---
title: "The group buying business proactively reduces production and joins hands with JD.com's HLA GROUP, perhaps to shift to \"outlets\""
type: "News"
locale: "zh-HK"
url: "https://longbridge.com/zh-HK/news/215548898.md"
description: "Transforming towards channel partners"
datetime: "2024-09-30T01:37:24.000Z"
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  - [en](https://longbridge.com/en/news/215548898.md)
  - [zh-HK](https://longbridge.com/zh-HK/news/215548898.md)
---

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# The group buying business proactively reduces production and joins hands with JD.com's HLA GROUP, perhaps to shift to "outlets"

Between business expansion and contraction, HLA GROUP (600398.SH) may no longer be satisfied with just being a brand that men "visit twice a year".

On September 27th, HLA GROUP announced plans to halve the investment scale of the "Luoyang Clothing Production Base Construction Project" to 85.76 million yuan, with the remaining 97.59 million yuan of raised funds permanently supplementing working capital for future use in daily production and operations.

The Luoyang Clothing Production Base project was the investment target of HLA GROUP's convertible bond issuance in 2018.

The reduction in production capacity is due to the difficulty in selling professional attire. In the first half of this year, HLA GROUP's group purchase custom series contributed to a revenue decline of 0.65% year-on-year to 1.086 billion yuan.

HLA GROUP's change in fund usage to supplement liquidity may be aimed at targeting outlet businesses, urgently needing funds to establish a procurement-side scale advantage.

In July of this year, HLA GROUP reached a strategic cooperation agreement with JD.com (9618.HK). In September, the first JD Outlet store opened at Wuxi Hailan Feima Shuicheng.

Outlets essentially focus on clearing inventory of big brand end-of-season goods, with the core competitive advantage of outlet operators lying in their purchasing capabilities in terms of scale and product selection, enabling them to obtain lower prices compared to peers or better-selling products.

However, there is inherently a game relationship between brand owners and outlet operators.

For clothing brands, outlet channels thrive during inventory clearance periods; but during upturn cycles, outlets may face shortages of goods.

Quickly establishing a scale advantage in procurement is key for HLA GROUP's transformation into an outlet channel operator.

According to information obtained by TradeWind01, who is close to HLA GROUP, its indirectly controlled subsidiary Spozz Brand Management (Shanghai) Co., Ltd. ("Spozz") is responsible for the procurement of goods for JD Outlets. It also operates the online "JD Outlet Official Flagship Store", with categories not limited to clothing.

Compared to small and medium-sized channel operators, Spozz, backed by JD.com, is expected to have greater bargaining power with brand owners.

Spozz currently retails 5 sports shoe and apparel brands, including Adidas and Under Armour, in outlet channels.

In the first half of this year, HLA GROUP spent 85 million yuan to acquire 11% of Spozz's shares, increasing its stake to 51% post-transaction, thereby achieving controlling interest and consolidation.

The aforementioned source mentioned that HLA GROUP plans to expand the outlet format to more online channels such as Tmall and Douyin, while offline stores will be opened in third to fifth-tier cities.

TradeWind01 reached out to relevant personnel at HLA GROUP regarding the expansion direction of the outlet format, but has not received a response yet.

## **Expansion "Brake"**

HLA GROUP's contraction of production capacity is related to insufficient demand.

In the first half of this year, HLA GROUP achieved revenue of 11.37 billion yuan, a year-on-year increase of 1.5%; achieved a net profit attributable to the parent company of 1.64 billion yuan, a year-on-year decrease of 2.5%; and achieved a non-GAAP net profit attributable to the parent company of 1.51 billion yuan, a year-on-year decrease of 9.3%.

With sluggish sales, inventory turnover efficiency has also decreased accordingly.

Inventory increased by 22.07% year-on-year to 9.553 billion yuan, reaching a near five-year high for the same period. Inventory turnover days increased from 253 days to 272.89 days, while turnover rate decreased from 0.71 times to 0.66 times HLA GROUP's main brand still contributes to a 3.2% revenue growth, but the revenue from group customization business has decreased by 0.65% year-on-year to 1.086 billion yuan.

Last year, HLA GROUP's revenue from group customization business only increased slightly by 1.48% year-on-year, far behind the 15.91% overall growth rate during the same period.

Against this background, HLA GROUP has chosen to scale back its group buying business.

The original plan for the Luoyang clothing production base project was to invest 173 million yuan, with a construction period of 2 years. It is expected that upon completion, the project will bring HLA GROUP an annual production capacity of 14.55 million professional attire.

As of September 26th, the project has received a total investment of 78.7 million yuan, with an investment progress of 45.61%, leaving 97.59 million yuan uninvested.

The original plan required 3,109 employees for full production. However, as of the end of the first half of this year, only 600 people have been recruited, and it is expected that there will continue to be a long-term shortage of production personnel in the future.

"In line with the principle of improving the efficiency of capital utilization, the total investment amount of the project will be reduced and closed."

The apparel industry is currently undergoing a destocking cycle, and it is reasonable for HLA GROUP to reduce its production capacity.

From March to May this year, UNIQLO's revenue in the mainland Chinese market also showed a double-digit decline; while Peacebird (603877.SH) saw a significant year-on-year decline of 12.66%.

HLA GROUP has two directions for seeking growth.

One is to go overseas.

HLA GROUP's overseas income in the first half of the year was 161 million yuan, a year-on-year increase of 25.4%.

The stores are mainly located in Southeast Asian countries with a large Chinese population, such as Malaysia, Thailand, Vietnam, and Singapore. By the end of the first half of the year, the number of overseas stores had reached 68.

In the second half of the year, HLA GROUP will further expand into emerging markets in Central Asia and the Middle East.

The second direction is to expand from being a brand owner to a channel distributor, hitching a ride on JD.com's "thigh".

## **Entering the Outlet Market**

HLA GROUP has had a long-standing interaction with JD.com.

As early as 2018, during the "choose one between Taobao and JD.com" event, HLA GROUP, as the largest men's clothing brand on Tmall, chose to align with JD.com.

Liu Qiangdong even posted a photo of himself wearing HLA GROUP on social media, with the caption "Shop at JD.com, buy HLA; being a man, it's simple! I endorse HLA GROUP".

Now JD.com has set its sights on the offline outlet business.

Against the backdrop of saturated growth in shopping malls, outlet channels have become one of the few formats in offline retail that are still growing.

According to the "2023-2024 China Outlet Industry White Paper" released by the China Department Store Association, the total sales volume of the outlet format in 2023 is about 230 billion yuan, with a year-on-year growth of about 9.5%, the fastest growth rate among all retail formats.

With HLA GROUP's acquisition of Spozz, a brand specializing in outlet channels in April this year, the cooperation with JD.com seems to be a perfect match.

A private equity investor in East China, speaking to TradeWind01, expressed that HLA GROUP places great importance on this cooperation internally, seeing it as a "breakthrough growth point" for next year.

In 2023, Spozz achieved revenue and net profit of 597 million yuan and 85.06 million yuan respectively, with a net profit margin of 14.24%, slightly higher than HLA GROUP's 13.71% from last year Xin Feng (ID: TradeWind01) learned from a source close to HLA GROUP that Spoz is a company specializing in "group buying" (purchasing end-of-season products from various brands and bundling them together), and after grouping the products, they sell them to Shanghai Jinghai Aotele Commercial Development Co., Ltd. (referred to as "Jinghai Aolei") under HLA GROUP for sale through JD.com channels.

Jinghai Aolei is indirectly owned 65% by HLA GROUP and 35% by Jiangsu Xuqihe Trading Co., Ltd., controlled by Spoz's general manager Shi Wenbing.

One of the challenges in entering the outlet format may lie in procurement management.

Currently, the progress of various brands in building DTC direct sales channels is gradual, and most apparel brands do not have the nearly billion-dollar inventory of HLA GROUP. The outlet format in China faces problems such as shortage of sources and insufficient discounting.

Ding Zhechuan, an analyst at CICC, believes that with the improvement of the digital management capabilities of the supply chain of domestic first-line apparel brand merchants in recent years and the enhancement of inventory management awareness, the backlog of end-of-season and unsold goods has decreased, and the willingness to open outlet stores has declined.

In the domestically developed online channels market, brand owners are also less willing to establish new clearance channels. Currently, the largest clearance channel in China is not outlets, but Vipshop.

The second challenge is the multi-category operation issue beyond apparel.

Xin Feng (ID: TradeWind01) learned from a source close to HLA GROUP that in the cooperation between Spoz and JD.com, the former is responsible for purchasing categories that are not limited to apparel, but also include daily chemical beauty products, luxury goods, and more.

This is not an area that HLA GROUP or Spoz has ventured into before. Whether their capabilities can be targeted beyond clothing brands remains to be seen

### 相關股票

- [HLA GROUP (600398.CN)](https://longbridge.com/zh-HK/quote/600398.CN.md)
- [JD.com (JD.US)](https://longbridge.com/zh-HK/quote/JD.US.md)
- [JD-SWR (89618.HK)](https://longbridge.com/zh-HK/quote/89618.HK.md)
- [JD-SW (09618.HK)](https://longbridge.com/zh-HK/quote/09618.HK.md)

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