How Difficult is Inventory Clearance in the Apparel Industry?

 Source: Narrowcast (WeChat Official Account)

Author: Pang Mengyuan (Shanghai)
Editor: Shao Lele (Shanghai)
Original Title: Resolving Apparel Inventory Requires Key Intermediaries

By AI

Summary

The inventory challenge in the apparel industry requires innovative intermediary solutions:

• 🧥 Dispersed demand and weak consumer spending are increasing inventory.
• 📦 Live-streaming e-commerce and other traditional models now show diminishing returns.
• 🔗 Platforms must lead a revolution in supply-demand circulation.

The apparel industry is characterized by a decentralized supply-demand model. Previously, during periods of strong consumer spending and abundant traffic, businesses could rely on ramping up production and stimulating consumption to expand the market. However, as consumption patterns and the e-commerce landscape evolve, overproduction and aggressive promotion strategies are no longer effective; they even lead to adverse effects. To resolve these challenges systematically and sustainably, key intermediary mechanisms must emerge to facilitate efficient circulation and address the fundamental issues in this scattered ecosystem.

I. Is the Growing Inventory Problem Undermining the Apparel Business?

Before mid-November 2024, most regions in China, except for the northeast and Beijing, had yet to experience a significant drop in temperatures. In areas like Jiangsu, Zhejiang, and Shanghai, daytime temperatures remained above 20°C. Despite the recent Singles’ Day shopping festival, many winter clothing manufacturers have not seen the anticipated surge in sales. Instead, inventory levels in warehouses continue to grow.

With less than 50 days until the 2025 Lunar New Year and factories typically closing operations 20 days before the holiday, the next month will be critical. If a cold spell doesn’t arrive soon, the entire winter clothing market — especially for weather-dependent items like snow boots, woolen garments, and down jackets — may face significant challenges.

Case Study: Haixing

Haixing, a second-generation factory owner in Danyang, Jiangsu, manages a decades-old leather shoe factory inherited from his father. He also co-owns an eyewear factory and recently invested in a snow boot factory. His leather shoe business remains his primary source of income.

Last year, Haixing’s snow boot factory sold tens of thousands of pairs. This year, they stocked 5,000 pairs in preparation, but by the end of Singles’ Day, daily sales averaged only 20–30 orders, primarily shipped to northeastern China.

The situation isn’t unique to him. Many down jacket and woolen garment manufacturers are in similar straits. Some woolen clothing factories even partially halted production earlier this year due to rising raw material costs, hesitating to stockpile inventory.

In Jiaxing, Zhejiang, a hub for wool and cashmere production, a major wool factory owner revealed their inventory risk: an increase of nearly 100,000 unsold items this year.

Inventory Challenges in the Apparel Industry

The apparel sector operates with highly fragmented supply and demand chains, compounded by the non-standardized nature of products. Seasonal fluctuations and shifting fashion trends make it easy to stimulate consumer interest but challenging to achieve precise supply-demand alignment, leading to inventory surpluses.

Since 2018, China’s apparel market has faced oversupply issues. Industry insiders joke that even if all garment factories ceased operations, existing inventory could clothe the entire population for three years.

This oversupply issue has been exacerbated by a sluggish economic cycle in 2024. Many industries, from petroleum to dairy and apparel, are grappling with excess production capacity.

The Singles’ Day Sales Paradox

The aforementioned wool factory owner noted a paradox this year: despite breaking their record for first-day Singles’ Day sales due to platform promotions, total event sales fell short of last year’s. Factories that previously needed to work overtime during the festival now see muted activity.

This mismatch between supply and demand, worsened by oversupply and weak consumption, results in mounting inventories across warehouses.

At the 2024 China Retail Commodity Circulation Conference, Zhang Zhengcai, Executive Vice President of Fung Group, highlighted a staggering statistic: approximately 25% of annual apparel production never reaches store shelves.

According to a September 2024 report by the business media outlet Yilan Business, 52 publicly listed footwear and apparel companies reported combined inventories of 53.65 billion RMB, averaging 1.032 billion RMB per company. This inventory level exceeds the half-year revenue of 24 of these listed companies. For comparison, the mid-year revenue of established apparel brands like Hodo Group and Red Dragonfly stood at 1.081 billion RMB and 1.16 billion RMB, respectively.

The difficulties faced by winter clothing manufacturers epitomize the broader challenges of rising apparel inventories, compounded by unforeseen factors like uncooperative weather.

II. The Root Cause of Growing Inventory: More Fragmented and Variable Demand

Amid weak consumer spending, previously effective methods for stimulating consumption have reached their limits, shifting from benefits to drawbacks.

Live-Streaming E-Commerce: A Double-Edged Sword

Live-streaming e-commerce initially emerged as an innovative solution for the apparel industry, offering a fresh channel compared to traditional offline or static online storefronts. While effective in some areas, this model presents inherent mismatches with the apparel sector.

• Content and Consumer Engagement:
  Live-streaming provides a better format for showcasing and explaining products than traditional e-commerce, increasing consumer willingness to purchase. It has also helped niche brands find their target audience and achieve real growth. However, its persuasive nature often leads to impulsive and unnecessary purchases.
• Traffic and Supply Chain Challenges:
  Live-streaming generates concentrated traffic surges, creating extreme peaks and valleys in order patterns. This volatility amplifies supply chain pressures, leading to stockouts during demand spikes and inventory overload during lulls. The unpredictability significantly challenges the flexibility of supply chains, a capability only a few leading brands, such as YaYa, have successfully optimized through small-batch, rapid-reaction production models.

During the live-streaming boom, the industry could mask or overlook these mismatches through rapid growth driven by traffic dividends. However, as competition intensifies, other issues have surfaced:

1. Rising Return Rates:
   Trends such as “refund-only policies” and the temporary cancellation of pre-sale models during events like this year’s 618 shopping festival have gradually increased apparel return rates.
2. Inventory Management Challenges:
   Higher return rates have complicated inventory management for factories, disrupting cash flow — a critical factor for any business.

The Hidden Costs of Returns

Returns also burden businesses with increased logistics costs. For example, the aforementioned wool factory incurs:

• Outbound shipping costs of approximately 3.5 RMB per item.
• Return shipping costs of 12.5 RMB per item.
• Additional packaging and labor costs totaling 1.5–2 RMB.

Without factoring in the cost of live-stream marketing, each uncompleted sale costs the factory about 20 RMB per item.

To alleviate these pressures, platforms often offer reverse logistics subsidies to reduce the burden on sellers. However, the growing complexity of consumer demands and return trends continues to test the resilience and adaptability of apparel supply chains.

Beyond Weak Consumption and Increased Returns: The Impact of Fragmented and Variable Demand

In addition to tightened consumer spending and higher return rates, another critical factor driving inventory growth in the apparel industry is the rising influence of content platforms in shaping purchasing decisions. As user-generated content (UGC) gains prominence, consumer demands have become increasingly fragmented and unpredictable, making forecasting and rapid response ever more challenging.

Previously, trends in fashion were dictated by a few major fashion weeks held annually. Fast fashion responded to these events, with basic and functional apparel requiring less emphasis on style. White-label brands would follow fast-fashion cues, keeping the market in a supply-driven state. Consumer demands were relatively predictable because personalized needs were neither nurtured nor expressed.

However, in the era of content-driven platforms, style influencers and bloggers can now set trends and aggregate demand. Pioneers like Zhang Dayi, among others, exemplified this shift, though on a smaller scale compared to today’s landscape. Consumers are now empowered to express individual preferences, making apparel more than just functional or fashionable — it is also a medium for personal identity and self-expression.

This shift has made consumer demand increasingly decentralized, faster-evolving, and, in many cases, less standardized.

Supply Chain Challenges

Although supply chains have long emphasized small-batch, rapid-response production and flexible customization, the speed of supply chain upgrades struggles to keep pace with changing demands. The difficulty of matching supply and demand is growing, creating new pressures on businesses.

Apparel has become a more challenging business. Solving these issues requires more than platform subsidies for reverse logistics.

The intervention of content platforms has disrupted the traditional transaction chain and profit distribution within the industry. Without the ability to drive large-scale sales through volume, overall revenue and profitability have suffered.

As one wool factory owner explained, “We’re already the source factory, and it’s still this hard — imagine how much harder it is for others.” While cashmere and wool appear to be high-ticket, high-margin items (with margins approaching 40%), costs from platform fees, streamer salaries, team expenses, and taxes leave a net margin of just 5–8%.

Zhang Dayi expressed similar sentiments in her farewell post when closing her store: “The razor-thin profit margins in apparel can’t sustain operational costs, and switching platforms only results in losses.”

III. Basics, Small-Batch Rapid Response, and Clearance Channels Can Only Solve Part of the Problem

The apparel industry has long sought ways to improve inventory turnover rates. To some extent, the evolution of inventory management defines the history of the industry itself. Almost every major economic cycle shift has birthed new brands with innovative inventory solutions.

At its core, solving the inventory problem boils down to more accurate consumer demand forecasting and a more flexible, rapid supply chain response.

Inventory Solutions: UNIQLO vs. SHEIN

UNIQLO’s Approach
UNIQLO emerged in the 1980s during Japan’s real estate bubble collapse. Its strategy focused on cost-effective basics and fabric innovation. By catering to the demand for affordable, practical clothing, UNIQLO tackled inventory challenges by limiting SKUs. Innovations like fleece and Heattech differentiated it from other low-cost options. However, this approach led to longer update cycles and fewer styles.

Recent trends in functional sportswear and one-size-fits-all apparel continue the tradition of emphasizing timeless classics. These items are practical for consumers and reduce inventory challenges for businesses caused by product variability.

SHEIN’s Approach
SHEIN rose to prominence after the pandemic by combining affordability (averaging $5–$25 per item) with superior inventory management. Unlike UNIQLO, SHEIN excels in design and rapid product updates, launching 40,000–50,000 items weekly and taking just 14 days from product design to listing.

SHEIN’s success lies in its ability to:

1. Gather Consumer Insights: By analyzing data from Facebook, Instagram, and Google, SHEIN identifies emerging trends and preferences.
2. Leverage China’s Supply Chain: SHEIN partners closely with countless small to mid-sized factories, issuing detailed production instructions on fabrics, styles, and craftsmanship. Factories are compensated for smaller initial orders, and large-scale orders are prepaid.
3. Test with Small Batches: Initial runs of 100 units test a product’s reception. Popular items are quickly scaled up, while less successful items result in minimal surplus inventory.

This extreme supply chain efficiency and rapid response capability mirror fast fashion leader Zara but take it further through complete digitalization. With its proprietary platform, SHEIN captures user browsing and purchasing data, refining its understanding of consumer desires and enabling even more precise factory orders.

The Value of SHEIN’s Model

SHEIN’s demand-supply matching model holds immense industry value. It integrates robust consumer insights, design translation capabilities, responsive factories, and a comprehensive production-to-inventory management system. Each element is indispensable.

As SHEIN’s historical consumer data grows, its supply chain will continue to evolve, making its rapid response capabilities even stronger. This combination of innovation and adaptability positions SHEIN not only as a fast fashion leader but also as a potential platform for broader product categories and industry transformation.

IV. The Core Need: Key Intermediaries

As of now, the domestic apparel industry has yet to develop its own version of the SHEIN model.

For major brands, efforts to create cost-effective basics and implement small-batch rapid response models have only partially addressed inventory challenges within their operational scope. However, the widespread inventory problems — especially among small and medium-sized businesses — require greater impetus for restructuring supply and demand dynamics. This includes creating better mechanisms to balance and adjust mismatched supply and demand.

Clearance Channels: A Partial Solution

Clearance channels provide one way to address existing inventory surpluses. Platforms like Vipshop, factory outlet malls (outlets), Pinduoduo, and offline wholesale vendors have established stable and mature clearance systems over the years.

According to the 2023–2024 China Outlet Industry White Paper and data from the China Commerce Association for General Merchandise, the sales scale of China’s outlet industry reached 230 billion RMB in 2023, growing 9.5% year-on-year, the highest growth rate among retail sectors.

Although it may seem that clearance and regular sales channels compete directly, over a longer timeframe, they complement one another, coexisting within the same consumer environment while serving distinct customer segments with unique opportunities.

Challenges for Clearance Channels

Even clearance channels face bottlenecks in the current economic climate.

For example, Vipshop, known for its focus on branded surplus inventory, has reported over 40 consecutive quarters of profitability. However, since the beginning of 2023, it has faced declines in revenue and profits. As a result, it has shifted its emphasis toward increasing the number and spending share of its SVIP users. This challenge may be attributed to a combination of factors, including:

1. Reduced frequency of new product launches from major brands.
2. Increased direct discount channels by brands themselves.
3. Rising costs of online traffic.

These factors have eroded Vipshop’s supply diversity and pricing advantages, forcing it to narrow its focus to core users.

Tail-End Wholesaling: A Practical Tool for SMEs

Offline wholesale businesses specializing in surplus inventory are also moving large volumes of stock. On platforms like Douyin, many vendors use videos to drive traffic to their businesses. These vendors source goods from factories, distribution centers, and live-stream e-commerce platforms, reselling to offline micro-businesses, such as young entrepreneurs running market stalls or exporters targeting Southeast Asia and Africa.

This system operates with razor-thin margins, with vendors typically earning 0.5–1 RMB per item and requiring minimum orders of 100 units. Sales are final, with no returns for quality issues, creating an outlet that is better suited for most small and medium-sized enterprises (SMEs).

Identifying and utilizing more of these “tail-end clearance channels” is a critical step for SMEs to address their existing inventory challenges.

Survival Through Adaptability: Lessons from SMEs

Out of necessity, some agile small and medium-sized enterprises (SMEs) have become exceptionally skilled at managing inventory, particularly those with direct control over both customer engagement and production. One such example is Haixing, mentioned earlier in this article.

Haixing’s Approach to Inventory Management

Haixing operates a diversified business that includes his leather shoe factory, with operations spanning three main areas:

1. Taobao Store: Direct-to-consumer sales.
2. Brand OEM Services: Manufacturing for other brands.
3. Private Domain Operations: Generating nearly 2 million RMB in annual sales through a private group-buying platform (Kuaituantuan).

Haixing uses private domain marketing to closely monitor consumer demand while simultaneously leveraging these channels to efficiently clear excess inventory. He confidently states, “We won’t be undone by inventory.”

Private Domain Channels

Haixing’s private domain operations are anchored by a network of over 20 WeChat groups with a combined membership exceeding 30,000 users. Membership is exclusive to repeat customers, such as those who have purchased three or more pairs of shoes or spent at least 300 RMB on eyewear.

These groups play a critical role in inventory management by offering “welfare items” at regular intervals, which include:

• Holiday Red Envelopes: Promotional discounts.
• Birthday Coupons: Special deals for members.
• Clearance Sales: Tail-end items offered at deep discounts.

To avoid over-reliance on any single platform, Haixing rotates welfare sales across Taobao, Xiaohongshu, WeChat Channels, and Kuaituantuan, with weekly live streams held on different platforms.

Efficient Clearance Through Welfare Sales

Haixing emphasizes that welfare items serve dual purposes: “They provide value to customers and help us clear inventory.”

These items maintain the same quality as regular products but are sold at discounts nearing 50% due to differences in style or sizing. As a result, inventory is cleared rapidly. “We post 30 pairs in a group, and they’re gone in five or ten minutes,” he notes.

Haixing’s method demonstrates how SMEs can effectively manage inventory through a combination of private domain marketing, diversified sales channels, and tailored clearance strategies. This approach not only ensures steady cash flow but also strengthens customer loyalty, making it a valuable model for other businesses facing similar challenges.

Key Reasons for Haixing’s Efficient Inventory Clearance

To summarize the key factors that enable Haixing to clear inventory quickly, they include:

1. Refined User Operations and Excellent Service

• Only repeat customers are allowed into Haixing’s private WeChat groups, ensuring that the community consists of loyal buyers.
• All group purchases come with free shipping, even to remote areas like Xinjiang and Tibet.
• Customization services are available, catering to customers with specific needs, such as wider or higher shoes for those with wider or higher feet.
• Quality issues within a year are covered by a return or exchange policy, and scuffed shoes can be sent back for free repairs.

2. In-house Production and Customization Capacity
Haixing’s own factory is capable of handling custom orders, allowing for greater flexibility in meeting customer preferences.

3. Expert Product Knowledge and Comprehensive Inventory
Haixing is knowledgeable about the materials, ensuring the leather is of good quality, sourced from stable suppliers, and priced competitively.

4. Wide Customer Segmentation

• While many factories struggle with inventory due to discontinued sizes, Haixing has organized its customer base into different size groups — such as small sizes (32–34) and large sizes (40+). This segmentation ensures that there is a market for nearly every item produced.

Brandless and Experience-Centric Operations

Another important detail is that Haixing’s products do not carry a brand label. Although their leather shoes are priced similarly to branded shoes, Haixing has no desire to create a brand. He believes that factory business and branded business cannot be pursued simultaneously — one cannot have the premium pricing benefits of a brand while also enjoying the price and channel flexibility of factory products.

Haixing’s attention to user experience is a core component of his strategy. For instance, his shoes are packaged in sturdy, well-designed boxes without unnecessary extras. When customers receive their shoes, they find a neatly packaged, ready-to-wear product — simple, clean, and high-quality.

The Importance of Customer Retention

This approach is part of a broader trend of refined user operations. As customer acquisition and growth become increasingly challenging, businesses, big or small, are realizing the importance of retaining and nurturing their existing customer base.

Haixing’s strategy works well for his factory, but even with such flexibility, he still faces challenges in extreme weather conditions, which can severely affect demand. Thankfully, the cold wave that hit in late November helped relieve some of the pressure for winter clothing manufacturers, including Haixing.

The Role of Platforms in Balancing Supply and Demand

However, relying solely on factory owners and brand operators is insufficient. To truly address supply-demand imbalances, it requires platforms that possess a deep understanding of both the supply and demand sides and can play an intermediary role in facilitating adjustments.

Haixing’s approach may be effective on a small scale, but the broader apparel industry needs more significant systemic changes. Weather and market fluctuations remain unpredictable external factors. For the apparel industry to thrive, it must rely less on external forces and focus on refining consumer demand management and supply chain capabilities. Platforms that can facilitate this process are key to transforming the entire industry.

The Role of Key Intermediaries and the Future of the Apparel Industry

SHEIN plays this role to a certain extent in international markets, and major brands like UNIQLO also take on similar roles. Through effective filtering or aggregation of supply and demand, these brands achieve efficient matching while continuously evolving and adjusting to changing market dynamics.

For the Chinese market as a whole, there is a need for larger intermediary platforms to step up — platforms that can engage with both more consumers and suppliers.

These solutions are likely to come from long-term efforts by multiple platforms driving the digital transformation of the entire industry, rather than just the implementation of small tools, policies, or anti-live-streaming campaigns.

The challenges currently facing the apparel industry are the most intense and noticeable manifestations of the evolving economic climate and shifting e-commerce landscape. The potential solutions point to a possible next phase for the retail market — an upgrade that involves not only a revolution in production and consumption but also a connected revolution in the flow between them.

Reflection and Conclusion

This article offers a highly objective analysis of the inventory management challenges faced by China’s apparel industry, particularly in the context of the ongoing global economic downturn. The case of Haixing, while representing an individual business, provides valuable insights into the operational adjustments and community-based strategies that are becoming increasingly crucial in today’s environment. For those of us in the second-hand clothing distribution industry, particularly B2B businesses like DoDoBird Used Clothing, many of the sales strategies and operational tactics shared in the article are highly relevant. These experiences offer lessons on managing inventory and customer engagement that are directly applicable to overcoming similar challenges in our own sector. It’s a must-read for anyone involved in apparel distribution.

Moreover, the article paints an accurate picture of the apparel industry’s current landscape, showing how consumer demand has become more fragmented and difficult to predict. As content creators and influencers continue to lead consumer purchasing trends, forecasting demand is increasingly challenging. This makes supply-demand management and resource allocation even more critical. Unlike the ready-made garment industry, the second-hand clothing distribution sector naturally faces unique supply challenges, making demand management even more complex. At DoDoBird Used Clothing, we are keenly aware of these difficulties and are actively working to streamline processes.

Our approach is grounded in standardization — creating a unified certification and quality standard for second-hand clothing. By leveraging our influence within the Chinese industry, we aim to establish a standardized system that will not only improve efficiency in the distribution of second-hand clothing but also ensure greater accuracy in demand forecasting. A consistent standard for second-hand garments, backed by certification, will reduce waste and inefficiencies, ultimately benefiting the entire industry. We are hopeful that one day, the global second-hand clothing market will operate seamlessly, and the flow of products will be as efficient as it is sustainable. This vision is not just a possibility; it is a future we are working towards every day at DoDoBird Used Clothing.

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