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China’s Garment Industry Struggles With Excess Inventory

China’s garment industry is sinking under the weight of excessive stockpiles. Sluggish demand in the domestic consumer market and a shifting of production to cheaper Southeast Asian nations has created the crisis. Estimates indicate that even if all the factories in China were to shut down, it would take three years to dispose of the unsold inventory.

Even prominent Chinese brands such as Li Ning Co. and Meters/bonwe are reaching a critical point, according to the China National Garment Association, causing profits at Li Ning to fall by 65%, and inventory at Meters/bonwe to account for 83% of net assets.

CNGA blamed the inventories on two main factors. First, consumer incomes have not grown as rapidly as the garment industry, leading to oversupply of products that people cannot afford. Second, cost cutting has pushed many brands toward mass production, which has dampened demand by creating a homogenous market.

International chains with distinct styles, such as Zara, are still doing well in China. In addition, middle and high-end stores continue to prosper. At the bottom of the ladder though, many brands and factories are feeling the squeeze of sluggish demand, high labor costs, and increased costs for raw materials.

To countervail these trends, excess inventory may be sent to secondary Chinese cities and less saturated markets, and promotional events may be used to clear out sportswear.