Chapter 23 Section 9 Exploration of the way out

In the chaotic Chinese men's wear market, we found that Youngor's suits have been far ahead in the men's wear market share in recent years.Still, it's not out of the box.The first is the technology brand. Youngor strongly advertises that it adopts "non-pulp technology", and launched "non-ironing shirt" in 1999. In 2004, the "nano VP shirts and nano suits" made of nano materials were also launched, and a lot of effort was made in the materials and fabrics.And Shanshan, Qipai, etc. are pressing harder and harder, vying to import the world's first-class production line equipment from Germany and Japan, making painstaking efforts in terms of technology.However, hard work in technology makes their product quality no less than that of international brands. In fact, there has never been a famous brand in the world that only relies on the quality of workmanship to win.We believe that the reason why Youngor can obtain nearly 12% of the suit market share is due to the efficient integration of the industrial chain, thereby achieving the purpose of reducing inventory and quickly responding to the market.

Let's take a systematic look at the growth paths of Shanshan and Youngor.First of all, they have a lot in common. They are both companies in Ningbo. They both started menswear and are less than 5 kilometers apart. They are both among the top menswear companies in China.During the nine years from 1991 to 2000, Shanshan's market share in my country's men's suit industry has always been the first.From 2001 until now, Younger has firmly grasped the number one position.What happened during this time? For the apparel industry, the entire industrial chain has the following seven parts, as shown in Figure 4-6.

First of all, let’s talk about Shanshan. The past glory of this enterprise is unimaginable for today’s men’s clothing enterprises.At the peak, it once monopolized 37.4% of the suit market share in China, which means that one of the three suits in China belongs to it.Of course, it must be taken into account that the country had just emerged from the planned economy at that time.In a state of short supply, it is very different from today's market.How does it do it? From fabrics to production: Before 1998, Shanshan was the largest textile enterprise in China, designing and producing independently. In 1998, it introduced the most advanced suit production system in Europe at that time.Completely mastered the 2nd part.Production costs are all under their own control. (Shanshan has not considered growing cotton, or extracting fiber from oil.)

From warehousing to sales: Shanshan's main achievement is to build the largest sales network at that time, which is the key to its success and also the starting point of failure.From the establishment of the brand in 1989 to 1998, Shanshan invested 700 to 800 million yuan to set up 2700 sales outlets and warehouses.The 5th, 6th, and 7th links of the entire industrial chain are in their own hands.In fact, in the third year after the establishment of the sales network, in 1992, Shanshan owned the largest clothing sales network in China at that time, and its market share had reached more than 20%.Is it possible to sell clothing smoothly if you have a sales channel?We believe that this assumption does not hold.Shanshan’s environment at that time was completely different from today’s.Many products sell well without advertising.The reason is that China was still a seller's market at that time. Simply put, the demand was strong and these commodities could be digested.Therefore, at this time, as long as your products can reach the market most effectively, there will be good sales.Zheng Yonggang, Shanshan's boss, also thinks so.By the end of the 1990s, this phenomenon did not exist, because the number of manufacturers increased.

This is when problems started to arise.Due to the increasing number of garment enterprises, the production capacity is getting stronger and stronger.Shanshan also built its own industrial city in 1997. The five self-owned garment production factories are all together and started working at the same time, which is very efficient.The supply of clothing is abundant, but the market is not able to absorb it quickly.Simply put, it takes longer and longer to sell a piece of clothing (Figure 4-7). In 1996, it took about 90 days for Shanshan to produce a piece of clothing to reach consumers. In 1998, this time was extended to 280 days, and in 1999, it took more than 300 days.This means that almost all the clothes that customers buy from Shanshan's store are from last year.The reason is obvious, and the contradiction between production and sales is highlighted.This is originally an internal contradiction and an inevitable market development, which can be resolved through some technical means, such as reducing production, rationalizing management or other methods to increase sales.But its boss, Zheng Yonggang, believes that "huge market share is obtained in exchange for huge inventory and waste." Therefore, Shanshan began to learn from Nike and focus on virtual management. From 1999 to the end of 2001, Shanshan personally disbanded the country's largest independent sales network at that time, and changed it to franchise (sellers pay a certain amount of fees in exchange for exclusive sales in a region).This move reduced the number of Shanshan's original sales channels from more than 12,000 to more than 20. All 5 garment factories were also sold.This is of course much simpler in terms of management, and the inventory has also been reduced. The number of days required to sell a piece of clothing has dropped significantly since 2001, from 300 days at the peak in 1999 to 130 days, and in 2003 it was even closer to 50 days.You would think that Shanshan's clothes have become so easy to sell, so she must have a large market share.The fact is that after 2000, the No. 1 position in the suit market share was replaced by Youngor, with a market share of only about 4%.

As can be seen in Figure 4-7, once the sales department is out of control, logistics and warehousing don't make much sense.Because franchisees have the right to choose how much to buy and how to buy.At this time, a very serious problem arose. Franchisees monopolized sales, and Shanshan was isolated from the market to a certain extent, unable to quickly adjust to the market's response.Because the regional agents operate independently, it no longer follows Shanshan’s national unified pricing, and once the products are unsalable, they will cut prices or reduce purchases.Because Shanshan's headquarters is out of touch with sales, it can't grasp which clothes sell well in the market.The reason why dealers reduce purchases is not because they cannot do it in terms of logistics, but because the inventory in front of them is too large, and they dare not continue to purchase after sales are over.

But maybe by then, the fashion trend in the market has changed.As a result, Shanshan's market share declined rapidly.Later, a second channel change was carried out in an attempt to narrow the distance with the market, but the effect was not satisfactory. After 1999, Shanshan began to implement an international business model, and in 2001, it began to implement the "multi-brand, international" strategy.At this time, Youngor has completely surpassed Shanshan in the suit industry. So how does Youngor make a fuss through the industrial chain?

1. Do a good job in sales channels In 1995, Youngor started a sales network.From 1995 to 1999, Youngor spent more than 1.1 billion on the sales network.At the time, it had more than 6,000 sales outlets across China. After that, Youngor carried out a series of reforms. First, it established specialty stores and flagship stores, and secondly, it closed or bought back those stores in third-tier cities that were not doing well, and concentrated its efforts in first-tier cities.Today, Youngor has more than 160 sales branches, more than 2,200 fixed sales points, more than 800 franchise stores, and more than 1,000 exclusive counters in shopping malls. It is currently the largest marketing network in China.Holding sales channels in its own hands is an important part of Youngor's expansion of the downstream industry chain of the garment industry.That is to say, in 2001, Youngor fully surpassed Shanshan after fully integrating its own sales channels.Of course, channels are not omnipotent, and Youngor is also facing the same predicament as Shanshan once did. The sales period of inventory is too long and the inventory cost is too high.

In order to reduce inventory and save costs, in 2001, it cooperated with the Chinese Academy of Sciences to carry out the "Youngor Digital Project". In 2002, AXA Consulting was invited to adjust Youngor's channels and restructure the sales network.The combination of the two has established a supply chain system integrating logistics, information flow and capital flow of Youngor Group to effectively solve the inventory problem.Branches and stores all over the country have been incorporated into this management system, and demand, resource and inventory data from all over the place have been collected.First of all, the inventory sales period has been greatly reduced, and secondly, the cost has been effectively controlled, and the profit margin has far exceeded that of Shanshan.At the same time, Shanshan's inventory sales period was also very low after restructuring, but its profit margin was far lower than that of Youngor.Why is this?The purpose of Shanshan's reform is for a new business model. It believes that brand operation like the big Western brand Nike is the essence of this industry.Youngor's integration of the entire industrial chain emphasizes the reduction of costs, and everything serves this purpose, so it has achieved far more performance than Shanshan.

At the same time, Youngor solved another problem faced by Shanshan—the inability to respond quickly to the market.At present, 80% of the sales of the Youngor brand are controlled by its own stores, which can most effectively grasp the needs of consumers.Youngor's stores can count the number of times a specific piece of clothing is worn, which color and style are the most popular.After the information is sorted out, it is sent to the production plant, and the redesigned clothes and styles can be conveyed to their own stores within a month.The starting point of Youngor's pursuit of an all-round industrial chain is not to build the fashion brand ZARA at the same speed.

For fashion like ZARA, it is very important to quickly reach the market and reach consumers. Quality is not the most important thing. It can even sacrifice a certain amount of quality in exchange for maximum speed.This is understandable. Not many young people who pursue fashion will wear ZARA clothes until they are worn out, and they will change them after three to five months after the trend passes.However, men's clothing is different. First of all, its changes are definitely not as rich as fashion, and the quality must be excellent.For example, a suit or a windbreaker needs to be worn for at least three to five years or even longer.Therefore, in terms of quality, it is necessary to gain the trust of consumers, which is the premise of operation, and operators also attach great importance to quality.The quality of Chinese men's clothing, including Youngor, is indeed excellent, not inferior to foreign countries at all. Although the purpose of Youngor's industrial chain integration is not to build itself like a fast fashion brand like ZARA, but to save costs.But it does increase speed while saving costs.This is the advantage of integrating the industrial chain through informatization—quickly grasping the needs of consumers, and delivering redesigned clothes and styles to their own stores within a month. 2. Develop fabrics upstream - save costs In order to save costs by compressing all links of the industrial chain, Youngor built the International Garment City in September 2001.This is currently the largest garment manufacturing base in China, and at the same time integrates design, sales, display, and business, and shortens the time for product release.At this time, Youngor has independently mastered all links except raw materials and fabrics.What role does fabric procurement play?If you rely solely on imports, it takes 45 days for a suit to purchase fabrics, sometimes two months. After the fabrics are obtained, they are manufactured, and then the finished products are put into storage. This process usually takes one month. From warehousing to physical sales stores, it takes about 3 months to complete the entire industrial chain.The procurement link affects the progress of the whole process to a great extent.In order to solve this problem, since 2001, Youngor began to develop upstream fabrics in the manufacturing industry. It is very easy to imitate foreign clothing designs, but it is impossible to imitate fabrics without technology, and most of the high-end suit fabrics in my country must be imported.Therefore, Youngor cooperated with Japanese businessmen to invest 100 million US dollars to build a textile city that produces high-end fabrics. In 2003, Youngor Textile City was completed and became the production base of domestic high-end textile fabrics.Self-production can indeed effectively reduce costs.At present, the self-sufficiency rate of Youngor fabrics has reached 90%.Through self-production, first of all, transaction costs and financial expenses are saved, and secondly, because Youngor's upstream and downstream factories are all concentrated in the garment city, transportation costs are also reduced.Finally, the profit of high-end fabrics is much higher than that of ordinary fabrics. In the long run, independent production can reduce costs.Self-production can reduce transit time more effectively.Although the current high-end fabrics are not completely self-sufficient, it is not enough to affect the development of Youngor. In the entire supply chain, only the raw material link Youngor has not been involved.They have not let go of this space to save costs and control quality. In 2004, Youngor began to control the most upstream bee of clothing production - raw materials. In August 2005, Youngor established "Xinjiang Youngor Cotton Spinning Company" in Xinjiang to carry out cotton production and weaving, and control the quality of cotton yarn from the source.At present, the annual output of cotton yarn reaches 70 million tons, which can be exported not only for its own use, but also for its own use.Mr. Youngor said that the purpose of getting involved in the cotton planting industry and setting up spinning mills is not entirely to make money, but to save money. After all, most of the products are for self-use.Without the existence of middlemen, the cost savings are obvious.At the same time, it can save financial expenses and guarantee product quality.Except for not herding sheep, Younger has done everything related to the clothing industry. Owning the entire industrial chain is not the goal, but cost is the goal.Effective management is very important for the current huge Youngor. On September 11, 2009, Youngor asked IBM to help Cogno, a commercial software designed for it, to be put into use, with the purpose of assisting production and decision-making.Through this system, Youngor claims that its entire production cycle has been shortened by an average of 50%—from 90 days to 45 days. If it is specific to a certain popular style, it can reach the market as soon as one month.The inventory turnover rate has more than doubled, saving 250 million yuan in inventory costs, and the out-of-stock loss has been reduced by more than 30%, and the factory's on-time delivery rate has reached more than 99%.Whether such an effect has really been achieved cannot be shown in the annual report.First of all, the production cycle cannot be read in the annual report, and secondly, the inventory cost in the annual report is calculated including the real estate industry, and there is no separate data for clothing.Whether its effect is really so significant is unknown due to the short duration of use. 3. To enter the foreign market In the Chinese men's clothing industry, Youngor is already doing the best. Will it consider entering foreign markets next time?Of course I'm going!why are you not going.But as we discussed earlier, how European and American menswear designers grasp the collective personality of the whole society and achieve success.Do you think Younger can be as successful as them?I think it is almost impossible, and there are many reasons. For example, rich people in China will not wear African or Vietnamese famous brands. Will Europeans and Americans wear Chinese famous brands?Youngor and Armani sell at the same price, and compete with Versace and Dior on the same stage, can we be naked?I don't think so.Of course, Younger himself felt that it was unlikely.Of course, we don't recommend them to launch those neutral men's clothing like Armani and Dior, because there must be no market.It's not that there is no technology, and it's not that we can't afford expensive designers, but that China doesn't have this kind of soil yet.Wu Zhize, CEO of SAINT ANGELO, said: "Our generation can't be world-class, let's be world-class first." Youngor's boss Li Rugang said: "Youngor will not launch its own brand in the United States. Then how to open up this market? Acquisition of the current Mature European and American brands may be a good choice.” In January 2008, the boss of Youngor announced that they had completed the merger of Xinma and SMART, two subsidiaries of KELLWOOD in the United States, for US$120 million.The core business of these two companies is men's clothing, and both companies are in Hong Kong, China.How is this merger going? KELLWOOD is a company with women's clothing as its core business, and 70% of its sales profit comes from women's clothing.In order to make the company's business more professional, it chose to sell two departments, Xinma and SMART, which focus on men's clothing.After Youngor learned about it, he quickly negotiated and reached an oral agreement of 160 million US dollars.After that, KELLWOOD changed its tune and asked UBS to evaluate the two companies for sale, which were valued at $320 million.Younger didn't buy it anymore, it was too expensive.By 2007, before the financial crisis, sales in the US retail industry fell. KELLWOOD has financial problems.At this time, it moved the two men's clothing ideas again.Youngor is still the acquirer, but the level of demand is different.In the past, Youngor coveted the sales network and brand of Xinma and SMART in the United States, but now KELLWOOD is short of money. So Youngor invited a bunch of asset appraisal agencies to conduct appraisals. In the end, the transaction price negotiated by the two parties was 120 million US dollars, which was actually a net assets acquisition.One item in the contract caught my attention. If the net assets of the two companies were less than US$120 million at the time of the transaction, they would be acquired at a lower price.Can you imagine that this is our Chinese company making overseas acquisitions?It seems that the only time we are so harsh is when someone else buys us.The reason is this: Once it cannot be acquired by Youngor, the development of Xinma Group will be greatly restricted.Because Xinma Group is located in Hong Kong, most of its clothing raw materials are provided by Youngor. In 2006, 7% of Youngor's product and raw material revenue came from Singapore and Malaysia.Therefore, in this acquisition, Singapore and Malaysia need Youngor more.At the same time, the precursors of the financial crisis have emerged. Keelwood is in urgent need of funds, while Youngor has made huge profits in the Chinese stock market and real estate industry. At the same time, with government support, the most important thing is money.Another point is that the existing management of Singapore and Malaysia in Hong Kong has defected.In the stalemate stage of the acquisition negotiations, they lobbied the parent company to accept Youngor's acquisition.First of all, they need Youngor's raw material supply more in terms of business. We don't know if there are other unspeakable reasons that lead to their defection. This acquisition has more benefits for Youngor.The business level of Xinma and SMART is higher than that of Youngor. The design center in Hong Kong has ODM business of more than 20 brands including POLO and CK instead of pure OEM.The production bases of the two companies are all over Southeast Asia, including Sri Lanka, the Philippines, Indonesia, Malaysia, and my country's Shenzhen, Guangdong, and Jilin.90% of Xinma and SMART's clothing are sold in the United States, with an annual sales volume of 500 million US dollars.As a subsidiary department of KEELWOOD, they have accumulated marketing channels and logistics distribution systems in the United States for many years, which can meet the sales requirements of zero inventory, as well as hundreds of sales outlets and distribution channels of American department stores.These are all Younger can't think of.Through this acquisition, Youngor's overseas production and sales capabilities have been enhanced. Without Youngor's domestic industrial chain, there would be no such successful acquisition of net assets today.At present, Youngor is the only clothing enterprise in the world that grows cotton upstream, produces midstream, and sells downstream.Its successful acquisition has very Chinese characteristics of "time, location, and harmony". The United States is short of money, China wants to go out, and Hong Kong wants to return. In the face of most foreign famous brands such as Armani and CK who started as designers, the blind pursuit of collective personality and becoming a fashion leader may be almost impossible for Chinese men's wear.But as most of the Chinese men's wear brands that started with clothing manufacturing can also create their own advantages.For the Chinese menswear industry, which is between big foreign brands and fierce domestic competition, the first thing to do is to "know yourself and your enemy."Design defects can be made up by imitation and rapid response, and an efficient industrial chain is a stage for Chinese men's clothing to show its strength. The book is over!