Inventory rises with Chinese garment enterprises

24 Jul '12

2 min read

Apparel enterprises in China are witnessing a sudden surge in their inventories in recent months.

Industry analysts attribute the rise in stocks of Chinese apparel firms to the ongoing debt crisis in Europe, the rise in labour costs and prices of raw materials, as well as changes in trading environment, which have together created drastic changes in business environment for Chinese clothing enterprises.

Some garment enterprises witnessed a sharp decline in export orders this year, which forced them to sell a large volume of their stockpile in the domestic market.

According to experts, during an economic downturn inventory turnover slows down, which affects operating liquidity, and hence companies find it difficult to come out with new products to attract more customers. This, in turn, seriously affects their performance and further increases the cash flow difficulties of apparel firms, which ultimately creates a dire situation for the entire business.

Another reason for stocks getting piled up with Chinese apparel manufacturers is that the enterprises produce their goods six months to one year in advance. For the purpose, the firms mainly depend on market information from downstream distributors rather than consumers. This information asymmetry leads to output that is much larger than actual amount that can be consumed by the market.

Experts expect leisure and sports apparel categories, which belong to fast moving consumer goods segment, to be rapidly devalued as soon as the season ends.

At present, several leading clothing brands are providing discounts in department stores in order to lessen their inventory.

Fibre2fashion News Desk - China

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