By ZHU Yonglin
Chinese fashion brand Peacebird is expecting revenue of 3.6 billion yuan (US$500 million) in H1, a 14 percent decrease year on year. Net profit after deducting non-recurring items is 179 million yuan, quite a jump from the 5 million yuan reported during the same period last year.
Although Peacebird is chirping merrily about increased profit margin and reduced expenses, there's an important factor that remains unmentioned - the low base. Peacebird reported its lowest-ever revenue in Q2 last year, losing 107 million yuan.
For a long time, Peacebird relied on a few popular products. Mismanagement resulted in warehouses overflowing with the company's other, unwanted, products. This is not a usual problem and one typically solved by massive discounts.
However, for Peacebird, this method results in a lot of discounts and no profit. The old favorite – mercilessly cutting unprofitable stores and advertising costs has helped, but not short-term measures will not solve the long-term problem.
Peacebird claims to be reforming its supply chain, a process that will undoubtedly cost a lot of money that Peacebird does not have.
Over the past five years, Peacebird's capital employed has increased by 42 percent. Although the return on this capital appears concerning from financial reports, it is an unavoidable path to enhance profitability in the future.
