The majority of Chinese clothing enterprises are approaching inventory cordon, domestic garment enterprises, such as Li Ning, Metersbonwe, Xtep and even foreign brands such as Adidas are also facing such problem.
Today a saying circulating in the industry: " China’s clothing inventory will be enough to sell for three years in clothing market, if all of the Chinese garment enterprises closed down.”
Recently domestic sportswear brand Li Ning experiences a "shrink" adjustment; in fact, it is a microcosm of domestic apparel industry. High inventory, high investment but low returns are the problems troubling enterprises.
The latest financial results of Metersbonwe showed that as of September 30, 2011, the company's inventory amount was as high as 2.982 billion yuan, the proportion accounted for 83 percent of its net assets. Xtep’s inventory amount grew by 92 percent to reach 887 million yuan last year.
Adidas’s sales in some areas in China have seen negative growth; Production is rising, while sales are on the decline, causing a lot of inventory backlog.
The high inventory has been an important factor to trouble global garment enterprises, a large number of stocks directly affect cash flow, and even lead to strand breaks of funds for enterprise, they ultimately could not escape the doom of closedown.
Insiders say that 4.5:1 is the critical point of inventory for apparel industry; many domestic clothing brands have reached the edge of the critical point. It will be very dangerous, if an enterprise exceeds this ratio.
Industry sources say that the growth of domestic clothing brands is too fast in recent years, while purchasing power of consumers has not increased in synchronization, thus forming an oversupply market. Second, some clothing companies have chosen large-volume production to reduce costs, leading to serious homogeneity of commodities, which reduces consumers' purchasing enthusiasm.