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    Up and Down: The Risky Business of Winter Jackets

    In Pinghu, home to China’s largest wholesale market for down jackets, manufacturers are competing each winter to clear their stock, as pressure grows from livestream sellers.
    Jan 03, 2024#business#industry

    When a cold wave sent temperatures plummeting across China last month, things were just heating up at Pinghu Garment City.

    This wholesale market in the Yangtze River Delta region supplies more than half of the down jackets in China. In December, when the mercury fell below zero Celsius in many areas of the country, employees at its stores were working round the clock to pack and ship their products, with as many as 600,000 jackets heading out the door every day.

    In winter, down jackets are indispensable in China, especially in the northern regions, creating an opportunity for clothing manufacturers to cash in during the colder months. Yet, like all seasonal businesses, there’s also a high degree of risk. Each year, while some factories will hit the jackpot with bestselling designs, others will struggle to clear their inventory and face losing everything. As one insider puts it, “If you have a warehouse full of down jackets, counting on selling them next winter is like waiting for death.”

    So how did Pinghu Garment City become the center of this lucrative yet capricious industry? And how are traditional businesses adapting as the rapid rise of livestream e-commerce piles extra pressure on a fiercely competitive market?

    A stitch in time

    Compared with other insulating natural fibers such as silk, cotton, and wool, down — the fine interior layer of feathers on a bird — has the best thermal performance. Coat manufacturers predominantly use down from ducks and geese for padding, with the latter considered better for retaining heat.

    Winter jacket prices are affected by factors such as the quality of the down, puffiness, and whether the fabric is windproof. Those made by top brands can sell for five or six times the cost of production.

    According to a China Economic Weekly report, Zhu Gaofeng, vice president and chief financial officer of the Chinese down garment specialist Bosideng, said at the end of 2021 that the average price of its products had risen to 1,600 yuan ($225) and would increase to 2,000 yuan in the next three years.

    The equipment used to make down jackets is highly specialized. “The needles required for making down jackets are smaller than those used on ordinary sewing machines,” explains Er Ruoyan, an independent clothing designer. “The machines need to be customized, and the processes of stitching and filling are also pretty unique. Even those people with a lot of experience in the clothing industry aren’t necessarily familiar with the down jacket sector.”

    As designing and producing down jackets requires particular manufacturing equipment and techniques, companies need to make a substantial initial investment and have no small amount of faith, as it would be extremely difficult to switch quickly to making other kinds of clothing. This makes winter a make-or-break season for factories, many of which will run day and night during that time, ever on standby for a sudden rush in orders.

    The rest of the year is spent on product selection, patternmaking, and warehouse management. If a company hits the jackpot with a popular design in winter, it can earn millions, but if it fails to clear its inventory, it could end up losing just as much.

    In Pinghu, a city in the eastern Zhejiang province with a population of more than 600,000, almost everyone is involved in some way with the down jacket industry. According to news reports, the city is responsible for between 50% and 80% of the down jackets produced nationwide.

    Situated in the Yangtze River Delta, a region that attracts many top graduates, the city has convenient logistics and well-developed industry. Its downtown is about 100 kilometers from Shanghai’s suburban Jinshan District. To the west are Jiaxing and Hangzhou, to the north is Suzhou, and south across the bay is Ningbo, all wealthy cities with established industries.

    Pinghu has been known as a clothing manufacturing hub since the late 1970s. However, by the mid-2010s, Pinghu Garment City was encountering tough times, with many stores standing empty. Realizing that uniformity in the clothing industry was a major issue, the wholesale market’s management team struck upon an idea.

    After analyzing the development of leather products from nearby Haining and wool sweaters made in Tongxiang, the team decided the solution was to concentrate on just one category, ideally something with high profit margins. So, it reached a settlement with a department store to move out, and focus was shifted to developing only down jackets.

    Today, Pinghu Garment City is China’s largest wholesale market for down jackets, home to more than 2,100 businesses. In 2022, it recorded a total transaction volume of 22 billion yuan, and this figure is expected to increase to 29 billion yuan in 2023.

    Winners and losers

    In November, the peak shipment period, the market registered as many as 120,000 visits in a single day and was shipping more than 1 million units a day. The wholesale market’s operations director, Chen Jie, explains that the actual number of jackets heading out of the city is much higher, as most stores have their own factory and will ship directly. “I estimate that 60% to 70% of goods are probably sent out from factories,” he says. “So at the busiest time, that works out at about 10 million units shipped every day.”

    Pinghu Garment City has a total floor area of 145,000 square meters, and down jackets hang virtually floor to ceiling. The aisles between stores are filled with bags of products to be sent to smaller wholesalers and retailers across the country. The tight space means employees and customers often need to squeeze past overloaded carts being pushed down the aisles. The majority of job advertisements on display are for clothes models.

    On the second floor, which houses mostly low- and medium-priced goods, stores typically cover only 4 to 5 square meters. Inside, young shop assistants often spend their entire days in winter crouched down packing up goods. The lively end-of-year sales period involves a race against time to restock in October. During that time, logistics workers at the market usually need to work until 1 or 2 a.m.

    Key to making a healthy profit is having a hit product, but no one can say for sure which products will be popular. When a jacket becomes a big seller, stores need to re-order as quickly as possible — speed can be the difference between boom and bust. “If a product takes off but you have only 10,000 or 20,000 in stock, it’s impossible to produce 100,000 more immediately,” says Chen. “What’s the deciding factor? Supply chain capability. Upstream are fabrics, accessories, and down, with the most important thing being whether you can quickly find a factory to cooperate with and produce the goods you want.”

    He says that most businesses struggle to produce sufficient quantities of a bestselling product. It’s hard to predict which colors or styles will sell, and if a company waits until a certain design becomes popular before ordering more, their fabric supplier may not have any more materials in stock. If they do though, they can probably ship in three to five days.

    Behind this “Pinghu speed” are countless factory workers. According to Chen, the city has about 1,500 manufacturers employing more than 100,000 workers, with a garment factory located on almost every street.

    A 35-year-old woman from the city of Bozhou, Anhui province, moved with her husband to Pinghu’s Xindai town in late 2023 to set up a small workshop. Her dozen or so employees — mostly migrant workers — produce up to 400 fur collars for down jackets every day, each earning around 10,000 yuan a month.

    In the peak winter season, the typical wage in the town is 600 to 800 yuan a day, while contracted employees earn a salary of about 6,000 to 7,000 yuan a month, plus food and accommodation, which is fairly standard for the Yangtze River Delta region.

    Over the past couple of years, many businesses have moved their factories to areas with lower wages. Yin Jie, manager of the domestic brand Three Good, says she employed 300 to 400 factory workers before the pandemic, but now it’s fewer than 100. Instead, the company cooperates with more than a dozen factories in the provinces of Anhui, Hubei, Shandong, and Henan. Yin explains that the labor costs in making down jackets are about 20% lower in some areas of Shandong compared with Pinghu.

    Yet, for every winner in this risky apparel sector, there are many losers. Chen says that the rate of store closures used to be roughly 30% a year, although this has stabilized to around 20% in the past two years.

    Evolution in e-commerce

    As profit margins get ever thinner, down jacket manufacturers have been drawn into intense price wars. As a wholesale market, Pinghu Garment City’s main business is producing affordable goods. Chen estimates that low- to medium-priced units ranging from 150 to 280 yuan account for about 50% of sales; median-range units (280 to 400 yuan), 30%; and high-end units (over 400 yuan), 20%.

    However, due to the weaker purchasing power in 2023, it became increasingly difficult to compete in the lower price bracket. “In the mid-2010s, the factory cost of a basic down jacket might be 70 to 80 yuan, with the product sold to customers for 150 to 160 yuan,” Chen says. “But the competition is a lot fiercer now. At most, the wholesale price is a little over 80 or 90 yuan. Some even earn only a few yuan profit.” He adds that many products are sold on Pinduoduo, a Chinese online retail platform known for its rock-bottom prices.

    Chen believes that the price wars began in response to the arrival of livestream e-commerce. “What’s the thing you hear most on livestreams? They all say, ‘You won’t find a lower price online.’ In the past, our merchants had the power to set prices for down jackets, but starting a couple of years ago, the influencers became the ones with the power,” he says. “For example, if the factory price is 150 yuan, the influencers will say you have to give it to them for 120 yuan, then they can sell it for 150 or 160 yuan on their platform. The manufacturer has to cave.

    “This kind of thing is really common, but there’s nothing you can do,” Chen adds. “If a company doesn’t sell the jackets, they will have to store them away and wait until next year. Businesses that don’t sell their stock in the winter are the ones that lose out. They’ll only be able to sell their goods next March for 50 or 60 yuan each.”

    Feixun Technology opened a bright-red, 20-plus-story building for down jacket merchants in Pinghu in 2021, placing a banner outside that read, “Douyin E-commerce Live Broadcasting Base.” According to the company, the businesses based there recorded about 3 billion yuan in sales this year.

    The company that owns Pinghu Garment City generates a significant portion of its revenue from rent. Stores pay hundreds of thousands of yuan a year for space in the market, considerably more than in 2014, when it averaged around 40,000 yuan. The high cost is largely based on the significant number of visitors it attracts. In return, the company provides management and business services; offers access to sales channels through relationships with markets in Shenyang, Panjin, Xi’an, Zhengzhou, Chongqing, and other cities; seeks direct investment via subsidies and supporting policies; and filters out underperforming stores.

    The Douyin broadcasting base across the street takes a different approach. In 2021, Feixun Technology signed a cooperation deal with Douyin, the Chinese version of TikTok, to become a service provider, offering livestream training to merchants, teaching them how to switch from selling to businesses to selling directly to consumers. For its part, Douyin charges traders 5% commission on transactions through its platform.

    However, rents are much lower than at Pinghu Garment City. Hong Tao, the base’s director of operations, says stores are charged just 20,000 to 40,000 yuan a year, a typical rental price for suburban areas in Pinghu.

    E-commerce companies are building Douyin broadcasting bases in industrial centers across China focusing on specific sectors, such as women’s clothing in Nanyou, Shenzhen; jade in Ruili, Yunnan province; makeup brushes in Cangzhou, Hebei province; and pearls in Zhuji, Zhejiang province. In addition to the broadcasting base for down jackets in Pinghu, locally there’s also one in Haining for leather products and another in Tongxiang for wool sweaters. According to an analysis by Kaiyuan Securities, there were around 110 Douyin broadcasting bases nationwide in 2021.

    But how can the first generation of factory owners in Pinghu — now in their 50s and 60s — take advantage and make the change from wholesale to e-commerce?

    “First, they need to change the way of thinking and recruit employees who specialize in e-commerce, separate from the original factory, with sales also separated,” explains Hong. “If traditional factories use their original staff, there’s a high probability that they won’t be able to transform. Wholesalers previously sold directly to customers and didn’t accept returns, but with Douyin e-commerce, they need to bear the costs of returns. Also, Douyin is a platform designed for products that sell in large quantities. A factory in the past might create 100 styles a year and stock several thousand of each. On Douyin, they need to find the big sellers and only push that style, stocking tens of thousands of units.”

    Feixun Technology started out as a down jacket manufacturer and still has its own label, Jack Ferre. Hong says the company’s annual sales through all channels have increased from 800,000 units to about 1.2 million since it started livestream e-commerce in 2018.

    Since the end of the pandemic, the purchasing power of the global market has been weakened, and the prices of consumer goods have become polarized — while most people look for value for money, those with strong purchasing power expect extremely high quality and services. According to the data company Edited, the average price of luxury goods has risen 25% since 2019.

    This shift has led many down jacket retailers in Pinghu to change to creating original products at a mid-to-high price point.

    A couple of years ago, the third floor of Pinghu Garment City, which had housed stores selling materials and accessories, was made into an original brand area. Most of the stores are now curtained off to prevent their designs from being copied. The market also introduced traders from other cities in order to stimulate fresh ideas, and today they account for about 40% of all stores, according to Chen.

    Some merchants have started paying designers in major cities like Hangzhou and Guangzhou, Guangdong province, for the copyright to their designs, with fees ranging anywhere from 20,000 yuan to over 100,000 yuan.

    For a long time, Three Good sold wholesale from its own factories, but in 2021 it opened a store on Taobao, the online marketplace, selling directly to customers. It now has a team of seven designers. Every year, Yin, its brand manager, takes the team to visit boutique stores in Japan and South Korea to check out what’s on offer in other markets.

    One of Pinghu’s most luxurious brands is Raxxy, whose cheapest down jacket retails on Taobao for just under 10,000 yuan. William Shen, its founder, says his company broke away from the wholesale ecology of Pinghu and took the route of creating its own high-end brand. Raxxy took part in the Milan and Shanghai fashion weeks in 2023 and has developed a reputation for avant-garde designs and cutting-edge techniques. Its “Great Wall” pattern, for example, features brick-shaped sections, with strips woven together like wool.

    Shen adds that more than half of the company’s revenue comes from collaborations with companies like Moncler, with the rest from buyers at fashion boutiques, who purchase up to a dozen pieces at a time. Roughly 70% of the company’s customers are based overseas.

    Reported by Wang Qin.

    A version of this article originally appeared in BlueWhale Finance. It has been translated and edited for brevity and clarity, and is republished here with permission.

    Translator: David Ball; editors: Xue Ni and Hao Qibao.

    (Header image: A store selling winter coats at Pinghu Garment City, Zhejiang province, Dec. 16, 2023. Wang Qin/BlueWhale Finance)