Located in southeast of Hangzhou， Wubao village was well-known in the province for its garment processing plants. Five years ago， the village garment industry reached the peak， with more than 900 processing plants and annual production of 60 million garments. Today， the village is quiet， because more than half of the so called “l(fā)ow-end， small， scattered” processing workshops initiatively withdrew from the market competition due to backward technology and equipment， and lack of innovation， thereby driving productivity transferred to new industry colonies.

The change of Wubao village is just a corner of the garment industry transformation puzzle. Influenced by the global market downturn， rising labor costs， and impact from on-line sales， etc.， Zhejiang garment industry changes from “rapid expansion” to “excess capacity” and “high inventory”， making the garment industry supply-side reform urgently needed.

Blind expansion leads to overcapacity； will the processing with supplied material mode continue to survive？

A country house， 10 sewing machines， no more than 20 garment workers， Hangzhou garment processing with supplied material mode started in the late 1980s， and products are mainly exported. After the year 2000， with the continuous expansion of Sijiqing wholesale market of Hangzhou， “Hangzhou style clothing” quickly occupied the domestic market， and the “l(fā)ow-end， small， scattered”processing with supplied material workshops were also booming.

More than 1，600 workshops rapidly gathered in Wubao， Qibao villages due to the low rent and convenient transportation there. At the same time， the number of garment enterprises in Hangzhou city soared from 1，400 in 2005 to 2，400 in 2010； and the number of garment workers increased from 14 million to over 30 million in 2010.

“Looking back， this process is blind expansion”. Zhang Yi， Hangzhou style Womens Garment Chamber of Commerce chairman believes that， with low threshold for garment processing， small investment， and relatively high profits， a lot of resources flock into Wubao， Qibao in Just five years， therefore doubling the garment production. However， due to the limited market demand， the global economic downturn， and the e-commerce supplier transformation around the year of 2012， etc.， garment orders began to decline year by year， and processing workshops were the first to be affected.

Ms. Pu， who is from Sichuan and has been in the industry of processing of the supplied material for five years in Wubao， says that the current garment processing enterprises in this village have been reduced from 900 to 500”， and “We once earned RMB 5 for a piece of clothing and half of the money was the profit， but now we earn RMB 8， barely profitable after taking out rent and charges for water and electricity and labor cost. Some plants only get one or two orders a week， making dozens of pieces of clothing. It is too hard to hold on any more.”endprint

“Such market changes leave people in this field unprepared.” Shen Suli， chairman of Xin Chen costumes and member of Hangzhou CPPCC， explained overcapacity in this way： “the global economic downturn reduced consumers demand for garments. The e-commerce sales mode suppresses the wholesale channels of the Sijiqing market. Reduced export causes a large number of enterprises to turn to domestic sales， which intensifies domestic competition； and uncompetitive gar- ment enterprises naturally go to excess capacity”.

A set of data also show that the traditional garment industry is experiencing a cold winter： in 2014， above-scaled garment enterprises in Hangzhou gained a sale output value of RMB 28.5 billion， which is 1.35% lower than the previous year， being the first negative growth. In 2015， sales output for Hangzhou above-scale garment enterprises was decreased by another 0.77%.

Meanwhile， according to statistics of Hangzhou Economic and Information Technology Commission， a total profit of garment enterprises has been dropped by 39.65 percent， and there has been a loss of 24%. The extensive garment manufacturing mode apparently does not meet the requirement for eco-friendly and high-efficient development， making it a trend to eliminate backward production capacity.

Eliminating backward production capacity， creating new industry cluster， and leading joint development of SMEs

In 2015， Zhejiang proposed to build “seven trillion-scaled industries”， and fashion industry is one of them. How to make garment manufacturing rejuvenate？ Promoting information technology in design and intelligentized production become the long-term goal.

In Hangzhou， as “l(fā)ow-end， small， scattered”processing workshops gradually withdrew from the competition， new garment processing clusters have appeared in Xiaoshan， Yuhang and other places. Unlike the previous “fighting on one own”， the new clusters have advantages in resources， capabilities， services， and radiation effects， etc.， making it more suitable for SMEs to develop together.

“Processing with supplied material has come to the end， and it is time to change.” Ms. Pu told reporters that she was planning to move to Yuhang together with her peers， accumulating their respective advantages to strive for more Taobao orders，“we have got the winter design， and business in the rest half of the year will certainly get better as long as we keep up with good quality and do more‘best-selling models”.endprint

“Integrating the eliminated small businesses helps to promote the overall image of Zhejiang garment industry.” Shen Su Li supports the “Alliance Mode” to enhance competitiveness. “In the past small businesses do not want to put effort in technology， design and brands； instead， they are keen to grab market shares and to promote sales， making Zhejiang-made clothes a synonym for middle and low-end goods. Now the market is forcing enterprises to enhance the design， to improve quality， and to create first-class brands by eliminating the current brands.”

In Qibao village， more than half “l(fā)ow-end， small， scattered” processing workshops initiatively withdrew from the market competition.

With increased labor costs and declining international competitiveness， how does the laborintensive industry maintain profitability？

Unlike the processing workshops in Wubao， Hangzhou Qiaosi garment industry has begun to take advantage of the cluster. Many designed size export enterprises reach a long-term cooperation with H&M， Zara， CABI and other international brands and achieve market growth of foreign trade orders. However， increased labor costs make the enterprises deeply feel the small profits.

“By 2015， the companys sales of foreign trade increased from 70，000，000 to 1 million with annual growth rate of about 30%， but it is hard for the profit to increase.” Wu Zhengqian， general manager of a garment factory told Reporters from Zhejiang Online， currently foreign trade clothing only has 5% profit margin： “in order to compete with the manufacturing competitors in Southeast Asia， we can only put aside profits to maintain customers. As wage costs continue to increase， the international competitive advantage has become increasingly smaller.”

According to statistics made by Qiaosi Street， in 2005， the human resource cost in Qiaosi gar- ment industry was 2，500 yuan per person in 2005， it increased to 4，000 yuan in 2010 and to 7000 yuan in 2015. Excessive expansion of production capacity increased demand for garment workers， and accelerated wage increases. In the industry gathering area， job recruit advertisements can be seen everywhere for years long， the paper has weathered. “Recruitment difficulties” for garment enterprises has become a common phenomenon.

“With the high living cost in Hangzhou， even if we earn 6，000 yuan per month， by the end of the year， we can hardly save much money”， said Xiaowang， a 90s lathe worker， told the report that he and his girlfriend intend to find job in his hometown after the Chinese New Year Festival， “maybe I will change to another industry or open a small shop”.endprint

Solution： build your own brand to achieve industrial transfer

“Increased wage demand is an inevitable trend as living standards improve. In order to maintain the international competitiveness， enterprises in Zhejiang have to improve the manufacturing technique.” A relevant staff in Hangzhou Economic and Information Commission introduced， a company， located in Xiaoshan， already has a set of intelligent garment production lines， automatic cutting， automatic ironing and other technology are globally in the lead. “After the realization of the machine production， international orders come in all the year round. Since we undertake high-end apparel manufacturing， the profit is also considerable.”

At the same time， the profit distribution structure for the clothing industry： 40% for the design， 50% for marketing， only 10% for production. The production process only apparently is unable to produce more profit. To initiatively create national brands， “do not do the wedding dress for others” can also be a breakthrough for export businesses.

Shifting their production bases to the western regions and abroad has also been put on the agenda of Zhejiang clothing enterprises. “It is， after all， a choice of economic structural adjustment to invest cross-border， to direct production capacity cooperation abroad and to restore human resource advantages” told by Shi Yulong， an expert on regional economy research in National Development and Reform Commission to Reporter from Zhejiang Online， the rapidly advanced “the Belt and Road Initiative” national strategy is very beneficial in exploration of the international market， and may also provide ideas for the transformation of Zhejiang garment industry.

Transformation of clothing inventory crisis chain mode How do brand enterprises create “all channels” marketing？

Industry winter has equal impact on large brand enterprises. Due to overcapacity， a large amount of garments overstock in the sales process and form a huge inventory overstock.

According to the data released by National Bureau of Statistics： in 2013， the countrys final total wholesale clothing inventory was 61.362 billion yuan. By the end of 2014， once again the total inventory raised to 80.924 billion yuan. According to analysis form insiders， the current national inventory of clothing is enough for 1.3 billion people to wear a year.

“Well-known company with High inventory is not an exaggeration.” In a company having clothing brands ranking top ten in Hangzhou Style， Mr. Lee， the assistant to the chairman told Zhejiang Online Reporter， that relying on the traditional franchise model， only about 70% garments are sold for each quarter， and the remaining 30% are converted to inventories.endprint

“So last year we sold 1.5 billion clothes but the stock has reached to over 3 billion yuan which almost offsets all the profits. The longer the distribution chain is， the more stores are opened， and the more severe inventory becomes.” Mr. Lee said， the inventory crisis has become the common "black hole" for chain stock clothing brands.

Take the famous brand “Metersbonwe” in Wenzhou， Zhejiang as an example： at the end of 2014， its stock reached 1.435 billion yuan， and in 2015 the full-year loss reached more than 400 million yuan. Another Wenzhou enterprise “Semir”， inventories of last year reached more than 20 billion yuan. The once thriving clothing franchise mode urgently requires a “Internet +” transformation.

Many well-known brand garment factory launched factory stores. Solution： launching brand factory stores， managing with big data and manufacturing precisely

To digest inventory， well-known garment enterprises are exploring on establishment of “factory store”： In Xiaoshan Industrial park of Women garments， the brand JNBY are taking 90% off for pro- motion， Hempel also introduced a high-end clothing that was once for exports. In Xiasha Economic Development Zone， the three-color brand invested more than 7 million， launched a collection of factory-style stores. With the introduction of Younger mens， childrens clothing in the brand of Xtep， it plans to push commercial real estate development by the attraction effect of stock clothing.

Internet Big Data technology began to be used in clothing sales. Erection “All channel marketing platform，” data in the entity outlets， Tmall shop， factory shop and the companys inventory are connected to achieve online and offline uniform rationing and to control the clothing production at a minimum extent， place extra reproduction according to market demand. Let the store became the experience center of shopping， i.e.， if customers are satisfied after try the clothes on， they can place orders online， and get them delivered to their home.endprint