Continuous Loss Waiting For Channel Transformation To Break Through

As the first share of underwear, the market value of urban beauty was once as high as HK $16.18 billion in 2015. With the change of market wind direction and the collapse of "WanDian plan", the company began to seek transformation in 2019. In addition to adjusting spokesmen and corporate executives, the lack of improved financial data is also the price they have to bear.

On June 26, urban beauty (China) Holding Co., Ltd. (hereinafter referred to as "city beauty") issued a profit warning, saying that its owners' share of losses in the first half of 2020 will be no less than 120 million yuan.

At this point, it was only a warning in the past six months. On December 23, 2019, urban beauty said that it is expected that the after tax loss of the current year will not be less than RMB 980 million.

Even though the city beauty emphasized in two profit warnings that the company's loss was due to the overall impact of the epidemic on the economy in the first quarter of 2020 and the need to respond to the company's transformation plan in 2019. But in fact, it is an indisputable fact that the growth rate of revenue, gross profit and net profit of the company has slowed down or even decreased since 2016.

Difficult to withdraw from the loss of RMB 1321.1 billion

Undoubtedly, those who are in the spotlight are in a bad situation.

More than 80% of the direct stores and their franchised stores in the same period have been reported by the media in the same period. As of March, more than 80% of the direct stores and their franchised stores have been closed. "With the gradual alleviation of the epidemic situation after the first quarter, the company's operation has continued to improve since March." City beauty related people said.

From the point of view of the future financial report of Lijiang, it is difficult to find out whether the next financial report is a better solution.

According to the annual report of 2019, the annual revenue of urban beauty was 4.082 billion yuan (RMB, the same below), with a year-on-year decrease of 19.91%; the gross profit was 923 million yuan, a sharp decrease of 56.55%; the net profit was 1.3 billion yuan, a sharp decrease of 442.4% compared with the same period last year; the number of stores decreased from 7305 in 2018 to 5970.

On the one hand, the sharp fall in financial data is related to the overall downward trend of the clothing industry. According to the data of China's National Bureau of statistics, the growth rate of industrial added value of the clothing industry in 2019 is 0.9%, which is 3.5% lower than that of the previous year; the cumulative output of garment enterprises above designated size has decreased by 3.3% in the year.

On the other hand, most of the losses of urban beauties who have been in full transformation since 2019 are accrued losses, including a one-time write off of inventory of 738 million yuan to franchisees and retail customers, exemption of default of about 395 million yuan for major customers, and closure of many damaged retail stores to clear the cost of building decoration of about 51.78 million yuan.

Most of the losses reflect the poor operation of the city beauty in recent years. As the consumption preference of underwear market changes from "sexy" focusing on male factors to "comfort" and "multi-function", as well as the problems caused by the "WanDian plan" in 2015, such as too many franchise stores and difficult to manage, inventory has become the biggest pain point of stores.

According to previous financial reports, the inventory of urban beauty reached 1.151 billion yuan in 2016, accounting for 38% of current assets. In addition, the inventory turnover days increased from 58 days in 2011 to 105 days in 2019, and the turnover days of accounts receivable increased from 14 days in 2011 to 49 days in 2019.

The overstocking of inventory is due to the sales difficulties of dealers and the decrease of new products. In order to improve the turnover, the overstocked styles are promoted with low discount, which damages the company's brand image to a certain extent. Under the vicious circle, urban beauty can only go to battle with light clothes by clearing off the inventory and arrears at the sales end.

It's not an easy decision to clean up inventory and debt. After the adjustment for the whole year of 2019, what is the current situation of the company's specific inventory and accounts receivable? So far, has the proportion of new products imported by its dealers increased compared with that of the previous year? The other side did not give a positive answer to the above question.

"Despite the global experience of undifferentiated new crown pneumonia epidemic this year, the city beauty advanced and continued to promote internal changes and special projects, and the operation continued to improve." That's what the city beauty says.

The brand is not clear for the time being, the channel is seeking to change, and the road is blocked and long

It is another attempt of urban beauty to break the situation by adjusting management and brand strategy.

In 2018, the former CEO of Weimi joined as the Chief Strategic Officer, and the former technical director of wargol served as its chief technical officer; in 2019, he hired professional manager Xiao Jiale as the chief executive officer, hired Boston Consulting Company to review the group's business strategy, and replaced Lin Zhiling, the spokesperson of seven years of cooperation, to Guan Xiaotong, a post-90s actress.

In addition, urban beauty also makes corresponding changes in product category and store upgrade. In 2018, for the first time, the company subdivided product categories according to the status of consumers. The concept of "4f" is called by the company, which are free (simple and natural), flirt (temptation), function (play) and function (function).

In the stores, the shopping center stores with the theme of "family life concept" are set up, and the seventh generation stores are opened and renovated.

It seems that a good channel for innovation is not an overnight signal. According to the financial report in 2019, sales to franchisees are still the most important source of revenue, accounting for 47.8%, indicating that franchise stores are important cash cows of the company. Chenglijin's joining store will be different from that of the store owner in the city, which means that they need to adjust the management level of the company.

Visit four City beauty stores located in Bao'an District of Shenzhen, mainly in non core business areas or industrial areas. Since last October, the store owner of Hezhou has not been informed of any product upgrade related to Kaicheng.

At the same time, the entrance of the store and the main central display area are selling special or clearance products. When asked whether there are new products in the current season, the shop owner will display the innermost area of the store.

"Not necessarily accept the brand management from the head office" is the owner's concept of product adjustment and store upgrade. "The shop is small and not in the big business district or integrated shopping plaza. If the sales are good, they may be willing to try to upgrade. If the sales are not good, closing the store directly is the most timely stop loss choice. " The shopkeeper explained to investor.com.

Brand adjustment or full of challenges, urban beauty also focuses on channel improvement, increasing investment in e-commerce channels and wechat apps, so as to realize Omni channel marketing. According to the 2019 annual report, its revenue from e-commerce accounts for 15.4% of total revenue, slightly higher than 14% in 2018. As to whether the outbreak of the epidemic in the first quarter of this year had an impact on the online sales of the city beauty, the relevant person in charge of the city beauty did not give a positive reply.

"After the outbreak of the epidemic, in order to cope with the suspension of some offline stores, the company increased the operation of e-commerce channels such as wechat applet, tmall and Jingdong, and also increased investment in live broadcasting. The sales of some main categories of e-commerce achieved double-digit growth in May; the multi platform 618 activities also achieved double-digit growth." The person in charge said.

But online competition is not necessarily easier than offline. In addition to the traditional leading enterprises, anlifen holding (01388. HK) and Huijie (002763. SZ) have also opened e-commerce channels. Besides, online brands such as "internal and external" and "oxygen" which have obtained B + round financing and "yinman" of pre-A round are also the "network Aboriginal" forces that can not be underestimated. According to incomplete statistics, in 2018, the investment and financing funds of China's underwear industry will exceed 200 million yuan.

It is worth noting that, according to AI media consulting's data in 2020, the online word-of-mouth of urban beauties dropped to 28.9 from December 23, 2019 to January 6, 2020, indicating that negative emotions dominated the mainstream. However, in the 2019 survey on the purchase value of urban beauty by Chinese netizens, only 28% of netizens thought it was worth buying and 72% of the respondents thought it was not. To some extent, the low internet word-of-mouth is also the resistance of the urban beauty innovation channel.

The price of a strong man is not light, and the performance of urban beauties in the secondary market is not so optimistic. Since November 2019, its share price has fallen below HK $1 per share and closed at HK $0.51 on July 17, down to one eighteenth of its peak of HK $9.37.

"The performance of the capital market is a combination of various factors. The company will continue to improve its product technology advantages and deepen its reform, so as to drive enterprises to achieve high-quality growth and sustained growth in shareholder value." In view of the value of the company, the relevant person in charge of the city beauty said. The long way to go and the long way to go is perhaps the most vivid portrayal of this adjustment.