This denim manufacturer’s financial crisis will affect its buyers

There are early signs of Ruxing’s financial storm. Before becoming the world’s largest denim manufacturer, Ru Hing was a company with annual revenue of around NT$2 bill…

There are early signs of Ruxing’s financial storm. Before becoming the world’s largest denim manufacturer, Ru Hing was a company with annual revenue of around NT$2 billion to NT$2.5 billion. In 2017, Ruxing announced the acquisition of mainland denim manufacturer Jiudi Manufacturing Co., Ltd. The specific transaction amount was not disclosed. After the acquisition was completed, Ruhing’s revenue soared to the NT$10 billion level, reaching NT$16.487 billion in 2021.

The acquisition of Jiudi Manufacturing itself is quite controversial. The market value of Jiudi Manufacturing is five times that of Ru Hing. At that time, all capital within Ru Hing was only NT$1.3 billion. To this end, Ru Hing persuaded the Taiwan Financial Supervisory Commission to use the Industrial Innovation Transfer Fund to make the National Development Fund a shareholder, and finally successfully completed the acquisition.

However, shortly after the acquisition was completed, both Chen Shixiu and Sun Jian, executives of Nu Skin and Jiudi Manufacturing, were involved in financial cases. In Ruxing’s annual report, accountants found that Ruxing’s financial supervision of the acquired companies was not complete. Ruxing’s former chairman Zhang Shuijiang said that Ruxing’s customer relationships, orders and revenue data are stored in mainland China, making it difficult for Taiwan to audit the accounts.

The combination of these reasons eventually plunged Ruxing into financial crisis.

Ruxing currently needs to face problems including debt defaults and shareholder class actions. As one of the world’s largest denim manufacturers, Ruxing’s predicament will also have an impact on the daily operations of cooperative brands to a certain extent.

Affected by supply chain problems, Levi’s losses in the fourth quarter of 2021 were as high as US$50 million, exceeding the previously expected US$30 million. Chip Bergh, CEO of Levi’s parent company Levi Strauss, said in an interview that global supply chain problems are expected to continue in 2022.

Gap parent company Gap Group has also been deeply affected by supply chain issues recently. Gap Group’s third quarter performance report for fiscal year 2021 shows that supply shortages have caused losses of US$300 million, while rising transportation costs have brought an additional US$100 million in expenses. Even though the situation improved in the fourth quarter, supply chain problems still cost the Gap and Banana Republic brands $16 million.

Compared with Levi Strauss’s relatively stable financial situation, supply chain issues have brought more challenges to Gap Group. Especially with the recent successive sales of two joint series, GapxYeezy and GapxYeezyxBalenciaga, the inability to meet market demand may have a negative impact on Gap’s transformation.

In addition, Gap Group has experienced frequent personnel changes recently.

Nancy Green, CEO of its affordable fast fashion brand Old Navy, announced her resignation in April, while Sonia Syngal, CEO of Gap Group, also announced her resignation in July. Personnel turmoil will inevitably affect the sustainability of the group’s decision-making to a greater or lesser extent, which may make supply chain problems difficult to resolve in the short term.

For other fast fashion brands that are also affected by global supply chain problems, price increases are the most direct way to deal with the problem.

According to UBS’s latest research report, since January this year, the initial price of Zara products has increased by 10% or more every month compared with a year ago. In April, the initial price increase reached 18.5% and approached 20%, far exceeding H&M. Brand’s 4.2% increase.

In March this year, when the Inditex Group announced key financial data for the full year of 2021 as of January 31, it stated that its brands would adjust prices, with an increase of perhaps 2%. However, it emphasized that the price increase is selective and not a global increase. .

H&M and Uniqlo have also announced price increases recently, emphasizing that insufficient raw materials, rising transportation costs and labor costs are the main reasons for the price increases.

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Author: clsrich