Home textile industry faces challenges both at home and abroad; transformation of thinking is imminent

Since 2011, the roller-coaster price fluctuations of cotton and the significant price inversion between domestic and international cotton prices (approximately 6000 yuan/ton) have been major factors affecting the operation of the entire home textile industry. In addition, rising labor costs, weak export demand, and the slowdown in domestic demand due to the sluggish real estate industry have presented significant challenges to home textile manufacturers primarily producing bedding, towels, and textiles.

In the first three quarters of 2012, the total industrial output value of 1812 large-scale home textile enterprises in China was approximately 180.4 billion yuan, a year-on-year increase of 13.6%, with a profit margin of 5.19%. Domestic sales increased by 18.5% year-on-year, while export delivery value only increased by 1.6%. In terms of product segmentation, the growth rate of bedding and towel enterprises slowed down, and the profitability of textile enterprises showed a slight downward trend.

Taking cotton 229 as an example, in the first quarter of 2011, the price of cotton 229 reached a historical high of 30,500 yuan/ton, a year-on-year increase of 96.7%; compared to the first quarter of 2009, it increased by 158.7%. In the second half of 2011, cotton prices began to fall significantly. By the fourth quarter of 2012, the price of cotton 229 had dropped to 19,700 yuan/ton. However, at this time, the price of imported cotton was between 13,000 yuan/ton and 14,000 yuan/ton. In the long term, the price difference between domestic and international cotton has been maintained at around 1500 to 3000 yuan. Textile enterprises can still resolve the negative impact through their own adjustments. However, the current domestic cotton price is about 45% higher than the international market, and cotton accounts for 1/4 of the total textile fiber raw material processing volume. It is difficult for enterprises to resolve the price difference impact through their own adjustments alone.

In addition to the large fluctuations in raw material prices, a significant increase in labor costs is also a major factor restricting the development of various enterprises in the home textile industry. It is understood that in the towel production process, raw materials generally account for 50% of the total cost, and wages (including management fees) account for 5% to 10% of the total cost. In 2012, the average worker's wage was between 2000 and 2500 yuan/month, with a 10% to 20% increase each year. Compared to three years ago, the highest increase was 70%. In addition, the difficulty in recruiting workers in the textile industry has become a common phenomenon, especially during the autumn harvest and around the Spring Festival.

A report released by Frost & Sullivan Consulting Company points out that high costs and the inverted cotton price compared to the international market have caused Chinese cotton products to lose their previous competitive advantage in the international market. In addition, the price fluctuations caused by the appreciation of the RMB have gradually shifted foreign orders to surrounding countries such as India and Pakistan.

So, what kind of transformation should Chinese home textile enterprises adopt to make up for the gradually lost price advantage in the international market?

Export countries shifting from developed countries to emerging markets
 
Although Chinese export enterprises faced a very severe international economic situation in 2012, with developed countries yet to recover from the financial crisis and many European countries entangled in the sovereign debt crisis, China's exports to Asian countries and emerging economies showed good momentum in the first three quarters of 2012.

Chinese customs data shows that in the first three quarters of 2012, China's exports of home textile products to BRICS countries, ASEAN ten countries, and South American countries increased by 20%, significantly higher than the export growth rate to developed countries. The growth rate to ASEAN ten countries was 13.8%, and the growth rate to South American countries (excluding Brazil) reached 7%. These three regions already account for 16% of China's total exports.

Market shifting from export to domestic sales
 
In recent years, the increase in Chinese citizens' disposable income, purchasing power, urbanization rate, and the development of the real estate market have greatly promoted the development of China's domestic home textile market. In 2013, domestic demand will remain the most important support for the growth of China's home textile industry, and the industry is expected to achieve double-digit growth.

Sales channels shifting from supermarkets to e-commerce
 
More and more home textile products have entered low-cost emerging channels such as Yihaodian and Taobao from supermarkets, department stores, and brand specialty stores. Under the circumstances of declining external demand, rising raw material prices, and rising labor costs, many home textile brands have opened their own B2C e-commerce platforms.

Compared with the traditional marketing model, e-commerce provides a low-cost brand promotion platform for niche brands, building and improving brand awareness, and expanding the market. The e-commerce model solves the disadvantages of vertical sales, giving the maximum profit directly to consumers; it also allows businesses to directly obtain market feedback and conduct product research and development based on consumer needs. This means that home textile enterprises entering online sales has become an inevitable trend.

Products shifting from mass market to segmented market

For any industry, only enterprises that can correctly grasp market demand can stand out in the industry.

In terms of baby home textile products, 2012 was the year of the Renchen Dragon, and China ushered in a new wave of "baby boom" of dragon children and dragon girls, with a 2% increase in "dragon babies" born compared to previous years. With the arrival of the dragon year baby boom, the demand for various maternal and infant products has increased significantly, and the already insufficient supply of baby home textiles has ushered in unlimited business opportunities.

In terms of functional home textile products, in recent years, with the improvement of people's consumption capacity and economic conditions, in addition to aesthetics, functions such as sterilization, deodorization, and health care have also become one of the factors considered by consumers when purchasing home textile products. New fiber materials such as bamboo fiber, wood fiber, microfiber, and milk fiber are also widely favored by consumers.