According to Zhito Finance APP, China Merchants has released Research Reports stating that the outdoor sector continues to thrive, with outdoor and sports performances still above traditional Clothing in 2024. Looking at 2025, continuous incremental policies are expected to revive Consumer sentiment, and there is hope for the resurgence of quality mid-range and premium brands. On the manufacturing side, external demand remains steady, with textile and Clothing exports stabilizing positively. Currently, international brands continue to optimize their products, channels, and supply chains, and in the future, quality manufacturing leaders that align with brand and market demand changes are likely to continue gaining market share.

The main points of China Merchants Securities are as follows:

Clothing sector.

The outdoor sector continues to thrive, with Consumer sentiment expected to improve, and there is hope for the resurgence of quality mid-range and premium brands. In review of 2024, the outdoor sector (+14.81%) and sports footwear and apparel (+11.33%) led the growth, while the home textiles sector maintained growth (+7.41%), and mid-range women's wear (-1.46%) and men's wear (-17.33%) faced challenges. Mass brands (+17.94%) performed better than mid-range brands (-4.35%). Looking ahead to 2025, continuous incremental policies are expected to revive Consumer sentiment, and there is hope for the early resurgence of quality mid-range and premium brands.

The high performance of mid-range and premium outdoor brands is primarily due to the shift in consumption preferences of the progressive middle class, seeking alternatives to Luxury Goods. Since 2024, sales of Luxury Goods in the Chinese market have continued to weaken; in Q3 2024, Hermès revenue grew by 1%, LVMH saw a decline of 16%, Richemont decreased by 18%, and Kering dropped by 30%. Brands have expanded their product categories, focusing on urban commuting and fashionable outfits while meeting consumers' needs for multi-scenario wear. The offline store layout of high-end outdoor brands is mainly in the core business districts of first and second-tier cities, with a high overlap with Luxury Goods, and brands continue to accelerate the expansion of online and offline channels.

The main reasons for the high performance of mid-range and premium outdoor brands are the changing consumption preferences of the progressive middle class seeking alternatives to Luxury Goods (since 2024, the sales of Luxury Goods in the Chinese market have continued to decline, with Hermès' revenue up 1% in Q3 2024, LVMH down 16%, Richemont down 18%, and Kering down 30%); brands are broadening their product categories while retaining functionality, focusing on urban commuting and fashionable outfits to meet consumers' demand for multi-scenario wear; high-end outdoor brands primarily establish offline stores in the core business districts of first and second-tier cities, which overlap significantly with Luxury Goods.

The performance of sports footwear and apparel has remained stable, showing a certain level of resilience. Since the cotton incident in 2021 catalyzed a wave of national trend benefits, multiple brands in Q1 2021 achieved over 40% growth in revenue. However, after experiencing repeated pandemic impacts and insufficient consumer willingness, terminal consumption has faced pressure since 2024, leading to single-digit growth for most brands, with some showing slight declines, highlighting a degree of resilience. There is hope that brands will regain growth confidence once channel inventory is restored to health.

Men's and women's clothing has been under pressure since Q2 2024, with competition deteriorating due to the influence of white-label brands. In Q1 2024, income for men's and women's clothing brand companies was able to maintain growth, but both Q2 and Q3 2024 reflected pressure, with a decline in revenue. The growth rate of PDD Holdings and Douyin channels has been rapid, with a shift down in price bands (in November 2024, sales of clothing and accessories on Douyin for products priced below 79 yuan accounted for +9 percentage points year-on-year, while products priced above 399 yuan saw a -7 percentage points share decrease), intensifying online white-label competition.

Textile manufacturing sector.

Looking from early 2024 until now in the textile manufacturing sector, the demand driven by restocking needs has supported the continuous recovery of orders and valuations for leading textile manufacturing companies. The average increase for the ready-to-wear and footwear manufacturing sectors reached 61% (72% for footwear, 53% for apparel), with ancillary materials increasing by 25%, and the yarn sector showing no growth. Looking ahead to 2025, external demand is stable, but demands are becoming more segmented. International sports leaders continue to reform, and high-quality manufacturing leaders that align with changes in brand and market demand are expected to continue to gain market share.

Industry analysis: Textile and apparel exports & manufacturing orders are good, with external demand expected to continue growing steadily.

Since 2024, retail sales in the USA for apparel and accessories stores have maintained a year-on-year growth rate of around low to mid-single digits, and are showing a rising trend quarter by quarter. Exports of clothing and footwear from Vietnam and Cambodia are stable and improving, with overseas demand expected to remain relatively robust. In Q4, leading manufacturers showed steady growth (with a slight slowdown compared to Q3), with Ru Hong's revenue up 6% in October-November 2024 (Q1 +17%, Q2 +23%, Q3 +26%); Feng Tai's revenue remained flat (Q1 +6%, Q2 +7%, Q3 -2%).

Future outlook: Brand reforms are in full swing, and the share of high-quality manufacturing is expected to continue to rise.

Since 2024, traditional sports brands (such as Nike, Adidas), emerging brands (like HOKA, ON), luxury goods, and high-end fashion (like Miu Miu, Bottega Veneta) have consistently launched retro, outdoor, and sporty fashion-style shoes. From next year's perspective, the sports + fashion category is expected to see rapid expansion. From a supply chain perspective, brands are introducing high-quality suppliers and continuously increasing the share of core suppliers to enhance supply chain efficiency. In the future, suppliers that meet brand and market product demands will capture more market share.

Investment Suggestions

Brand side: Focus on brands with valuations at historical lows (10X-15X), upward momentum in categories (functional outfits), low inventory levels in channels, and strong bargaining power in channels (better store locations & larger sizes & upgrades in store types & net increase in the number of stores): multi-brand sports leader ANTA SPORTS (02020), outdoor functional outfits brand BOSIDENG (03998), mid-to-high-end men's clothing brand Baoxiniao Holding (002154.SZ), and mid-to-high-end home textile brand Shenzhen Fuanna Bedding and Furnishing (002327.SZ), among others.

Manufacturing side: Focus on quality manufacturing leaders with advantages in outdoor, jogging, and sports fashion sectors, and the ability to continuously optimize customer and order structures: footwear leader Huali Group (300979.SZ), accessory leader Zhejiang Weixing Industrial Development (002003.SZ), and sports fashion footwear OEM leader STELLA HOLDINGS (01836).

Risk warning: Risks of insufficient domestic demand, risk of inventory backlog, risks related to external demand insufficient leading to pressure on manufacturing orders, and risks that overseas capacity expansion and release in the manufacturing sector do not meet expectations.