all dressed up and ready to go
With the emergence of innovative fabrics and designs, the ability to interact directly with consumers, and the opportunity to expand in the growing global market, opportunities have been created.
In addition, with a strong brand and a faster, more flexible and lean manufacturing system, the pricing capability is increased, resulting in the possibility of profit expansion.
We believe that the garment manufacturing industry is a dynamic and fast-growing industry, and it will be an industry worthy of attention in the next few years.
Given the widespread destructive power of e-commerce
Business and fast
We re-examined what we believe is the attributes of the economic moat for leading garment manufacturers.
We believe that modern technology and consumer preferences require companies to provide skills that are completely different from those of the past.
In fact, we believe that the current innovation gives the company an unprecedented opportunity to build a direct relationship with customers and consolidate their intangible brand assets. In addition, there must be creativity in managing supply chains to improve unrealized cost efficiency, both of which are critical to developing economic moat in this category.
To quantify the opportunities and positioning of our garment manufacturing sector in the economic moat, we have developed a framework to look at these companies.
When analyzing competitive advantage, we look for leadership in five categories: product difference, direct-to-
Consumer Penetration, geographic scope of distribution systems, manufacturing efficiency, and the ability to withstand rising costs.
Chenxing economic moat with a narrow rating--Hanesbrands (NYSE:HBI), PVH (NYSE:PVH), and VF (NYSE:VFC)--
Tends to surpass competitors in all considered categories, resulting in revenue growth, operating profit margins and overall return on investment capital exceeding competitors,
Gildan sportswear moat (NYSE:GIL)and Guess (NYSE:GES)
Trail in several categories.
The technological revolution of the past 15 years has provided garment manufacturers with the opportunity to make moat-
Philosophy of business and fast, cost
Almost all aspects of business have been affected, and garment manufacturing is no exception.
Business, globalization and manufacturing efficiency have changed the field of garment manufacturing, and we believe that companies that adapt to the modern era have real opportunities to develop brand strength (
Two sources of economic moat-cost-effectiveness.
Seamless integration of advanced manufacturing and construction, design and production processes, more directto-
The opportunities of consumers and the efficiency of the manufacturing industry have enabled garment manufacturing companies to improve their pricing capabilities, reduce their dependence on retail partners, increase their cost advantages, and ultimately, compared with their peers, opportunities to develop economic moat.
The old method of garment manufacturing is very simple and linear.
The clothing company designed the fall/winter and spring/summer series, purchased materials, manufactured products, and the clothing was shipped to the distribution center and shipped to the appropriate retail premises.
The whole process requires garment manufacturers to promise 40% in advance about six months-
Seasonal lines of 60%.
At the beginning of each season, nearly 80% of the season\'s inventory is committed, delivering about four times a year to retailers.
The new manufacturing process is more circular, increasing sales by relying on feedback loops, customization, speed of listing and more frequent inventory turnoverThrough the whole
Perhaps one of the best examples of this is clothing retailer Zara, the flagship concept of Inditex (OTCPK:IDEXY).
Zara promised only 15% six months in advance-
The 25% line and lock for a season is only 50%-
By the beginning of the season, 60% of the people lined up.
Turnover is fast.
It can take only two weeks from design to clothing shelves. (
Source: case study of Nielsen Fraiman 2010 Zara and Seth Stevenson 2012 slate.
Com article, \"is the dot there?
It\'s a dot! \")
A key theme within our coverage is the integration of design, production and retail processes to maximize sales and costs.
Flexibility and difference in design, manufacturing locations and distribution channels have become a top priority for success.
Product difference: Over the years, clothing designers have been forced to work with a range of fixed fabrics and materials, which is an inevitable way to get pricing power.
The difference in brand products depends entirely on the use of design, color and decoration.
However, the combination of advanced research and development processes with an educated consumer base that needs to focus on functional, environmental and health issues has rapidly changed the world of manufacturing, assembly and design.
Smart textiles are being developed to integrate technology into clothing.
Sustainable development is more than just a trend, and recycling of fiber or other eco-friendly materials is often more popular than synthetic materials.
Sportswear categories have gone from uniform cotton T-
Temperature of shirt and shorts-
Enhanced body wear customized for specific activities.
Features like this are valuable and differentiated, and companies that invest in development find that they can win higher prices for them.
We believe that certain categories are more conducive to the difference of products.
We have seen that margins are much higher for apparel manufacturers of outfitting, outerwear and sportswear compared to traditional apparel manufacturers.
Looking at VF\'s group, we can compare this advantage relatively clearly because all product lines are purchased and manufactured through the same parent company.
At VF, the gross profit margin of the outdoor sports and action sports alliance is 4 percentage points higher than the gross profit margin of the entire company.
Hanesbrands provides another example of the power of innovation.
The innovation of its promotion strategy has a significant impact on operating profit margins.
Innerwear has been implementing this strategy for many years, with operating profit margins from 14.
2010 for 6% 2012 for 17%.
The company launched Hanes comfortable men\'s underwear in 2012, with a 30% premium on core products.
Gildan introduced Gildan performance clothing, which provides enhanced performance properties such as water management and antibacterial properties.
It acquired the Anvil brand to meet the needs of eco
Therefore, we highlight these three companies as leaders in this category among the garment manufacturers we cover.
Not just wholesalers: develop direct consumer relationships, because brand Intangible assets are the most common source of economic moat in the apparel industry, one of the things we focus most on is how a company protects and cultivates its brand.
Traditionally, many clothing brands are launched through wholesale channels with multi-brand retail partners.
This strategy allows a company to gain instant impact and scale with a much lower investment than opening its own retail store.
However, the multi-brand retail model began to undergo an earthquake-like transformation.
Department stores, once a clothing retail fortress, began to decline from popularity and market share from
Key multi-brand stores including T. J. Maxx (NYSE:TJX)and Kohl\'s (NYSE:KSS)and big-
Box format like WalMart (NYSE:WMT)and Target (NYSE:TGT).
Professional retailers are also gaining market share.
In our view, department stores are not good for store fleets that are in urgent need of updates, weakened customer service, poor merchandise displays, and overall lack of convincing consumer claims.
We estimate that the retail market share of department stores fell from 7% in 2003 to 4% in 2013.
It\'s not just department stores that suffer.
Brands in some stores are starting to lose their power because messy shelves, uninspired merchandising, and bad labels are associated with them.
However, retailers are no longer closer to customers than brands.
With the widespread and increasing popularity of e-commerce
Now garment manufacturers can reach their customers directly.
PwC\'s research shows that more than three consumers around the world have purchased products directly from brands or manufacturers.
According to a PwC survey, more than half of online shoppers in China and the United States said they would go directly to the brand\'s website.
Being able to offer a full range of options on a site and do so at a lower cost while still making greater profits than retailers, in fact, manufacturers benefit more from e-commerce than retailerscommerce.
However, success depends on the cultivation of brands, because brand loyalty is the driving force of consumers for manufacturer e-commerce
The business website and offers the opportunity to charge an extra fee.
The Internet is not the only channel for clothing brands to pursue;
More and more brands are opening their own retail stores.
Although they add a layer of complexity, they add more inventory.
Retail stores maintain units, end customers, Time, logistics and delivery, providing unique opportunities for individuals to interact with customers and create a shopping experience that represents the brand, collect valuable data on consumers and their responses to products and marketing.
In our view, a
A comprehensive multi-channel strategy seems to have produced the best competitive advantage, balancing fast, lowrisk, large-
Expand coverage through control of brand identity and direct consumer relationships.
PwC research shows that when consumers use multiple channels, most people spend more money at their favorite retailers;
Almost one out of five said their spending had increased by at least 25%.
Within our coverage, Guess, PVH and VF are top notch in achieving good results
A comprehensive multi-channel strategy.
The three companies have different combinations of wholesale, retail and e-commerce.
The world is its oyster for a lifestyle brand, a powerful brand intangible asset that goes beyond a single product, fashion, style or category.
Instead, it leads to a special lifestyle that provides clothing and accessories for everything that can happen.
While styles and specific products may change, the overall look, feel and target market will never change.
In our view, this is the essence of intangible assets of strong brands;
It offers the company the opportunity to charge a pricing premium as its doors allow consumers to buy
Stop buying all categories of goods for all decades and on all occasions.
Because this capability is defined at the generic level, but flexible at the product level, strong brands can be successful across geographic boundaries in a range of markets.
This global appeal supports a brand\'s economic moat, giving it a clear competitive advantage in entering new markets.
According to our estimatesS.
The retail market alone costs $4.
5 trillion, sales at clothing and accessories stores reached almost $250 billion.
Although the market is large, it is mature.
We estimate that the average growth in the apparel and accessories category is only around 3%, which means that most of the growth of any company must be achieved through market share and market growth.
However, the retail market is still growing strongly globally.
According to our estimate, the total retail sales in China are about $6.
8 trillion apparel and footwear retailers worldwide account for less than $1 trillion.
Not surprisingly, emerging markets
The market is still growing faster than developed countries.
We believe that this trend has become more prominent in recent years due to widespread economic weakness.
China\'s economic growth is slowing as it moves toward the middle class
With the rapid growth of credit and the establishment of the shadow banking system, income levels and concerns are increasing.
Europe is slowly coming out of the long recession, but Deloitte says a large part of the growth comes from the expansion of exports rather than the increase in consumer spending, and access to credit is still difficult.
We note that the economy in southern Europe continues to weaken.
Due to these factors, in addition to the threat that European new store growth has matured after years of investment in the United StatesS.
We believe that emerging markets will be key to the sales growth strategy of garment manufacturers.
Many of the garment manufacturers we cover are approaching the saturation of the US market. S. and Europe.
We believe that those whose brands are strong enough and universal enough to attract emerging markets, and those who have the relationships and structures needed to expand into new regions, will have the opportunity to gain market share.
Gildan and Hanesbrands are still in the early stages of their international expansion, generating about 10% of their revenue in the international market.
Guess, PVH and VF are leading the world.
35% of its revenue comes from Europe and 11% from Asia.
PVH earns about 46% of its revenue from areas outside North America.
20% of the revenue from the Calvin Klein brand comes from Europe and 30% from Asia and Latin America, although 47% of its Tommy Hilfiger brand comes from Europe and less than 10% comes from Asia and Latin America.
We expect Tommy Hilfiger to target growth in the Asian and Latin American markets and benefit from Calvin Klein\'s established presence there.
VF currently earns about 37% of its revenue in the international market;
We think this will increase to less than 45% in five years.
Ultimately, we believe that, in addition to direct growth, international expansion is one of the most important factors of growth. to-consumer sales.
An efficient manufacturing system is not just the cost of fast fashion, it changes the way designers and manufacturers think about the garment manufacturing process.
Once the cost-only process-
Reducing the model, garment manufacturers now need to consider the speed of entering the market, the ability to open capacity to delayed orders, and the efficiency of reaching the global retailer team while still focusing on costs.
Usually, profit maximization is not achieved by the lowest labor force, but by pursuing multiple strategies for different product lines and balancing speed and pricing capabilities with production costs.
BCG estimates that there are seven factors affecting the optimization of strategic line planning:
Average design, development and supply chain;
Shorten the time to market; reducing end-to-
The final cost of selling goods; improving end-to-
Visibility of terminal products;
Integrate online and retail channels;
Balancing local, regional and global responsibility;
And adjust the plan according to the trend of consumer purchase and competitive products.
We see these guiding principles as a good example of subdivision, strategic objectives, and the role of different approaches in modern manufacturing decisions.
We see scale as an important help to the flexibility of a successful manufacturing strategy, and we emphasize that Gildan, Hanesbrands and VF are the best in this category.
All garment manufacturers we cover have broken down product lines on features other than brands, including geographical location, distribution channels and/or product types, but are at the forefront of other categories, this is evidenced by premium profits.
Gildan has the broadest vertical integrated manufacturing organization in our coverage.
Due to its control of the process from beginning to end, gildan\'s operating profit margin is about 16%, which is one of the highest in our garment manufacturing coverage, and its product line is mainly basic clothing, lower prices than other lifestyle brands.
Gildan\'s revenue is about $12 billion, and the number of products produced is much higher, so it can benefit from an additional economies of scale.
VF produces 30% of the products in its own factory, while 70% of the products come from its own factory.
Its operating profit margin is almost 15%.
An important part of Hanesbrands innovation promotion strategy is to incorporate manufacturing considerations into product design, which leads to higher profit margins and price premiums.
About 75% of the goods are produced in 41 production facilities of the company, or through a third factory
The adjusted operating profit margin is about 13%.
In general, pricing power enables brands to resist rising costs, and we believe that costs will rise in 2014, so a company can offset the profit advantage of at least some of the price increases.
What is particularly important in the apparel industry is the cost of labor and cotton.
Boston Consulting estimates 50% of the workforce
The cost structure of the shoe service industry is 60%.
This means that the industry is at risk of wage inflation.
The wage gap in traditional manufacturing centers is changing dramatically.
Deloitte said China is the world\'s largest manufacturing country, thanks to labor and material cost advantages, strong government investment in manufacturing and a network of suppliers.
However, with the emergence of a strong middle class, labor costs have been rising and the country is losing some land to the nearby lower classes
Costs in countries such as Vietnam, Indonesia and India.
Deloitte noted that factory wages in China rose 20% in 2010, and the central government encouraged the minimum wage to be raised by about 13% a year as a policy by 2015.
Clothing companies are also exposed to cotton prices.
For example, Gildan, which is dominated by cotton, estimates a price change of $0.
The price of cotton per pound will affect its annual raw material cost of about $4 million (About 0.
3% of the cost of selling goods in 2013).
With this expense fluctuation, we believe that companies with strong brands and high levels of product difference will be able to better offset higher costs with higher prices, although it is difficult to fully offset the sharp surge that occurred in 2011.
Based on these factors, we believe that Hanesbrands, PVH and VF are best suited to withstand rising costs of labor, energy and materials.
All three companies have strong brands with a price premium, which is the basis of their narrow moat rating.
Scale and diversified manufacturing infrastructure provide them with more opportunities to maximize their cost-effectiveness.
Our first choice, we emphasize 3-star, narrow-
Moat PVH is the first choice in our garment manufacturing field.
At present, the share price of the stock is 15% lower than our estimate of $145.
PVH is the highest-
Rank all categories of inventory in our garment manufacturing analysis.
We believe that with the Tommy Hilfiger and Calvin Klein brands, PVH has a significant revenue and profit growth trajectory, which accounts for about 85% of operating profits.
After the acquisition of Warnaco, we believe that the company should achieve cost synergies of about $100 million over the next four years.
After normalizing the structural issues of the acquisition, we believe that the Tommy Hilfiger and Calvin Klein brands should be able to achieve medium-term goalssingle-
Over the next five years, the company\'s annual average revenue grew by 260 basis points and its operating profit margin rose to 14 basis points. Through 4% high
International market penetration rate, transfer of high-end distribution channels and upgrading of supply chain.
We believe that PVH is firmly committed to investing in brand strength, which we believe will generate an ongoing pricing capability that is the basis for our narrow moat rating.
We estimate that PVH can achieve an annual average return of 13% of investment capital.
Although we think the current stock price is quite reasonable, we also emphasize the narrow
See the moat as a VF.
VF is the only company in our study that gets the highest rating in all categories.
We think the company is ready to take advantage of three market trends.
First of all, we believe that the outdoor and action sports market is a huge, fast-growing opportunity, and sportswear today often replaces casual and weekend clothing.
According to NPD data, we believe that this expanded sports/leisure class is an opportunity of $46 billion with a higher focus
Performance and comfort products.
VF\'s North Face is already at the forefront of the global $25 billion outdoor market and offers high
Performance sportswear is becoming more and more popular due to the fitness boom.
We expect this category to be a key growth driver for VF and the company will make further acquisitions to increase its exposure.
Our model is that in five years it has grown organically from the current 61% penetration rate to 54% revenue.
Second, we see VF using its vast global supply chain to support more international sales and believe that international markets can grow from 37% of revenue to less than 45% in five years.
Finally, we see directlyto-
Consumer sales have grown from 25% to 21%
Business is the fastest.
The most profitable channel for growth.
Bridget Weishaar is the Morning Star of stockbrokers.