Interview with Haibin, a Chinese-made | disappearing in Lulu Lemeng's store

Chinese consumers are becoming increasingly important to Lululemon.

Over the past two years, Canada-based sportswear brand Lulu Lomon has grown much faster than other countries in China, where it has the largest number of new stores. This has helped Lulu Lemon surpass Adidas in market capitalization. Through physical stores and online platforms, Lulu Lemeng's products are increasingly closely related to Chinese consumers.

Made in China is becoming less and less important to Lulu Lemeng.

Lulu Lemon's production links are increasingly far away from China. The first financial reporter recently visited Lulu Lemeng's Shanghai Xintiandi store, which displays the vast majority of products from Vietnam, Cambodia and other countries, and China's manufacturing is not as good as one.

Disappeared Made in China

"There used to be some Products Made in China, but now there are fewer and fewer." At the Shanghai Xintiandi store of Lulu Lemeng, a shopping guide told the first financial reporter.

Lulu Lemeng's Shanghai Xintiandi store is a separate Chinese style building. The façade of the three-storey building is made of green brick with elements of a stone vault door. It is the largest store in East China, with men's and women's clothing on the first and second floors, and a member activity area on the third floor.

When the reporter visited the storefront, he checked the product hangtags of many categories on the shelves. Men's and women's ready-to-wear, such as yoga clothes and winter down jackets, on which Lulu Lemeng is famous, mainly come from Southeast Asian countries, such as Vietnam, the Philippines or Bangladesh, and only a few products, such as backpacks and hats, are labelled "Made in China".

According to Lulu Lemeng's 2020 financial report, the company cooperates with about 40 suppliers in the manufacturing process, and the five suppliers at the head manufacture about 60% of Lulu Lemeng's products, of which the largest manufacturing company produces 17% of Lulu Lemeng's products.

Lulu Lomon did not disclose who is its largest manufacturer, but it is certain that the manufacturer's main production plant is not in China, because China (including Hong Kong, Macao and Taiwan) only produces about 9% of Lulu Lomon products.

Vietnam is the largest production base for Lulu Lemon products.

Lulu Lemeng disclosed in the third quarter of this year that about 33% of its products are produced in Vietnam, 20% of its products are produced in Cambodia, and 12% of its products are produced in Sri Lanka. This trend is similar to the sports brand Nike, according to the reporter combing the financial report, more than half of Nike's sneakers are currently produced in Vietnam, about 25% are produced in Indonesia, and the proportion of Chinese production has dropped to 21%.

The proportion of Lulu Lemeng's products made in China used to be unusually high, especially in the first decade of this century.

2005 was a turning point in the export of China's textile and garment products, in this year, according to the provisions of the WTO, the United States and other countries removed the export quota for China's textile and garment, and China's exports to the United States surged in that year.

Lulu Lomon's first financial report showed that in fiscal 2007, 60% of the company's products were made in China; in fiscal 2008, China made 65% of Lulu Lomon products; in fiscal 2009, it was the apex of parabola, this year China made 75% of Lulu Lomon products; and in 2010, the share of Chinese manufacturing fell to 60%.

In the second decade of this century, the proportion of Chinese manufacturing has fallen at an unusually fast rate. The proportion of Lulu Lomon produced in China fell by 11 percentage points to 49% in 2011, rising to 41% in South Asia/Southeast Asia, and further reduced the proportion of Chinese manufacturing to 34% in Lulu Lomon's fiscal year 2012.

Also disappearing is Made in Canada.

As the country where Lulu Lomon is headquartered, Canada once manufactured more than 18% of the company's products. But in the competition with Asian manufacturers, Canada's manufacturing industry has lost. In 2012, the company no longer disclosed the proportion of production in Canada, and the overall manufacturing ratio in North America was 3%.

Since then, the balance of manufacturing has continued to tilt to Southeast Asian countries. The share of Chinese manufacturing in Lulu Lemeng products fell to 23% in 2013, only 11% in FY2014, 15% in FY2016, 10% in FY2017, 12% in FY2018 and 11% in 2019 (including 2% in Taiwan). By 2020, only 9% of Lulu Lemeng's products will come from China (including 2% in Taiwan).

Lulu Lemeng officially replied to the interview with First Financial Economics that the company is committed to building a global supply chain, and its "standard operation method is to regularly evaluate and adjust the relevant layout."

It has not been a year or two that China's manufacturing sector, especially on the southeast coast, has faced a labor shortage. Southeast Asia, such as Vietnam, has a clear labor advantage. Lulu Lemeng said in its 2010 earnings report that the potential pressure on Chinese manufacturing at that time came from "the possibility of significant appreciation of the renminbi, labor shortages and rising labor costs."

Vietnam's appeal lies in its cheap labor costs and lower tariff rates when it comes to international markets. However, in the construction of a complete textile and garment industry chain, Vietnam still has a great lack. For example, 45% of the textile materials required for Lulu Lemeng products come from Taiwan, 18% from Chinese mainland and 16% from Sri Lanka.

"A large number of the raw materials and products we use come from China," Lulu Lemeng officially told CBN: "In fact, two-thirds of the raw materials used by Lululemon come from Chinese mainland and Taiwan to manufacture our products worldwide." ”

Lulu Lemeng's earnings report shows that 45% of the textile materials needed for its current products come from Taiwan, 18% from Chinese mainland and 16% from Sri Lanka.

The chinese market is booming

During the epidemic, the number of Stores in China has exceeded the number of stores in Canada.

As of October 31, 2021, the number of Lulu Lomon stores in China (including Hong Kong, Macao and Taiwan) has reached 71, adding 16 stores from the beginning of the year. During the same period, Lulu Lemon's U.S. stores grew by 7 to 322, while the number of stores in Canada remained at 62.

In 2021, China will have the largest number of new stores in Lulu Lemeng. Thanks to China's strong grip on the COVID-19 pandemic, consumers' social and shopping needs have been rejuvenated.

According to Lulu Lemeng's quarterly report for the third fiscal quarter of this year, its online and physical store sales in China are very strong, achieving a compound growth rate of 70% in the past two years, significantly exceeding the overall growth rate of the international market. In the European market, for example, Lulu Lemon has grown at a compound growth rate of only 20% over the past two years.

"We are very satisfied with the compound growth of 70% in the Chinese market. The company continues to invest in new stores in China and its headquarters in Shanghai. Lulu Lemon's CHIEF Executive Officer Calvin McDonald said at a results briefing for the third fiscal quarter of 2021.

The growth in the number of Stores in the Chinese market is a continuation of the past trend.

In 2020, the pandemic caused Lulu Lomon to briefly close all stores in China. As the outbreak was brought under control, these stores quickly reopened, and the company did not stop opening new stores in China.

In 2020, Lulu Lomon opened 17 new stores in China, more than any other country. As of the end of 2020, Lulu Lomon operated 521 stores in 17 countries, the vast majority of which were in the United States and Canada, and China ranked third in the number of stores (55 stores).

This strong increase in the number of stores has occurred in only two countries: China and the United States. In terms of global comparison, the number of stores in Canada, where Lulu Lemon is headquartered, has basically remained at about 60, which has basically not increased since 2017; the number of stores in the United States has increased from 274 in 2017 to 315, but only 10 new stores were added in 2020.

It took Only six years for China to become the second-largest owner of Lulu Lemeng in terms of store number. And Lulu Lomon controls the distribution channels herself. An employee of Lulu Lemeng told the first financial reporter that its 71 stores in China are all self-operated, and there are no third-party franchise stores.

Lulu Lomon only opened its first store in China in 2016. Its yoga clothes and other products are expensive, while Chinese consumers are in high demand.

The growth of China's middle class and desire for a healthy life has contributed to a booming sportswear market. Lulu Lomon and its competitors Nike and Adidas have benefited greatly from this rapidly growing cake. Nike and Adidas, for example, have been in China for longer and have long been the largest market share holders of sportswear in China.

Lulu Lemeng seems to have the momentum of the latecomers to catch up. The sportswear dark horse company is currently worth about $48 billion, surpassing Adidas and ranking behind Nike.

(Liu Xiaojie, a reporter of this newspaper, also contributed to this article)