A sportswear factory in Fujian. (Photo/Xinhua)
With inventories already hitting record high levels in the first half the year, clothing manufacturers in China are struggling to clear an enormous backlog of stock, yet there seems to be no immediate solution to the pressure under current economic conditions.
According to data compiled by the Beijing Morning Post, the value of inventories at 42 listed garment companies in China topped 48.3 billion yuan (US$7.75 billion) in the first half of 2012. Only four of the surveyed companies had an inventory value less than 100 million yuan (US$16 million) over that period. The trend is worrying companies who have seen the value of their excess stock continue to grow amid sluggish sales.
Industry insiders say many companies are still laden with stock produced years ago, and estimate that if all existing merchandise were consolidated, they could continue doing business without further production for three years.
In contrast to the business environment in recent years, sales are tepid. Compounding the problem is that the industry is divided into too many sectors, from production to wholesale to retail, causing bottlenecks.
This excess supply presents opportunities to some, however. More and more businesses are being established just for the procurement and sale of surplus clothing. These companies usually procure directly from manufacturers in lots ranging from several thousands pieces to hundreds of thousands, of varying quality. Sometimes a single lot may occupy an entire warehouse. These companies help to ease the mounting pressure garment makers are under as their logistics costs rise and cash flow falls.
Aside from offloading stock to bulk buyers, manufacturers are launching more promotions than ever and companies have even begun offering discounts throughout the year, rather than mainly around national festivals as has been the usual practice. Selling online and through factory outlets has also become an industry norm. Some have also expanded their sales network to the third-tier and more remote cities, though they are still uncertain about the consumption power of people who live in these cities.