Puzzled Chinese retailers are starting to feel the pain of ailing consumers. "Manufacturers' overestimation of external and domestic demand has resulted in high inventories," Wang Qianjin, an analyst at ‘webtex.com’, a Shanghai-based textile industry information website, explained for the national journal ‘Global Times’.
Weaker than expected exports and a consequently higher inventory for domestic retailers have contributed to the present situation, when China’s textile and garment industry is facing the worst situation since 2010, Xia Lingmin, deputy director of the China National Textile and Apparel Council, said at an industry conference earlier this month.
"Production costs in China are about 15-30 percent higher than those in other Southeast Asian countries," Sun Liwu, an analyst at consultancy Sublime China Information, told the Chinese journal.
"Although the cotton price has dropped by 5 percent this year from a year earlier, labor costs rose by 15-20 percent year-on-year, and other operational and financing costs are all rising in China," Sun said.
Foreign competition is getting tougher though, with big names such as Gap, H&m or Zara pushing hard to get the largest stake of the cake.
Noting such a unstable environment, Zhejiang-based Semir, one of the leading domestic casual clothing companies, posted a 43.22 percent year-on-year drop in its first-half net profits. The company attributed the slump to its high inventory, which was worth 147 million yuan by the end of June, up 34.4 percent from a year earlier.
Shares in Shenzhen-listed Zhejiang Semir Garment, fell 1 percent at the Shenzhen Stock Exchange as soon as the company posted that its net profit in the three months to September plunged by 39 percent. The retailer registered 36 million dollars in the third quarter, while its sales fell 5.5 percent to 75 million dollars, reported ‘Forbes’.
In the same line, last week Shanghai Metersbonwe Fashion and Accessories, another Chinese fashion retail giant, saw its stock dropped 9.8 percent at the Shenzhen Stock Exchange after the company posted a double-digit drop in third-quarter earnings, reported ‘Forbes’.