Domestic Fashion Market to Be Vibrant in 2022

The author is an analyst of NH Investment & Securities. She can be reached at jiyoony@nhqv.com. -- Ed.

 

We suggest a Positive rating for the textile & apparel industry. The domestic fashion market is estimated to grow 6% y-y this year, backed by: 1) strong growth at vertical fashion platforms; 2) an increase in outside activities in line with economic reopening in 1H22; and 3) gradual normalization of the DFS channel in 2H22. The market should be brisk on corporate efforts to launch new brands and invest in production facilities to enhance corporate value.

[Brand] Trickle-down effects from vertical platforms’ strong growth + overseas store openings

Online penetration in the fashion industry stood at 33% in 2021. The online fashion market expanded at a CAGR of 12% over 2017~2021, driving overall fashion industry growth. In particular, vertical fashion platforms such as MUSINSA, ABLY, ZigZag, Brandi, and W Concept have been reshaping the market, with their combined market share standing as high as 21%. This year, we expect to see intensifying competition in the vertical platform market, a development which should lead to favorable trickle-down effects for brand companies, in the form of: 1) distribution channel diversification; 2) attraction of visitors to directly-run online malls; and 3) improving margins.

With Covid-19-related restrictions being lifted one by one, global economic reopening momentum is picking up steam. We expect greater demand for outdoor activities on reopening to drive up apparel consumption growth. In our view, the main drivers for the fashion industry should be recovering global consumption and stimulus packages in Korea in 1H22, and recovering consumption in the US and China in 2H22. We recommend F&F as a top pick among Korean brand players. On the domestic front, the firm’s MLB and Discovery brands are outperforming the average casual/sports apparel market growth, and their market shares have been expanding through the operation of directly-run online stores and entry into major vertical platforms. Overseas, amid the rising popularity of K-fashion, F&F should see robust sales growth backed by large-scale new store openings (about 300 locations) and an expanding online presence on Tmall (B2C).

[OEM/ODM] Order cycle + production base diversification

In the apparel OEM/ODM segment, a meaningful order cycle is expected this year. Looking at the downstream US apparel retail market, demand is gradually recovering amid inventory shortages, while real inventories of apparel and accessories are only 90% of the 2019 pre-pandemic level. As consumers tend to buy clothing each season, order uptrend should continue through the year. Over the mid/long term, in line with the global popularity of active wear, related order volume is projected to remain strong. In the near term, mass/mart brands are likely to expand their inventories.

These days, domestic OEMs/ODMs are much sought-after by global venders, as the OEM/ODM market is being reshaped, centering on large players, amid factory closures, employee turnover, and bankruptcy at small/mid-sized firms. As domestic OEMs/ODMshave production bases in countries other than China, they should remain unaffected by risks stemming from US-China trade conflicts. We recommend Youngone and Hansae, noting that they are likely to enjoy margin improvement on the back of enhanced competitiveness, capacity expansion, greater negotiating power, and higher manpower efficiency.

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