Dear Shareholders,
I am pleased to present to you the annual report and consolidated financial statements of China Outfitters Holdings Limited (the “Company” or “China Outfitters”, together with its subsidiaries, the “Group”) for the year ended 31 December 2019.
In 2019, the growth of Chinese economy slowed as the growth rate of Gross Domestic Product (“GDP”) was 6.1%, recording the lowest growth rate in the 28 years since 1990. The growth rate of the total retail sales of consumer goods decreased by 1.0 percentage points from 9.0% in 2018 to 8.0% in 2019. The conventional retail market is also full of challenges, retail sales of the top 100 key and large-scale retailers decreased by 0.3% as compared with the previous year.
Affected by the continued slowdown of the macro economy, the Group recorded a decrease in revenue by 8.9% from RMB898.3 million in 2018 to RMB818.7 million in 2019 and a decrease in profit attributable to ordinary equity holders of the parent by 66.9% from RMB60.2 million in 2018 to RMB19.9 million in 2019.
Despite the challenging market conditions, the Group adopted a number of positive measures during the year to continue to increase investments in branding, business digitisation, warehousing and logistics which laid a foundation for the Group’s future growth.
BRAND
The continuing implementation of the multi-brand strategy is the key to our sustainable expansion and growth.
We have completed the acquisition of “Henry Cotton’s” and “Marina Yachting” business during the year, making “Henry Cotton’s” and “Marina Yachting” brands wholly-owned by the Company in the Greater China region. We believe that adding “Henry Cotton’s” and “Marina Yachting” to the portfolio of Company’s self-owned brands will be beneficial to attainment of the strategic objectives of the Company that is to increase the sales proportion from the self-owned brands.
In addition to investment in brand acquisition, we held a number of brand presentation events and fashion shows during the year. We also developed joint-promotion products and sponsored films and television dramas to further enhance brand awareness of our brands and demonstrate our customers the lifestyle represented and advocated by the brands.
BUSINESS DIGITALISATION
We continued to implement the “Digitalisation Driven” strategy during the year. Our self-developed O2O system allows our customers to order and purchase a desired product even though the product is not available in a particular location, and the Group will then distribute the product to customers through a third-party logistics company. Sales contributed by the system increased by RMB1.4 million, or approximately 1.7%, from RMB81.6 million in 2018 to RMB83.0 million in 2019.
In 2019, we collaborated with Weimob to launch our WeChat stores and start to sell our products through the stores. The Group’s customer relationship management (CRM) system has also been online during the year. We are committed to implementing customer loyalty programs and encouraging customers’ repeat purchases and cross-sells to further enhance customer loyalty.
LOGISTICS WAREHOUSING
In view of the growth of non-conventional store business such as e-commerce and new retail, the demand for warehousing operations such as single-piece logistics and direct customer delivery has increased significantly. The Group has implanted Radio Frequency Identification (“RFID”) microchips into the product labels of our products to improve the overall warehousing and logistics efficiency including product receiving, positioning, picking and shipping. During the year, our logistics centers in Shanghai, Guangzhou and Dezhou were equipped with RFID identification and reading equipment to read and identify the chip and product information. We believe that with the widespread use of this new technology, our warehouse will be further transformed into a B2C logistics center that directly delivers products to customers.
PROSPECTS
On 10 January 2020, the Group received a notice from the brand owner of “Jeep” trademark which stated that the Jeep license agreement of the Group will expire on 31 December 2020 and will not be renewed. As the number of retail points operating Jeep brand accounted for approximately 60% of the total number of retail points of the Group, the Company will discuss with the retail network partners including department stores, shopping malls and third-party retailers to change the retail points now operating Jeep brand to retail points operating the Group’s self-owned brands such as MCS, Marina Yachting, London Fog and Zoo York after the expiration of the Jeep Licensing Agreement.
The outbreak of the novel coronavirus also adversely affected the business of the Group. Since the end of January 2020, more than 70% of the Group’s retail points have been temporarily closed due to the epidemic. Therefore, the Group’s sales in February 2020 were minimal. However, up to now, except for the retail points in Wuhan and Tianjin, 90% of the retail points have resumed operation. We hope the customer flows of the department stores and shopping malls will be recovered in April.
Despite the above challenges, we will still focus on our main objectives in 2020, which are the clearance of inventory and the conversion of Jeep retail points. At the same time, we remain committed to the “Digitalisation Driven” strategy to strengthen our competitiveness and increase sales through O2O system, WeChat stores, and customer loyalty programs.
ACKNOWLEDGEMENT
Finally, I would also like to take this opportunity to represent the Board of Directors, and express my sincere gratitude to the colleagues on the Board and staff members of the Group for their hard work, loyal service and contribution during the year.
Zhang Yongli
Chairman