Cashmere makers look to local market
Updated: 2008-09-08 09:40

A dominant position in global exports has allowed more than 2,000 companies to establish themselves in cashmere manufacturing in China, but the industry is seeking to shift from reliance on exports to greater emphasis on domestic sales.

The Erdos Group, the top cashmere manufacturer in China, has reduced its original export plan from 4.5 million garments to 2.5 million this year. It will invest 800 million yuan ($116.61 million) in the domestic market over five years to set up 100 flagship shops.

Xinjiang Tianshan Wool Tex Stock Co Ltd for the first time combined its international and domestic order fairs into one event and held it in Urumqi, capital of Xinjiang Autonomous Region, hoping to boost domestic sales to equal its exports.

The industry is shifting focus because of a paradox. It's ramped up production capacity and dominates the world market, but it has a weak position in negotiating prices with foreign dealers.

China supplies more than 75 percent of the world's cashmere and 90 percent of the high-quality goat cashmere, according to the China Chamber of Commerce for Import and Export of Foodstuffs, Native Produce & Animal By-Products.

After more than 20 years of development, China's cashmere production and manufacturing system can turn out 40 million items annually. Last year, it exported 20.37 million cashmere garments, worth $623 million.

The country has shifted from a major exporter of cashmere raw material to a production base for finished products, Bian Zhenhu, vice-president of the Chamber, told a summit of major cashmere makers in July.

But many entrepreneurs found that being dominant in resources as well as manufacturing didn't translate into a strong position in the international market.

The value of the expensive material, dubbed "soft gold," has not been reflected in export prices. The average export price of a cashmere garment was only $30.58 in 2007. A stronger Chinese currency helped push the average price up to $32.5 in the early months of this year.

Erdos Group sold 4.6 million cashmere garments last year with export revenue of 1.1 billion yuan -- but a profit of only 10 million yuan.

Compared with the global market, the domestic market is looking better to the industry.

"The profit margin is less than 10 percent in the export-oriented processing trade but could be kept at about 40 percent to 50 percent for domestic sales," said Chen Tao, chairman of Beijing Snow-Lotus Cashmere Co Ltd.

"A simple calculation shows that a cashmere garment sold in the domestic market would bring the manufacturer a profit four times larger than if exported," said Chen.

However, analysts said the domestic market might not be large enough to take up all the products that would once have been exported. And inflation has undercut many consumers' willingness to buy expensive luxury goods.

Domestic sales of cashmere and wool sweaters rose only 4.3 percent during the first four months of this year, while garment sales generally grew 15.2 percent.

The industry must shift from quantity to a strategic emphasis on higher value-added and branding, and many companies have already done so, said Bian. The industry would only achieve stable growth with strong brand identities.

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