Why has Jiangnan Buyi (JNBY) managed to succeed
Jiangnan Buyi 江南布衣 recently published its financial results for the fiscal year 2024, which ended in June, showing solid income and profit growth. Despite a significant slowdown in the second half of the year, the company still outperformed the broader Chinese apparel market and the majority of its competitors. With a 7.5% revenue increase and 10.2% profit growth in the first half of 2024, its performance was impressive.
So, how did Jiangnan Buyi’s premium positioning enable it to outperform most brands, from luxury goods to mass-market products, in a sluggish consumer market during the first half of 2024?
In the exclusive group on WGSN China, we summarised their success as being largely down to timing and market advantages.
Jiangnan Buyi, positioned as a designer brand, benefited from China’s rapid economic development in the new millennium, attracting a core customer base. This group primarily hails from first- and second-tier cities, possesses a good educational background and refined tastes, yet is not part of the true elite. They have reaped the benefits of China’s growth in various sectors, from education to the economy and real estate, resulting in strong purchasing power. Even with Jiangnan Buyi’s continuous and significant price increases, the purchasing habits of many customers have persisted. This explains why their core customers – those who spend 5,000 RMB annually – continue to grow. The overall customer base has not expanded dramatically, but the company has managed to raise prices while maintaining a loyal clientele.
In the 2024 annual report, Jiangnan Buyi notably omitted its total customer base, which I believe to be an intentional decision. Since its initial public offering in 2016, Jiangnan Buyi’s customer count has grown from 1.2 million to 7.4 million in the first half of 2024. However, active members have only increased from 260,000 in 2016 to 550,000 in 2024, and core members have risen from 118,000 to 310,000. At the same time, core members now contribute an increasing share of total revenue.
These figures highlight Jiangnan Buyi’s strong customer loyalty. The rapid rise in member numbers is largely due to digital integration, rather than the acquisition of new customers. In fact, Jiangnan Buyi was one of the last companies in the Chinese fashion industry to undergo digital transformation.
Jiangnan Buyi’s key strength lies in its market positioning, where it almost single-handedly dominates. A similar brand, Exception from Guangzhou, once had similar ambitions but missed its golden opportunity due to decisions by its founder. Although its expansion has slowed, Exception still enjoys a loyal customer base and remains quite successful. French brand SMCP occupies a similar niche, but entered the Chinese market too late and is now gradually scaling back.
Jiangnan Buyi’s dominant position in China’s high-end fashion market is largely due to the limited size of this market. Even more international brands such as Maje, which entered the market later, have struggled to capture Jiangnan Buyi’s market share, demonstrating the power of habitual consumption. This is particularly true for the generation that matured alongside China’s economic boom, whose spending habits are especially difficult to change.
However, this strength also presents challenges for Jiangnan Buyi as it seeks further expansion. The company’s attempts to incubate new brands have not led to significant growth. Jiangnan Buyi still heavily relies on its three core brands: Jiangnan Buyi, Croquis, and Less (including Jiangnan Buyi Kids).
This year, Jiangnan Buyi made a rare move, spending nearly 100 million RMB to acquire Hangzhou Huiju, the operator of the children’s brand Onmygame. This suggests the company has recognised the limitations of its internal incubation strategy, as its emerging brands generated only 1 billion RMB in revenue, representing less than 2% of the total.
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Can acquisitions help Jiangnan Buyi grow further? Time well tell.
Operational efficiency is not Jiangnan Buyi’s strong suit, much like the renowned Moutai brand. In China, companies with the strongest operational capabilities are typically found in the highly competitive sports industry.
In reality, Jiangnan Buyi could have remained private. Its decision to go public, in my view, was largely driven by the founder’s desire to transition the company to professional management. With a dividend payout ratio of 75%, Jiangnan Buyi has substantial cash reserves, but these are unlikely to propel the company to the next level, as seen with brands like Anta. Even the acquisition of Hangzhou Huiju is not particularly large in scale.
There are also emerging concerns in Jiangnan Buyi’s financial data. For instance, in the first half of this year, the company began closing stores, particularly its direct-owned outlets. Profit margin growth has been largely driven by better control over selling, marketing, and administrative expenses, along with the continued ability to raise prices.
These factors may explain Jiangnan Buyi’s decision to pursue acquisitions this year.
In 2024, both the Chinese and global consumer and luxury goods industries have faced unprecedented changes, with many brands reaching historic turning points and "returning to their rightful places."
Jiangnan Buyi’s performance in fiscal year 2024 can be seen in this light. Other brands, such as Dazzle Fashion, as well as several private companies, are also experiencing this "return to their rightful place.”
Original article from Tang Xiaotang, Tang Xiaotang Fashion Observer