Zara parent company Inditex Group released its financial report for the first three quarters of 2019. Sales in the first nine months as of the end of October reached 19.8 billion euros, a year-on-year increase of 7.5% , net profit reached 2.7 billion euros, a year-on-year increase of 12%, and gross profit margin was 58.2%.
H&M Group’s operating profit in the first three quarters of 2019 was 11.969 billion Swedish kronor, a year-on-year increase of 7.0%; the current net profit was 9.231 billion Swedish kronor, a year-on-year increase of 1.3%.
Many financial reports of clothing brands for the first three quarters of 2019 have been announced, so I will not give examples here. Judging from the above sales data of clothing brands, their profits have increased to a certain extent. However, this year the textile market industry is in a slump, with clothing inventory reaching 85.4 billion yuan, and news of clothing brand closures being overwhelming. So here comes the question. After seeing the financial annual reports of clothing brands, downstream cloth bosses also raised questions: Why are the profits of clothing brands increasing, while the profits of our suppliers are constantly decreasing?
In fact, under the downturn in the market in 2019, clothing brands are also polarized. As fast fashion brands, Zara, H&M and other brands have experienced profit growth, while Forever 21 and New Look have suffered. Bankruptcy, closure. However, there are many small domestic brands with shrinking profits, inventory accumulation, and operating difficulties. Some small clothing factories have also gone bankrupt. Fabric suppliers also have such a polarization phenomenon. Some fabric merchants’ order volume has increased steadily, while some fabric merchants have experienced “Waterloo”. However, regardless of sales volume, fabric merchants are facing the same problem, with profits declining! This is the difference between clothing companies and fabric suppliers.
1.
Gray fabric prices have fallen sharply, but customers are still keeping prices down
Youbu boss joked: “The net profits of clothing brands are all obtained by lowering prices in the hands of fabric suppliers like us.” There is nothing wrong with it. The editor believes that Bu Boss’s words are true. reason. The price of gray fabrics fell sharply in 2019, with almost all product prices falling by 10%-50%. Even the most popular T400 this year cannot escape the fate of falling prices. The boss of a weaving factory specializing in the production of T400 said that from the beginning of this year to the end of October, the sales volume of T400 was very good, but the price dropped by 40% compared with last year!
It can be said that the price of gray fabrics this year is at a low level in the past three or four years. Fabric suppliers have also consciously lowered fabric prices based on gray fabric prices. However, many customers are not satisfied and still Continuously lowering prices. In fact, everyone in the industry knows that the price is already very low, but they are taking advantage of the situation that supply exceeds demand in an attempt to further lower the price. For manufacturers integrating industry and trade, they have been hit by double profit pressure.
2.
Various costs have increased, and rent has increased by 16%
For a long time, clothing companies have believed that falling gray cloth prices will reduce fabric suppliers’ costs, and their quotations can also be reduced. But little do they know that while the price of gray cloth is falling, other costs are rising. Workers’ wages can be said to be a large expense, rising every year. Some skilled workers have exceeded 10,000 yuan per month, and they must be paid on time every month without default. Rent is another important cost, which has been raised several times in 2019. It is understood that the current factory rent has increased from 280 yuan/square meter last year to 325 yuan/square meter, an increase of 16%. If the sales price remains unchanged, the profit will be a loss of 16%. As a result, can suppliers’ profits not decline?
3.
Fabric suppliers’ sales have shrunk seriously
From the perspective of sales , the sales of these brands are growing and have been on a steady upward trend. However, the order volume of domestic fabric suppliers has shown a plummeting trend in recent years. Foreign clothing brands such as Zara and H&M have some of their suppliers from domestic fabric companies in Jiangsu and Zhejiang, and their orders will be competed by these suppliers. In the end, there will be very few orders left in the hands of each supplier. According to research data from China Silk City Network, sales of fabric suppliers have dropped by 30%-40% this year. Sales volume falls, prices fall, and profits follow.
The situation of clothing companies is completely different. Although this year’s clothing sales have also encountered “Waterloo”, but in Profits have not declined.
1.
Clothing retailers are running small and costs are falling
On the cost side, fabrics are the main cost, and prices have dropped significantly this year. The cost reduction has also reduced the burden on clothing retailers. Furthermore, the sewing price of clothing has also dropped due to the reduction in the order quantity of garment factories. On the other hand, most clothing retailers do not have heavy assets. Fabrics can be purchased from fabric suppliers, and clothing can be cut and sewn outsourced. They do not require any factories and can be sold as long as they are OEM.�The operating cost pressure is smaller than that of fabric suppliers. Clothing retailers’ costs are falling while retail prices are rising, resulting in huge profits.
2.
Clothing retailers receive cash back and the capital chain is smooth
The level of profit is directly linked to cash flow. The cash flow of clothing retail is very good, all cash returns, and there are no arrears. But their fabric purchase payments can be in arrears, and the arrears can be at least 3 months, or even more than half a year. Clothing sewing expenses can also be owed in arrears, and like fabric payments, the arrears can be more than three months. If you encounter slow-selling clothing, large inventory, or financial difficulties, you can use the clothing inventory as payment to pay off the debt to the fabric merchant, which not only clears the inventory, but also clears the payment. The fabric suppliers’ fabric inventory and gray fabric inventory can only “rot” in the warehouse.
Summary
Clothing factories Although foreign clothing brands have also encountered many There have been ups and downs, such as the recent closure of all Zara stores in Wuhan, and H&M, which has experienced sales declines for four consecutive quarters and is at its worst performance low. However, through their continuous efforts, they have finally improved their performance. Fabric suppliers should do the same, stick to the path of transformation, work hard, and sluggish performance is only temporary, and there will be a bright future.
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