Fast Fashion Meets Predicament ZARA Wants To Raise Price

The labour intensive manufacturing industry in the Pearl River Delta is not as good as a year in a year. Some factories have been closed down, including factories that have been subcontracted by ZARA and other fast fashion brands.

One contact. ZARA The agent of the foundries recently told reporters that the factories such as shoes and clothing in the Pearl River Delta have become increasingly difficult. One of the Taiwanese businessmen who made shoes for the ZARA foundry had four factories in Dongguan, Guangdong, with a total of more than 10 thousand workers. Now the two factories have been shut down, and the factory has been compressed to 2000~3000 people. Before the Taiwanese businessman had a factory in Zhongshan, Guangdong, it had been sold off at about 18000000 yuan a while ago.

Not only are shoes, clothing and other industries similar. "The Pearl River Delta is still short of work, and many skilled old workers have returned to their homes. The efficiency and responsibility of young workers are much lower than before, but the cost of labor is rising every year. Although the price of fabrics is relatively stable this year, the wages of workers have risen by 15%~20%, and their profits have declined by 10%~20%. Retail business is generally much poorer this year. Many buyers are buying a little bit, increasing the manufacturing cost and manufacturing difficulty of the factory. " Wang Yisheng, a clothing wholesaler, spoke in an interview with the first Financial Daily reporters.

From production to sales terminals, Fast fashion Brand entered a new period of adjustment.

Fast fashion brands want to raise prices

The cost of manufacturing is rising steadily. The expansion of stores and the increase in prices have led to an increase in inventories and a decline in gross margins. As well as the rapid rise of online shopping and price competition, the fast fashion industry is facing challenges.

The sales performance of the fashion brand ZARA parent company and the world's largest clothing retailer Inditex group in June this year showed that the total sales volume in the first quarter increased to 3 billion 593 million billion euros from the same period last year to 37.48 billion as of April 30, 2014. Net profit of 406 million euros, down 7.3% from 438 million euros in the same period last year, the largest decline in five years.

Recently, media reports said that fast fashion brands will open a wave of collective price increases, involving brands including ZARA, H&M, C&A, NEXT, PRIMARK and other 8 companies.

It is reported that the eight garment retail companies have formed an alliance to support the salary increase of the processing plant workers in Kampuchea. In an open letter to the relevant departments of Kampuchea, these fast fashion brands collectively indicated that the rise in wages would be reflected in the FOB price of the purchased products. In fact, this is not the first time that fast fashion has been priced. In early 2014, H&M group issued an early warning, "because raising wages may bring products. Price increase "

In recent years, many garment and shoemaking enterprises have transferred factories to Asian countries such as Kampuchea, Bangladesh and Vietnam. In ZARA, H&M, UNIQLO and other brand stores, the proportion of Chinese made products has declined, while products from other Asian countries are increasing. However, compared with the current manufacturing costs in the PRD, the cost of manufacturing in Southeast Asia has gone up too fast. Li Peng, secretary-general of the Asian Footwear Association, said that despite the low pay base of workers in these countries, such a rise would make it difficult for many brands to digest, and the cost of the increase would be transmitted to the retail terminal.

In Kampuchea, the wages of workers almost doubled in a year. At the end of last year, Kampuchea opposition party chairman Sanglanxi appealed to Kampuchea workers to strike a strike for raising basic wages, and the Kampuchea shoe making and shoemaking plant was completely shut down. After that, many shoe factories and garment factories promised to raise workers' monthly salary from 80 dollars to 100 dollars in February 1st this year. However, the pace of salary increase has not stopped. Kampuchea's garment foundry workers recently asked for the minimum wage to rise from the current 100 US dollars / month to 177 US dollars / month.

The industrial chain has entered a period of adjustment.

In the case of branding profits, the days of the foundries are even more difficult.

Wang Yisheng told reporters that he knew some friends who worked for ZARA, H&M and other fast fashion brands, but because of the low profits of the manufacturing industry, some of them chose to close factories and turn to other industries. Textile and garment industry is more and more difficult to sustain the increasing labor cost. He has his own brand and channel, the situation is relatively good, and some purely OEM garment factories, the economic benefits go from bad to worse.

Li Peng told the first Financial Daily reporter that in recent years, with the rapid increase of manufacturing costs in the PRD, ZARA and other fast fashion brands and Nike and other sports brands have gradually transferred orders to other Asian countries or regions. Some manufacturers have been transferring the production line to the needs of brands and buyers. But wages in Southeast Asia are also rising rapidly. For example, wages in some factories in Jakarta, Indonesia are close to that in the PRD, while Vietnam, Kampuchea and other countries are not very stable, and workers strike from time to time. At present, manufacturers, traders, brands and so on are in a confused stage, especially in the next step of manufacturing.

Li Peng said that ZARA and other brands continue to raise the price of orders, but still can not keep up with the pace of rising costs in the PRD and other places. In addition, the rise of the Internet has made global prices more transparent, and the difficulty of increasing the price of brand retailers is becoming more and more limited.

"Foundry profits are very low, even if there is no money to earn, these manufacturers are willing to receive orders from brands. At present, because of the terminal consumption at home and abroad, some non brand buyers are in arrears with the manufacturers' payment, and the manufacturers are in arrears with the payment of the materials suppliers. The triangle debts are becoming more and more serious. At the same time, factories in the Pearl River delta still find it difficult to recruit workers. The monthly salary of factory workers is about 2800~3000 yuan, while the small factories are 4000~5000 yuan, and manufacturing links are facing unprecedented difficulties. Li Peng said that the transfer of enterprises to Southeast Asia is also facing some problems, the PRD manufacturing costs continue to rise, and at the same time, production support, technology and other aspects have also been very good accumulation, and Southeast Asian countries manufacturing costs have risen sharply, so that buyers and brands are somewhat unprepared.

However, although footwear and other industries are now being tested, there are still rigid demands in the market. Many enterprises are adjusting their strategies to keep pace with the changes of the times. The whole industry chain is undergoing some changes.

In the Pearl River Delta region such as Dongguan, some large factories have gradually introduced advanced equipment to improve automation level. Although the initial investment is large, it is one of the most effective ways to alleviate the shortage of migrant workers.

Brands are making more adjustments in the channel, trying to find new growth points by developing online businesses. Inditex's gross profit margin in the first quarter was 58.9%, 0.9 percentage points higher than in the previous quarter. The company said it owes much to online online sales.

In the Chinese market, Inditex launched the ZARA network store in 2012, aiming to develop the performance of small and medium-sized towns without ZARA stores, but not a big climate. Inditex said the company will launch the ZARA 2014 autumn and winter series on Tmall, and will continue to sell through Inditex China website. ZARA's public relations department said Tmall's flagship store on ZARA will be launched in autumn and winter this year.

Other fast fashion brands are also working hard online. Sweden's fast fashion brand H&M group has recently handed in a good three quarterly report card, which is mainly benefited from the rapid growth of H&M electricity revenues from Spain and Italy. In September 10th, H&M formally launched online stores in China, and will synchronize all kinds of clothing and accessories with the physical stores. H&M group chief executive Karl-Johan Persson said in an interview that H&M may also visit Tmall. TOPSHOP, a fast fashion brand in Britain, also announced its presence in China's e-commerce website.