Inner Mongolia Ordos Resources Co., Ltd. (600295. SH, hereinafter referred to as “Ordos”) recently spent nearly 2.7 billion to buy two buildings in downtown Shanghai.
According to the announcement, Ordos and its holding subsidiary Electric Power Metallurgical Group plan to purchase an office building and 210 underground parking spaces in the Suhewan section of Jing’an District, Shanghai, with a total property area of 45,400 square meters. Ordos invested approximately 1.345 billion yuan to purchase the 1-14th floor of Property No. 3 and 4 and its 210 underground parking spaces. Dianye Group invested approximately 1.329 billion yuan to purchase the 15th-23rd floors of Property No. 3. The total transaction price was 2.67 billion yuan.
This target was previously jointly held by Macau gambling king’s daughter He Chaoqiong and China Resources Land. The target seller is Shanghai Huahe Real Estate Development Co., Ltd. Tianyancha APP shows that Huahe Real Estate is 50% owned by Shanghai Tongxin Investment Co., Ltd. and China Resources Land (Shanghai) Co., Ltd., and Shanghai Tongxin is held by He Chaoqiong. have.
For this transaction, Ordos said that Shanghai is China’s fashion window to the world and the fashion capital, with a complete fashion industry chain. Purchasing properties is to provide a business environment with an international perspective for the company’s brand development, and to provide a long-term and stable superior environment for the company’s product display, new product release, and new retail platform.
Starting from cashmere, transforming into a diversified group
In 1979, the Yimeng Cashmere Sweater Factory was established. This factory was the predecessor of Ordos and was the first investment project in Inner Mongolia after the reform and opening up. In 1993, Yimeng Cashmere Sweater Factory was officially renamed Inner Mongolia Ordos Cashmere Sweater Factory. Two years later, after shareholding reform, Ordos raised US$48.4 million from its B-share listing and acquired four cashmere factories under the group. With capital, Ordos cashmere industry has achieved greater development.
Ordos, which started with cashmere, was listed on the A-share market in 2001. At that time, it was already one of the largest cashmere manufacturers in China. But if it is just a clothing company, Ordos has its inherent limitations.
70% of the world’s cashmere is produced in my country, and the Ordos area is one of the regions with the largest cashmere production and the best quality in my country. Cashmere is known as “soft gold” in the international market because of its scarcity, warmth and comfort. However, the output of “soft gold” is limited. In addition, for a long time, cashmere was only used in winter clothing. Due to the high price and small consumer audience, these have restricted the development of Ordos cashmere and clothing sectors to a certain extent.
After realizing the “ceiling”, Ordos began to try to diversify its operations. Coal mining, electricity, ferrosilicon and other products have become Ordos’ new businesses besides cashmere. In 2006, Ordos Ferrosilicon’s revenue was 580 million yuan, accounting for about a quarter of the company’s total revenue. As new businesses continue to be put into production, the scale of Ordos ferrosilicon business has grown rapidly and has gradually become the company’s largest business.
Thanks to the successful diversification transformation, Ordos has gradually broken through the bottleneck of cashmere business, and the company’s overall revenue and profits have continued to grow. After more than 20 years, Ordos’s largest business segment is not clothing.
According to Ordos’s 2021 annual report, the company achieved total operating income of 36.47 billion yuan during the period, a year-on-year increase of 57.61%, and net profit attributable to the parent company was 6.091 billion yuan, a year-on-year increase of 298.58%. The reporter noticed that today’s clothing business only accounts for 10% of the total in Ordos. Specifically, the operating income of the clothing sector last year was 3.68 billion yuan, while other businesses, such as ferrosilicon revenue was 12.77 billion yuan, and PVC resin business revenue was 8.217 billion yuan.
Due to the surge in performance, Ordos has also been sought after in the capital market. Last year, the company’s stock price rose from about 10 yuan at the beginning of the year to a maximum of 45.57 yuan in September, the largest increase since its listing.
Market expansion moves south
In the past 20 years, my country’s clothing industry has experienced a stage from rapid development to slowing growth. An industry insider believes that China’s apparel industry has always been a red ocean competition, with new competitors pouring in every year. Many companies that were previously at the forefront have slowed down their growth and entered a bottleneck period after rapid development in the early years. As a result, companies began to seek the development of other businesses.
In addition to Ordos, Shanshan Co., Ltd. (600884.SH) and Youngor (600177.SH) are also typical representatives of the diversified layout of apparel companies. Shanshan Co., Ltd. is the first listed company in my country’s apparel industry. After realizing that the explosive growth of the apparel industry had peaked in 1998, Chairman Zheng Yonggang led the company to deploy new energy sources. In 1999, Youngor made its first investment in the financial industry and was out of control. Investment income is still its largest source of profit.
“If they relied solely on the clothing business, these companies would not have developed to the scale of tens of billions now.” said the above-mentioned industry insiders.
However, several of the aforementioned companies have stated in recent years that they will not give up their main business and even return to it. Youngor Chairman Li Rucheng had previously announced that Youngor would undergo a business transformation and would create another Youngor.
Ordos has also been rebranding under the leadership of Chairman Wang Zhen in recent years. Wang ��’s father is Wang Xianglin, the founder of Ordos. Wang Zhen studied in the UK in his early years. In 2006, Wang Zhen entered the Ordos Group and officially became the successor of the company nine years later. Under her leadership, Ordos launched a multi-brand strategy. At present, the company owns brands such as ERDOS, Ordos 1980, and BLUE ERDOS.
An insider of the company told reporters that compared with other apparel companies, Ordos’ advantage lies in its control of upstream raw materials and the establishment of a complete industrial chain. In terms of cashmere, Ordos has established a full-process layout from cashmere raw material procurement to carding, dyeing, spinning, weaving, and finished product sales. It is not only the largest cashmere clothing production and sales enterprise in the world, but also the most complete industrial system.
At present, it seems that the fashion apparel sector does not account for a large proportion of the entire Ordos business. However, judging from the decisions of the company’s top management, Ordos has made great efforts in marketing and strategy. A series of measures have allowed the company’s clothing sector to break through the bottleneck period of previous years, and revenue has begun to show a slight growth trend. From 2015 to 2020, the company’s clothing revenue has an average growth rate of 6%. The company’s clothing gross profit margin has also grown rapidly, from about 40% before to 53% in 2020.
Many years later, Wang Xianglin recalled that he went to Japan for an inspection in 1984. When he stood in front of a cashmere sweater counter in a shopping mall, he immediately recognized that it was a cashmere sweater produced by his own company. “Just because someone else’s brand was on it, the price increased dozens of times. Even hundreds of times. After being shocked, I decided to create my own brand, and that’s how ‘Ordos’ was born.”
The aforementioned people said that for an apparel company, establishing a brand is beneficial whether it is to increase premiums or long-term planning. Without a brand, gross profits will inevitably be affected.
Take Zhongyin Cashmere Industry (000982.SZ) as an example. It is also a company that mainly produces cashmere products. The company’s main business model is exporting to foreign countries. In 2020, the company’s textile business gross profit margin was 15%, far lower than Ordos’ 53%.
Data from the “China Women’s Clothing Industry Development Dynamics Analysis and Development Prospects Forecast Report 2021-2027” released by Zhiyan Consulting shows that the women’s clothing market accounts for half of China’s clothing industry, and increasingly personalized demands have made the women’s clothing market increasingly fragmented. Even if we focus solely on cashmere brands, there are many brands ranging from international brands Maxmara, Loro Piana, Falconeri to local brand ERDOS.
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