China's textile and apparel industry has been in a transitional phase since 2013. In January 2014, the temporary policy of purchasing and stockpiling cotton was cancelled. For textile and apparel companies, in the short term, the gross margin will be reduced as a result of cotton price decline, raw material inventory depreciation and falling product prices. However, in the long run, lower production cost is helpful to improve gross margin.
Compared with the sluggish growth of traditional channel consumption, online sales of textile and apparel companies grew rapidly. In the first quarter of 2014, China's online retail sales saw a jump of nearly 46 per cent, accounting for 9 per cent of total volume of retail sales, thus becoming a new growth engine for domestic demand.
While online business grows, apparel sales through traditional retail are still faltering due to the double blow of consumer recession and the diversion of business to the online channel. In May 2014, apparel retail sales of China’s top 100 large retailers saw a year-on-year increase of 5.4 per cent, still 0.7 percentage points slower than that of the same period last year. In the branded apparel segment, casual wear and home textiles have resumed growth while men’s wear and women’s wear are yet to pick up.