Cost Pressures Suddenly Show Changes In Textile And Apparel Companies

There are many indications that the cost pressure of the traditional manufacturing industry, which is mainly export oriented, has increased recently, especially the textile and garment industry. If the relevant listed companies fail to respond effectively, they will once again fall into the predicament of three years ago.

Last weekend, the Anhui provincial government decided to raise the minimum wage level in the province from July 1st, with an average increase of 27.2%. According to the statistics of reporters, including Anhui, the minimum wage standard has been announced by 15 provinces this year, ranging from 12% to 30%, of which over half increase by over 20%.

Earlier, the market has been concerned about signs of shortage of migrant workers in Southern China, Jiangsu and Zhejiang provinces. Since then, more and more pay rises have been ushered in everywhere. Analysts generally believe that this marks the country's efforts to push forward the reform of income distribution or exceed expectations, and there is also a rising demand for labor prices in the factor market.

According to the annual report of Listed Companies in 2009, from the sensitivity of the rising cost of labor in traditional manufacturing industry to the performance impact, the textile and garment industry is characterized by its labor-intensive nature, the average wage is low, the proportion of wage cost to total business cost is high, and the sensitivity of performance to human cost changes is the strongest.

In the case of Lu Tai, a leader in the textile and weaving industry, a company official said in an interview with reporters that the salary increased by 10% to 15% at the beginning of this year. The main stock of Changshan's share of pure cotton gauze also said that 4 and May had just raised 10% of the basic wage.

On the other hand, the central bank announced last weekend to further promote the reform of the foreign exchange market. On the 21 day, the renminbi rose against the US dollar for nearly 20 months, the largest one-day gain of 0.428%. At the same time, 1 year NDF and other leading indicators of exchange rate imply that the annual appreciation of the renminbi is between 2% and 4%.

In textile and clothing listed companies, export oriented ones also have a large proportion. Take Lu Tai as an example, the company's exports accounted for 70% in 2009, while the other 30% were mainly based on the sale of raw cotton in Xinjiang, and the proportion of terminal products in domestic sales was very low.
Based on this, the profit margins of export textile and garment enterprises will be significantly reduced. Related enterprises or consider business transformation, or consider structural reengineering, and more focus on industrial relocation, in order to cope with the long-term cost test.

The statistics of gross profit margin of 68 textile and apparel listed companies in 2009 showed that the industry relocation strategy was often followed by the latter. Such as Huafang textile is only 2%, the company has been attracted by the market for lithium batteries, and, as recently announced the reorganization of Tianshan textile, the company directly abandoned the original main business, intends to transform the mining enterprises.

Let's take a look at the position of middle ranking enterprises in the majority of their business transformation strategies, of which Lu Tai is the most representative. The company's stakeholders said it will strive to increase the proportion of domestic sales, and increase R & D investment every year to increase the added value of products.

Finally, the top priority is brand operation oriented enterprises. Most of them shift their profit focus to operation and circulation after remanufacturing the upstream business structure. The original production business accounts for relatively small or all outsourcing, and the characteristics of light assets operation are obvious. Among them, the companies that sell domestic products mainly include the birds of the news, Kaiser shares, and seven wolves will not be affected by the surge in pay and the tide of appreciation.