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Worse for Wear

Despite decreasing orders from traditional channels, China’s large garment manufacturers are struggling to adapt to cross-border e-commerce. While small companies are more eager to embrace it, looming shifts in the industry threaten sustainability

By Xu Ming , Wang Yu Updated Jul.1

Workers at a swimsuit factory fulfill orders from the US and Europe, Jinjiang, Fujian Province, September 28, 2021 (Photo by VCG)

China’s garment export is facing significant growth pressure against slowing overseas demand. In the first quarter, textile and garment exports dropped 6.8 percent year-on-year, continuing the slide that started in September 2022. Guangdong Province, an important textile cluster, is under even more pressure. Its textile and garment exports both to overseas firms (B2B) and direct to customers (B2C) dropped by 8.6 percent year-on-year, though it still ranked second nationally.  

Industry observers believe the rapidly expanding cross-border e-commerce sector could be a solution for Guangdong’s many export-oriented garment manufacturers, whether they supply products for e-cross-border platforms or engage in wholesale or retailing on platforms themselves.  

But not every manufacturer is pouncing on this opportunity. NewsChina found that large garment manufacturers in Guangdong are quite indifferent.  

Some interviewed companies said they “don’t touch cross-border e-commerce” while others said they have no experience and are still learning about it. While most believe cross-border e-commerce is a good thing for the overall industry, few are confident it would help them.  

The cross-border e-commerce sector dominated by clothing products is remarkable for its quick turnaround of up-to-the-minute fast fashion and flexible delivery of small orders. Big, established manufacturers have the experience to wait for large orders and deal with commercial customers overseas.  

“Everyone talks about cross-border e-commerce as the new trend. But no body talks about how it can help them. Big companies find it hard to adopt this way of getting orders,” said Xie Hailong, vice president of Zhuhai Wiseman, a garment manufacturer based in the southern Chinese city of Zhuhai, Guangdong Province, adjacent to Macao.  

For struggling small and micro businesses though, cross-border e-commerce is a lifesaver, particularly from platforms like Shein that have become successful overseas. 

Going Online 
Lai Guorong, whose yoga wear is successful on the domestic wholesale market, had not considered cross-border e-commerce before Covid hit. But with flight and transportation blockages restricting regular business during the pandemic, turning to overseas markets was the only way to continue.  

In addition, Lai realized his business at home had plateaued. “Among the 1.4 billion people in China, there are perhaps tens of millions of customers for yoga wear,” he said.  

In November 2020, Lai opened shops on Alibaba.com, Alibaba’s B2B cross-border business platform. Between January and March 2021, he sold products valued at 4 million yuan (US$574,900), and gained dozens of new clients in Europe, North America, Japan and the Middle East.  

An industry veteran of 10 years, Lai knew that before he started selling directly to overseas entities, 60 percent of his products were already available overseas via other distributors.  

Unlike fashion clothes, yoga wear is a highly standardized product everywhere, so Lai does not need to make products tailored to overseas consumers. And without middlemen, his profits are higher in a market that is more mature than China’s for yoga wear.  

At first, Lai set a goal of earning US$10 million for overseas business. Now after two years, revenue from overseas has increased from 5 percent to 10 percent of his total revenue. After reaching his initial target, Lai plans for overseas sales to account for 60 percent of his revenue. 

Amii, a women’s fashion brand, has also had success in cross-border e-commerce. Company founder Chen Qingping said they started on the domestic market, building their brand and then adapting their designs to international tastes.  

While Amii is managing to cover its investment in online cross-border business, it still accounts for only a small proportion of the company’s total business. The positive side of opening shops on overseas platforms is that businesses become more informed about the newest fashion trends in different regions. 

Lack of Motivation 
Lai told NewsChina that even though cross-border platforms boast they can attract big customers, orders are mainly small – 100 pieces are common.  

This differs greatly from the seasonal cycle of traditional foreign trade, where customers may come only a few times a year but always place big orders.  

“Companies that focus on foreign trade commonly get orders of 10,000 pieces in one style. So they don’t like to take small orders despite the high profit,” Ye Zhibin, who has been selling clothing overseas for 20 years, told NewsChina.  

Chen Shaotong, secretary-general of the Guangdong Association of Garment and Garment Article Industry (GAG-GAI), told NewsChina that in the B2B business, overseas customers usually employ professional buyers who have built trust with the suppliers through years of cooperation. “The threshold for this business is high and not easily replaced,” Chen said.  

After turning to the online cross-border business, Lai said he might have to woo a customer for over half a year to nail down an order. Sometimes, although the order is worth 1 million yuan (US$143,713), he said the volume is not comparable with offline trade, which brings income stability, bigger profits and a longer production cycle.  

Several manufacturers told NewsChina that even though they are under cost and sales pressures, they still have customers on the books and can expand. Small orders are not worth the trouble.  

Hu Hebin, director of the GAGGAI cross-border e-commerce supply chain branch, revealed that after cross-border business boomed around 2015, manufacturers saw big orders from sellers on platforms like Amazon and eBay. Hu, who also found orders on such platforms, said that after trust was built, orders of 10,000 or 20,000 items were common.  

But order size shrank as more and more Chinese sellers joined cross-border platforms. “The market share of big wholesalers [buying direct from manufacturers] was squeezed. They found the orders grew smaller and the profit margin dwindled too,” said garment seller Ye. 

Lack of Experience 
Hu Hebin, a former garment supplier, was a forerunner in providing products to sellers on cross-border e-commerce platforms starting in 2015. After supplying to sellers for two years, Hu produced products better suited for overseas markets. Later, he turned to the retail business and opened his own shops on Amazon and AliExpress, Alibaba’s overseas B2C platform.  

At that time, while the operating costs of shops on the platforms were not too high, there were few who understood how to maximize profits. Sales stagnated, and compounded with logistics and inventory costs, Hu ended up losing over 1 million yuan (US$143,713) and had to retreat. 

“It’s unrealistic for manufacturers to connect with customers directly,” said factory owner Xie Hailong, as selling and manufacturing are “two totally different businesses.” “Selling is to find certainty in a lot of strong uncertainties while manufacturing is a business that optimizes existing certainties,” he said.  

Wen Danfeng, director of the Guangdong-based Modern Academy of the Mobile Internet, is not optimistic either. He revealed that many cross-border platforms try to enroll Chinese manufacturers whose annual revenue exceeds 20 million yuan (US$2.9m) to open shops, but they just end up with traders.  

“Even traders experienced in overseas sales found it difficult to keep the business going online. I doubt manufacturers can do better,” Wen said. He warned that as the industry is plagued by overcapacity, making manufacturers engage in retail could easily trigger a “suicidal” price war that would drive down prices to an unsustainable level.  

What’s more, the rules on cross-border e-commerce platforms keep changing, making it challenging and costlier for shop owners to survive. “The platforms often hold training courses, not about selling but platform rules. Even experts in this find it hard to help sellers do better,” Wen said.  

After all, the golden era of a decade earlier, when companies could just set up a website and orders from both consumers and distributors would pour in, is over, Ye Zhibin said.  

According to Wen, given the rising costs of transportation, overseas warehousing and exchanging and refunding goods, products suited for cross-border online platforms are either so cheap that customers do not bother with refunds or exchanges, or so expensive and high-quality that they can absorb the cost.  

As Chinese platforms like Shein and Temu price more competitively overseas, high-end products are struggling to turn a profit as consumers are so used to buying cheap throw-away fashion. 
For example, the city of Chaozhou in Guangdong is known for making wedding dresses. As foreign trade becomes difficult, companies want to sell more products via cross-border e-commerce. “But there’s no established platform for such high-end customized products,” Lu Weixing, director of Chaozhou’s clothing industry association in Guangdong Province, told NewsChina. “The input-output rate is low.” 

Garment workers size up potential jobs at small workshops and factories based on difficulty and wages, Datang Village, Haizhu District, Guangzhou, Guangdong Province, February 13, 2023 (Photo by VCG)

Shein-Style Business
For small companies that are more vulnerable to sluggish foreign trade, cross-border e-commerce can provide a lifeline. More and more of them are trying platforms like AliExpress, Amazon and Wish.  

Data from Askci.com, a Chinese consulting company, shows that between 2017 and 2021, the share of clothing and footwear of the overall cross-border e-commerce trade volume rose from 17.4 percent in 2017 to 27.4 percent in 2021.  

One way out for small businesses is becoming part of the supply chain for big online retailers like the Guangdong-based Shein, which has a network of family workshops and small manufacturers that rely on orders from the quickly expanding e-commerce platform. In 2022, Shein’s revenue totaled US$22.7 billion.  

According to Chen Shaotong, clothing exports from Guangdong Province account for a quarter of China’s total garment industry. Over 80 percent of provincial production capacity is concentrated in the Pearl River Delta Region, which boasts the most complete industrial chain, from R&D and design to manufacturing and cross-border promotion of brands.  

To Chen Shaotong and Wen Danfeng, Shein’s rapid success, based on its speed and flexibility in responding to market demand and its cheap prices, is due to the industrial clothing cluster surrounding Guangzhou, capital of the province.  

Industry insiders revealed that factories that meet Shein’s requirements are its main manufacturers that design and make samples. But the products consumers receive are not necessarily produced by these central factories, which outsource orders to smaller ones.  

“Shein chose Guangzhou because it has countless small factories. Such mini factories or workshops, mostly with fewer than 20 workers, don’t mind working overtime and are willing to take smaller and low-profit orders that are ignored by bigger companies. They are the right fit for fast fashion orders,” Wen said.  

“Twenty workers in one workshop probably can do it all, from tailoring to sewing, from making collars to sleeves. They are experienced but lack qualifications, clustering in urban villages. These workers don’t want to work on an assembly line. When there’s an order, they can go to the labor market, quickly assemble a team of 8-10 people, and the job is done. It’s unbelievable to people outside the industry,” he said.  

But this ultra-fast Shein model of small orders and quick response to market demand means very low profit margins. “It’s a double-edged sword. The efficiency requirements mean you have to work hard to meet deadlines, but you are paid. The most important thing is that Shein pays quickly, which means a high turnover rate of capital,” said Hu Hebin.  

Both Wen and Xie believe that as the costs of running businesses keep rising, Shein gives small factories surrounding Guangzhou a lifeline, and offers access to digital equipment like computer-controlled automated tailoring and sewing devices they could not otherwise afford.  

According to Wen, platforms like Shein have really increased the speed of the fast fashion industry around Guangzhou. “Such efficiency means the new industrial cluster will be able to meet all fast fashion orders in the future,” Wen said.  

Currently, low prices remain the biggest advantage for Chinese clothing, as shown on platforms like Temu and Shein. But people in the industry NewsChina interviewed believe that relying on low prices is not sustainable, particularly as global industrial chains shift. They believe original design, innovations in materials and equipment, talent cultivation and consistent exploration of new business modes must be the solution.  

Lai revealed his greater ambitions for overseas e-commerce. “We will make high-end products in the future, and I don’t think traditional distributors will find these products acceptable. We’ll have to rely on ourselves to find customers,” Lai said.  

In the clothing industry, Canadian athletic apparel brand Lululemon reminds Chinese clothing manufacturers of their inadequacy. It is particularly so for Lai, a yoga wear maker. “One of Lululemon’s material suppliers is from Guangdong. Chinese factories could do 95 percent of the manufacturing, but the hardest part comes in the remaining 5 percent that involves making technological breakthroughs in materials,” said Lai, explaining why Lululemon’s products can be four times more expensive than similar products. Lululemon created its own fabric, and relies on third-party manufacturers in several countries, including China, to make its products.  

Now Lai is trying to find customers who can afford high-end products. Meanwhile, he believes that following the example of Lululemon and investing in R&D is the way forward for Chinese manufacturers.  

Chen Shaotong believes the most practical and feasible way forward for Chinese clothing manufacturers is to stand out with original designs by tapping the country’s large reserve of creative talents. Guangdong Fashion Week, jointly hosted by Guangdong Fashion Designers Association in March, showcases original design to motivate industry transformation and upgrading.  

But Wen added that design is more than aesthetics. He called attention to the often ignored industrial design, which includes the application of new materials. “Our fashion designers are almost all art students. But fashion design today requires multi-disciplinary cooperation instead of a single designer,” Wen said.  

“We don’t need to worry about the inevitable industrial transfer, it won’t put an end to the industry. But we need to make sure companies in the upper stream keep pace with technological changes,” Xie Hailong said.

A worker packages products at a garment factory for export, Guangzhou, Guangdong Province, January 23, 2015 (Photo by VCG)