On March 18, the Chinese menswear brand group listed in Hong Kong, LILANZ (China Lilang Limited, stock code: HK1234), announced its annual performance for 2023, showcasing “double growth” in revenue and profit, with both metrics growing by double digits: revenue increased by 14.8% year-over-year to RMB 3.544 billion, and net profit increased by 18.4% year-over-year to RMB 530.4 million.
What’s particularly noteworthy is the significant improvement in Lilang’s profit quality in 2023:
- Gross profit increased by 20.2% year-over-year to RMB 1.7068 billion, and the gross margin improved by 2.2 percentage points to 48.2%, nearing 50%, marking the highest annual gross margin since the company’s listing.
- Operating profit grew by 17.6% year-over-year to RMB 610.6 million, with the operating profit margin increasing by 0.4 percentage points to 17.2%, reaching a new high in three years.
- Operating cash flow reached RMB 1.1 billion (more than double the net profit), nearly doubling compared to RMB 654 million in 2022.
At the same time, Lilang continued to increase its investment efforts, with investment expenditures reaching RMB 1.212 billion in 2023, a 3% increase from RMB 1.175 billion in 2022.
Based on stable and sufficient cash flow, the board of directors decided to distribute a final dividend of 13 Hong Kong cents per share (2022: 9 Hong Kong cents) and a special final dividend of 5 Hong Kong cents per share (2022: 5 Hong Kong cents), continuing to maintain a stable dividend payout ratio for the year.
After three years of systematic reform, Lilang has successfully completed a “comprehensive upgrade” in products, channels, and brand, transforming into a healthier and stronger Chinese fashion enterprise from the inside out.
Looking ahead to 2024, the group has clarified two latest strategies: “multi-brand” and “internationalization,” indicating that it will seek cooperation with international brands in China while pushing the Lilang brand to the international market, welcoming more new opportunities.
In 2023, the Chinese consumer market experienced ups and downs, and brand companies faced particularly tough challenges. So, how did Lilang row against the current to deliver such an impressive report card? Luxeplace.com analyzes from four perspectives how Lilang achieved a “comprehensive upgrade” and confidently moved towards new strategic goals:
- Brand: Sales of the young business collection surged by 35%, and “high-end positioning” drove an increase in gross margin.
- Channel: The reform of sales channels was completed in three years, significantly increasing the proportion of self-operated stores.
- Product: Increased investment in original R&D, and “ultimate single products” boosted sell-through rates.
- Store: Pragmatically and robustly optimized the retail network, with a net increase of 51 stores.
Sales of the Young Business Collection Surge by 35%, “High-End Positioning” Drives an Increase in Gross Margin
Currently, Lilang has two brand: the LILANZ main series and the Lilanz LESS IS MORE young business series. The main series targets consumers aged 25 to 45, is popular in traditional third- and fourth-tier cities, and is gradually expanding its layout in first- and second-tier markets; the young business series targets the market in first- and second-tier cities, focusing on urban youth aged 20 to 30.
In terms of the young business series, the company continued to expand its store network throughout the year, optimizing store locations and improving the use of store space. Stores in Jiangsu, Qingdao, and Wuhan were renovated. Additionally, under the increase in the sales proportion of high-end series, individual store sales volume and average unit price both improved, with sales of the Lilanz LESS IS MORE young business series increasing by 35.2% compared to the previous year. For the main series, as distributors needed to digest inventory from 2022, the growth in orders for 2023 was somewhat suppressed, with a sales increase of 10.7% year-over-year.
Thanks to the significant sales growth of the high-margin young business series, which increased its share of total sales, Lilang’s gross margin for 2023 reached a new historical high.
It’s worth mentioning that on October 26, 2023, the Lilanz LESS IS MORE young business series held the “Anpin Bridge Show” outdoor fashion show at the world cultural heritage site Anping Bridge in Jinjiang, Fujian, causing a sensation across various sectors of society. This show at Anping Bridge is considered a creative practice of a Chinese brand drawing inspiration from local culture and giving back to it, bringing this beautiful cultural heritage under the fashion spotlight. This move not only narrated the brand’s birthplace’s historical treasures in an authentic way through contemporary fashion aesthetics but also integrated the brand’s confidence with the confidence in local culture.
Sales Channel Reform Completed in Three Years, Significantly Increasing the Proportion of Self-Operated Stores
The young business series and the group’s e-commerce platform were converted to self-operation in 2020 and 2021, respectively, and the LILANZ main series introduced a consignment model in 2021. By 2023, the group’s three-year channel reform was essentially completed.
Currently, Lilang has four sales channels: the main series’ distribution and consignment model, the young business series’ self-operated model, and the self-operated e-commerce platform.
The financial report shows that in 2023, all four channels achieved profitability and successfully improved store efficiency and profitability. Notably, the group’s self-operated e-commerce platform grew by 17.6% in 2023, exceeding the overall revenue growth rate.
During the June 18 e-commerce shopping festival, the group launched popular pants on its e-commerce platform, quickly responded with its own factory, added 7 new production lines, and perfected the new model of selling new products through e-commerce. The buzz created by the Anping Bridge show on social media also laid a solid foundation for “Double 11” sales.
In 2024, the group plans to offer personalized shopping experiences for customers through new retail businesses such as Douyin live broadcasts, leveraging the complementary advantages of online and offline stores, aiming for a 20% year-over-year increase in new retail business and a 15% overall sales growth.
Increased Investment in Original R&D, “Ultimate Single Products” Boost Sell-Through Rates
According to the financial report, Lilang Group’s R&D department currently has about 350 people, covering all aspects of product design, material development, and sample production. R&D expenditures reached RMB 115 million, maintaining a high level compared to similar companies.
In 2023, about 75% of the products sold were original creations, with approximately 50% of them using unique fabrics developed by the group, also maintaining a high level.
Notably, Lilang launched several quality and iconic hits during the year:
- Hydrophobic Down 2.0: Following the market’s enthusiastic response to Water-repellent down 1.0, this new upgraded version was launched. Its down’s water repellency test reached 10000 minutes of level 5 water repellency, more than 20 times the industry standard. Machine washing does not affect the down’s original puffiness, and it dries quickly. It received dual certifications from the World Record Certification Authority (WRCA) as the “down with the best hydrophobic performance” and the “the world’s outstanding down with ultra warm technology” Upon its launch, it attracted widespread consumer attention, driving the group’s overall down sales to increase by more than 30% over the previous year.
- Wash-Resistant Polo Shirt: Launched in the summer, these shirts use DP wrinkle-free technology, maintaining fabric smoothness and stiffness after 30 machine washes. Key positions such as the collar, shoulders, cufflinks, and placket are reinforced with bars, similar to the steel framework of a building, ensuring the shirt remains stiff and stylish. Combined with special high-fastness dyeing technology, the shirts remain smooth and vibrant even after repeated wearing, washing, and ironing. After official verification by the World Record Certification (WRCA), they were confirmed as the “shirt with the least color deviation after 30 washes.”
The continuous emergence of hit products also effectively promoted inventory management, improving the sell-through rate of both the main series and young business series stores.
According to the financial report, the group’s average inventory turnover days in 2023 were reduced to 170 days (2022: 195 days, first half of 2023: 211 days), and the total inventory balance decreased by RMB 59.4 million to RMB 826 million.
For 2024, the group stated that in terms of product positioning, it will continue to implement the “high product quality with attractive price” strategy, constantly introducing innovative and differentiated new products to meet consumers’ pursuit of personalized clothing. As the group’s inventory management capabilities improve and off-season inventory further decreases, the group will strengthen the launch of new products, increasing the proportion of higher-priced new products, thereby increasing the average selling price and overall product profitability.
Pragmatically and Robustly Optimized the Retail Network, with a Net Increase of 51 Stores
As of the end of December 2023, the group had a total of 2,695 retail stores nationwide, with a net increase of 51 stores during the year. Among them, the main series had 2,393 stores, with a net increase of 8 stores, and the young business series had 302 stores, 296 of which were self-operated, with a net increase of 43 stores. New stores were mainly concentrated in the East China and Northwest regions.
As of the end of December 2023, the total retail store area was about 429,500 square meters (as of December 31, 2022: 403,700 square meters), an increase of 6.4% compared to the end of last year. Based on this calculation, as of the end of 2023, the average area per store was 159.4 square meters, compared to 152.7 square meters at the end of 2022, a year-over-year increase of 4.4%. And at the end of 2021, it was 147.8 square meters, compared to about 144.4 square meters before the pandemic in 2019. Lilang continued to advance its large store strategy.
The group stated that in 2023, it pragmatically optimized the retail network, closing several stores with less than ideal operating efficiency. Considering the limited supply of prime locations in quality malls, the group slowed down its store opening pace.
For 2024, the group plans to net increase 100-200 stores to expand the retail scale and improve operational efficiency. New store locations will still prioritize quality shopping centers in provincial capitals and prefecture-level cities, while also increasing openings in outlets as a channel for clearing inventory.
In addition, the group will complete the seventh-generation renovation project for 400 stores, enhancing the brand image and shopping environment with a young and fashionable decoration style, and launching innovative and differentiated new products to meet consumers’ demand for personalized clothing.
| Source: China Lilang
| Image Credit: China Lilang
丨Reporter：Wang Jiaqi
| Editor: Maier
