Overseas experience has reference significance for the interpretation of China’s garment industry after liberalization.
Since November 2022, domestic epidemic prevention policies have gone from loosening to full liberalization. This article uses the United States and Japan as references. The United States has a more radical liberalization strategy and Japan has been more cautious, but both have adopted a two-step liberalization strategy. Taking into account China’s To achieve comprehensive liberalization in a short period of time, we judge that the gradual liberalization stage in the United States and the comprehensive liberalization stage in Japan are of more reference significance for the interpretation of China’s garment industry after liberalization.
United States: After gradual liberalization, clothing brand PE and performance have benefited successively. Analyze the fundamentals and market performance of brand apparel in the gradual liberalization stage of the United States (21.1-22.3):
Sales and performance: After the gradual liberalization, the retail sales of the clothing industry rebounded significantly, and the rebound was larger and better than the overall retail performance; men’s clothing and sportswear performed well in the segmented fields, among which men’s clothing (mainly business men’s clothing) benefited from the low Base + rework wave + relatively rigid consumption, sportswear benefited from track advantages + products with functional attributes; the revenue of clothing brand companies has improved significantly, with yoga/sports/menswear leading the growth rate.
Stock price and valuation: After the gradual liberalization, the stock price of the apparel sector rose as the valuation and performance were restored successively. The PE peaked around the time of gradual liberalization, and the stock price peaked within 5-8 months thereafter. Among them, the stock prices of sports brands Nike and Lululemon were the first to bottom out and rebound, while the stock prices of leisure brands American Eagle and GAP performed late but had the highest elasticity.
Japan: After full liberalization, clothing brand performance and stock prices have stabilized and improved. Analyze the fundamentals and market performance of brand apparel in Japan’s comprehensive liberalization stage (since 22.3):
Sales and performance: After the full liberalization, clothing retail sales improved and exceeded the overall retail performance. There was not much difference between various clothing subdivisions. The revenue growth rates of all clothing brand companies have turned positive, with sportswear and cost-effective casual wear leading the way.
Stock price and valuation: After the full liberalization, the apparel industry started to rise and outperformed the market; the stock prices of various brand companies generally rose, with ASICS, TSI, and Fast Retailing leading the gains; performance recovery was the main driver of stock price growth, and most companies estimated that The value has not changed much, and the valuation of ASICS and TSI has rebounded.
Enlightenment from the experience of the United States and Japan: liberalization has clearly benefited the valuation and performance recovery of clothing brands, and the stock price rise has been more sustained.
On the whole, after the gradual liberalization of the United States and the comprehensive liberalization of Japan, the performance of clothing retail and clothing companies has shown a recovery trend, and the stock price has continued to rise for more than 6-9 months under the support of the recovery of PE and EPS.
In terms of segmentation, sportswear brands are functional and have high track prosperity, stable performance and are the first to rebound. Men’s wear (American experience, consumption is relatively rigid and benefits from the wave of resumption of work) and cost-effective brands (Japanese experience) have a relatively slow recovery pace. Fast and casual wear brands have relatively strong optional attributes and have been severely affected by the epidemic. They are recovering later but are more flexible.
Several judgments about domestic brand clothing in 2023:
Overall judgment, based on the experience of the United States and Japan and the changes in supply and demand of domestic brand clothing (relaxation is conducive to the recovery of consumer demand + optimization of the pattern during the epidemic period is good for leading brands), we believe that the recovery of the domestic brand clothing industry, especially the performance of leading brands, in 23 years is more certain.
From the perspective of repair time, according to the infection process and base reasons, brand apparel performance is expected to rebound significantly in 23Q2.
From the perspective of the extent of repair, consumption power determines the extent of repair, and it is expected that consumption stimulus policies will boost residents’ consumption confidence.
From the perspective of subdivisions, the severely damaged areas have a correspondingly larger rebound. The recovery pace from fast to slow/the recovery elasticity from low to high is: sportswear, men’s clothing, home textiles, high-end women’s clothing, and casual wear.
Judging from the stock price performance, the textile and clothing sector is expected to outperform the market in 2023. Supported by PE and performance, the stock price rise is expected to continue for more than 6 months.
Opportunities and challenges in 2023
Sportswear: Due to its functional attributes, rigid demand, and less impact from the decline in residents’ consumption power, sportswear is expected to be the first to recover after the consumption scene is liberalized, such as Anta Sports, Li Ning, Xtep International, Biyinlefen, etc.;
Difficulty reversal type: Due to the serious damage to performance and the greater flexibility of performance recovery, men’s clothing is expected to be repaired quickly. The main characteristics of this type of company include a high proportion of offline revenue, a large number of stores, positioning for the public, opening stores against the trend, etc., such as Heilan Home, Xiangxiniao, Semir Clothing, Peacebird, Songlisi, Luolai Life, etc.
Risk warning: Recurrence of domestic epidemics, insufficient recovery of consumer confidence, macroeconomic downturn, etc.
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