Chinese down apparel brand Bosideng has seen sales revenue slump 10 per cent – and profit nearly halved in the first half year.
Down apparel sales, which account for almost half the group’s turnover, fell 14.6 per cent.
While Bosideng blamed its poor performance on “tremendous challenges” facing China’s apparel industry, there was one telling line in its interim report which suggests a deeper problem:
“The increasing popularity of the Internet and online shopping that stimulated the proliferation of information, coupled with the speedy expansion of an increasing number of overseas brands in the PRC market, have not only offered more choices for consumers, but also made consumers more sensitive to product prices and styles.”
“And styles”. Bosideng is having to face the reality that growing an apparel business so dependent on a functional, rather than fashionable, product range may have its limitations.
But there are signs it is adapting.
The company said that as Mainland China’s economic growth slows the gap is narrowing between first and second-tier cities and rural areas. That has prompted national brands to switch their development mode from one that relies on store opening to swift response in various stages of business operation, “including branding, products, logistics and retail sales, so as to meet the expectations of the market and consumers”.
“The group has actively explored and gradually shifted from the traditional wholesale business model to a retail model that draws closer to the market and the consumers. This allows the group to build a more solid business foundation for future development and to seek healthy and sustainable development.”
The down business, by nature, is seasonal, with demand naturally higher in winter months, prompting offseason sales and promotional activity in the first half of the year. Part of the reason for the sales decline in the last half was an increase in the discounting to reduce inventory.
Bosideng also stepped up its efforts to implement more stringent production and product plans.
“Through in-depth analysis of retail statistics, the group was able to arrange the production of various product styles more accurately to avoid unnecessary inventories… For instance, two brands – Snow Flying and Bengen – developed minimal new styles, whereas Combo devoted all efforts in stock clearance this year and did not design new styles.”
It has also commenced trial marketing, ranging some new styles in physical stores prior to finalising production and sales plans to test and understand the market reaction in order to avoid excess inventory.
The company is also continuing to optimise its retail network, shutting down underperforming stores to enhance store quality: the number of outlets in the down apparel business – both self operated and third party – fell by a net 548 in the period, to 6051.
Some stores which are usually shuttered over summer, or sub-let by third party distributors, were kept open as outlets to help reduce inventory. Bosideng supplied the product, the distributors met the overheads, saving the group distribution costs and adding sales channels for stock clearance.
Bosideng is also shifting its focus away from department stores more towards shopping malls, reflecting changing lifestyles of Chinese consumers.
This year, it has opened pop up stores for the first time in six prime shopping centres to assess potential to showcase new lines.
“The pop up stores attracted customer flow with innovative displays and eye-catching designs. Various live events, performances and games were introduced to increase interaction with consumers, thus enhancing brand recognition. The pop-up stores were well received by the market, which not only successfully became talk of the town with widespread media coverage, but also drove the group’s local sales performance. The group believes that it will accelerate store opening in large-scale shopping malls in the long run to allow the retail network of the group to better satisfy the needs of the consumers.”
Meanwhile, diversification away from down appears to be bearing fruit.
During the period, revenue from Jessie brand increased by 18.8 per cent year on year to approximately RMB158.3 million. Following the adjustment of the brand’s retail network over the past two years, the net number of Jessie retail outlets increased by five to 216 this year. Jessie has been focusing on enhancing the profitability of self-operated stores and implementing refined management and further optimised product mix.
In wholesale, Jessie optimised the ordering system at the trade fairs and increased the mix and match references and provided more guidelines to distributors so as to increase associated orders. “As a result, revenue from self-operated and wholesale business recorded a significant increase.”
But revenue from its Mogao brand decreased by 21.9 per cent year-on-year to approximately RMB128.2 million, largely due to a net reduction of 21 stores to 284 during the period. It also dropped its womenswear lines to focus purely on menswear, so the last period was essentially one of repositioning. Bosideng says the change was well received by distributors and this year it will step up branding efforts, especially on new media.
Internationally, Bosideng’s London flagship store has accumulated “considerable retail experience and deeper understanding of the consumer preference of the local market”.
“The London flagship store will… step up its efforts in expanding the popular down apparel series this year. Fully utilising its extensive resources in down apparel products, the group will assist the flagship store to further optimise the product mix so as to drive its sales and profitability.”
For the record, Bosideng reported total sales revenue of RMB2,563.7 million, a gross profit margin down 11.3 percentage points to 36.1 per cent, its operating profit margin down by 5.6 percentage points to 5.2 per cent and a profit attributable to shareholders down 48.3 per cent to RMB130.7 million.
In the year ahead, Bosideng says it will continue to reduce inventory and significantly reduce the development of traditional and basic styles to avoid overlapping with old stocks.
“At the same time, the group will introduce more hi-tech fabrics in order to satisfy the growing demand for functional down apparel in the market, providing more value-for-money, high quality and trendy down apparel products to customers.”
