Lan's home entered the men's clothing market, it aimed at the "business crowd", when business people's needs were relatively simple: suits, trousers and shirts, or POLO shirts.

Over the past 10 years, Hai Lan's home has successfully occupied a large market by virtue of these basic categories.

But with the change of consumer groups, the original "business elite" entered the middle age. After 80, 90 became the main consumer group of young new generation. Their demand for "business dress" was not strong.

The young people interviewed told reporters that the brand image of Hai Lan's family has been fixed for many years, which is more like the "exclusive Wardrobe" for middle-aged men and women.

They think their parents like Hai Lan's home very much because the clothes of the brand are inexpensive and convenient to buy.

According to the insiders, the product of Hai Lan's home is hard to impress the young consumer groups and is closely related to the lack of original design.

China Economic Weekly reporter learned from the insiders of Hai Lan's home that under the "light asset mode", due to the lack of scientific and technological innovation and original design, many products rely on the ODM (original design manufacturer) mode to save a lot of design cost.

The China Economic Weekly reporter also found out that in the annual report of the company, the total R & D investment of Hai Lan's home accounted for only 0.16% or 0.17% of the R & D input situation, and it clearly stated in the annual report: "the R & D expenses of the company are mainly related to the cost of the clothing designers, and no specific R & D projects have been launched."

In contrast to the brand of "aging" Hai Lan's home brand, the four largest brands of Hai Lan's home brand are best dressed in women's clothing brand love rabbit. Its revenue in the first half of this year increased by 70.76% to 333 million yuan, much higher than that of other men's wear brands.

The multi brand strategy other than men's wear is contributing new profit growth points to Hai Lan's home.

Author: Zhao Pu