Interviewees in this issue:

In 2020, Pan Jianhua became the chairman of Textile City (600790.SH) and immediately began a series of drastic reforms aimed at changing the single revenue structure of Textile City, transforming it into a market trade service integrator, and seeking growth along the industrial chain. After three years of refinement, the company's many large-scale investment projects have been launched one after another, and the results of the transformation are expected to be shown next year.

Since taking the helm of Textile City in 2020, Pan Jianhua has been exploring how to get this established Zhejiang state-owned enterprise out of its “comfort zone”.

“Market rent has always been the main source of revenue for our textile city, accounting for 88% at one point. In the current market environment, traditional rent collection is difficult to see changes in growth, so we need to reposition it.” Recently, Pan Jianhua said at an investor conference.

The “market rent” mentioned by Pan Jianhua is included in the “market operation business” section of the company's annual report. In 2022, the company's annual revenue was 820 million yuan, of which 773 million yuan came from this business. From the perspective of company managers, the advantages and disadvantages of this revenue structure are obvious. On the one hand, the gross margin of the market operation business is close to 50%, which is the “cash cow” of the company's development; on the other hand, there is also a problem of insufficient growth in this business. Pan Jianhua admits, “We collect rent once every 6 years, and there is no room for the next 6 years.”

In Pan Jianhua's plan, Textile City's new position is to be a market trade service integrator, seeking incremental growth along the industrial chain, thereby changing the current revenue structure. “The three keywords of our transformation are market, numbers, and investment. The core is to build various platforms around the industrial chain. This is also our response to the requirements of building a 'unified big market'. Through the platform, we can not only provide services, but also accumulate data and generate performance. This is our goal.”

Focusing on the transformation, the textile city has been laid out for three years. Currently, several projects are being carried out intensively, and it is expected that they will be implemented one after another in 2024. According to Pan Jianhua, “We (performance) may have a positive response in 2024.”

Expand downstream and integrate design and live streaming resources

As one of the pillars of the national economy, textiles are a huge trillion-dollar industry. According to the China Textile Industry Federation, the large-scale textile industry and the garment and apparel industry achieved operating revenue of 2615.76 billion yuan and 1453.89 billion yuan respectively in 2022.

Textile City is located in the middle of the textile industry chain. The most upstream raw materials, such as cotton and chemical fiber, are converted into fabrics through textile, printing and dyeing, etc., and then traded in the Textile City. According to Pan Jianhua, Textile City is essentially a 2B intermediates market. Its downstream links design, processing, etc., and the finished terminal products such as apparel and home textiles are finally put into the consumer market.

Located in Keqiao, Shaoxing, Textile City is blessed with the conditions to develop textile wholesale. According to reports, the Keqiao district of Shaoxing City has more than two-thirds of the country's printing and dyeing production capacity, and a number of major dye factories such as Zhejiang Longsheng (600352.SH) and Runtu Co., Ltd. (002440.SZ) are concentrated in the surrounding area. Jiaxing, which is nearly 100 kilometers away from Shaoxing, is a major chemical fiber producer in China. Famous chemical fiber companies such as Tongkun Co., Ltd. (601233.SH) and Xinfengming (603225.SH) provide raw materials for downstream textiles.

According to Pan Jianhua, the Textile City has been deeply involved in fabric wholesale for more than 30 years, and the time is ripe to expand along the industrial chain. “We focus on downstream, and aim to open up the entire terminal retail chain, so we plan to integrate Guangzhou's design resources with Hangzhou's live streaming resources based on our fabric resources to create a platform from fabric to design to sales.”

According to reports, Textile City has reached a cooperation agreement with Hangzhou Ruifang. The latter has the resources of leading fashion anchors, and the two sides will advance the project in the form of a joint venture in the future. “Influencers know the needs of consumers best. Influencers and designers collide. We provide fabrics, and we will set up a sample selection center. They place orders for us to produce, and production capacity is profitable in every step.” Pan Jianhua said.

Reshape online and use the metaverse to enter the C-end market

Reshaping online is also an important part of the transformation of textile cities. In fact, the company moved its fabric wholesale business online many years ago, but due to multiple reasons, the actual results are not ideal.

“In the past, we moved all of our offline platforms to online and made a platform one by one, but the nature of fabric trading determined that many times customers needed to view goods offline, so online trading has its limitations, and the actual results are not very good.” After replanning the layout, Pan Jianhua believes that the metaverse technology that has emerged in recent years is expected to make up for the shortcomings of online product display. The newly launched fabric platform will focus on showcasing a number of selected products using the metaverse as a highlight.

Based on metaverse technology, Textile City has taken a bolder step by building a curtain sales platform to directly target the C-end market. According to Pan Jianhua, if the curtain platform model can pass, it will accumulate experience in the transformation of the company from the B-side to the C-end, and thus obtain tickets to enter new markets.

According to his plan, the company should “sell curtains like air conditioners”. “Online metaverse technology allows consumers to accurately select their favorite curtains, and offline we will have service outlets to provide on-site installation and after-sales service.” According to reports, the company's metaverse technology supplier is China Qingbao (300052.SZ). Currently, curtain platform development is beginning to take shape and is expected to be launched in the first quarter of 2024. In terms of offline outlets, the company plans to build 1 to 3 million outlets across the country, and partners have also been negotiated.

According to reports, the textile city has a series of layouts around 2C sales of clothing and curtains. The ultimate goal is to return to the fabric business, forcing the digitization of fabric transactions. This means that the wholesale market also needs to be reformed simultaneously. Currently, the company has begun to open up key aspects of production, trading, logistics, warehousing and management in the wholesale market. “By integrating these links, we can collect data. Now the country is promoting data transactions, and we are also making plans in this area,” Pan Jianhua said.

Looking ahead to next year, the steady transformation of the main business is showing results

Financial Federation: How is the textile city market booming this year? Has it returned to 2019 levels?

Pan Jianhua: After the three years of the epidemic, the actual impact on us was small, because we are a 2B market, not a 2C market. Now the number of people in our market has increased greatly. Originally, during the epidemic, our daily traffic volume was 8,000 to 9,000, but now it has grown to more than 18,000. Although traffic has decreased during the pandemic, there are actually quite a few transactions. Rents for some newly signed stalls due this year have also risen, with an increase of 10% to 20%.

Financial News Agency: What do you think about foreign trade orders in the textile industry being diverted from Southeast Asia?

Pan Jianhua: Actually, this is a false proposition. The main reason we are reducing orders from Europe and the US is due to two reasons. One is that Europe and the US themselves have a lot of inventory, and the other is poor consumption in Europe and the US. The combination of two factors has caused this situation. Therefore, we are now moving in the “Belt and Road” direction. This dividend has been reflected. Keqiao's foreign trade growth is expected to reach double digits this year.

Financial Services Association: What benefits are expected to be realized by the company next year?

Pan Jianhua: It can be said that the company should have a lot of room for growth next year. This space comes from new businesses other than rent, from digital dividends, and from the construction of our various platforms. Our metaverse trading platform will definitely be launched in 2024, the second market procurement and trading platform will definitely be promoted, and there are other platforms. There will be a lot of data accumulated on these platforms.

Financial Association: Are online platforms considering cooperating with internet companies?

Pan Jianhua: Ali and Huawei have all sought cooperation, but the company wants to maintain its core resources. We chose to build our own platform and would rather slow down. Fabric resources are our core competitiveness. Promoting the digitization of fabrics is our differentiated competition. We must first digitize clothing and design to force the digitalization of fabrics.

Financial Federation: Commodity Market has obtained a payment license, and the market response has been very good. Does the company have plans in this area?

Pan Jianhua: In active exploration, the direction is this. Because in the process of digital development, this item must be obtained, and license plates must be acquired, and approval is no longer possible.

Financial News Agency: Can you expand on the three key words of market, digital, and investment?

Pan Jianhua: Generally speaking, the market needs to prosper. This is the foundation. Numbers need to be iterated, and investments must be diversified. I have already planned how the company will develop in the future, but I am constantly making adjustments and iterations during the development process. I'm 58 years old this year, and I'm willing to complete the layout before I retire. I think my plans can actually be fully implemented during the 14th Five-Year Plan period.