Red Dragonfly Opened More Stores, But Its Business Did Not Grow

Recently, Zhejiang Red Dragonfly shoes Industry Co., Ltd. has disclosed the prospectus in advance. The company plans to publicly issue no more than 80 million ordinary shares. The company plans to spend nearly 900 million yuan to add 130 independent stores directly through this investment project. The company said that after the completion of the project, it can achieve an annual income of 934.4215 million yuan and a net profit of 119.9614 million yuan. It seems that this is a very good future. Opening more stores means that the business is getting bigger and bigger, but this may not be the case.

Red Dragonfly belongs to a brand leather shoes enterprise, which produces through independent production and outsourcing production, and sells its products in the mode of direct marketing, franchise or a combination of the two. As of the signing date of this prospectus, the company has more than 4400 franchised stores, of which 3833 are franchise stores, accounting for 86.56% of the total number of marketing terminals; Of the 595 direct marketing terminals of the company, 545 are direct marketing malls, which are jointly operated with malls or stores, and the real control of shops is in the hands of malls; There are 50 independent stores under the control of the company, accounting for 1.13% of the total number of marketing terminals.

The prospectus shows that the company will add 130 independent stores within two years, including 10 flagship stores and 20 standard stores through purchase; 20 flagship stores and 80 standard stores will be built through leasing, which will increase the proportion of direct independent stores in marketing terminals to 2.96%.

Why does the Red Dragonfly Company, which focuses on the franchise chain model, spend a huge amount of money to add independent stores? According to insiders, clothing Footwear companies increase the proportion of direct sales stores, in order to strengthen the company's control over the marketing terminal in the current situation of continuous downturn in terminal sales, and ensure the long-term stable development of the company. For example, Daphne Shoes relies on the full direct sales model to operate the high-end market.

However, increasing the proportion of direct marketing also faces great risks. Direct marketing means that the company has to bear all the costs and operational risks of the store. Under the current situation that the cost of commercial leasing and labor costs continue to rise, it is easy to fall into the mire of a sharp decline in net profits.

Among the footwear listed companies, Aokang International and Red Dragonfly are comparable. After the company was successfully listed in 2012, it began to significantly increase the proportion of direct marketing. Due to the dual impact of the depressed market demand and direct marketing strategy, the company's revenue and net profit in 2013 fell 19.1% and 46.6% year on year. By the end of the first quarter of 2014, the company had not yet got out of the quagmire, and its revenue and net profit had declined by 11.21% and 20.3% year on year.

New direct stores or only 30% can make profits

Direct stores refer to the chain stores directly operated by the head office, that is, the business form in which the head office directly operates, invests and manages each retail outlet. In other words, the company is responsible for the site lease, employee company and inventory of the store. Therefore, the addition of direct stores first directly led to the increase of three rates (financial expenses, administrative expenses and sales expenses).

According to the 2013 annual report of Aokang International, under the background of strengthening direct marketing, the sales expense rate increased by 6.87 percentage points to 18.55% due to the increase of 29% in employee compensation and 63% in rental fees; Due to the 8% increase in depreciation and amortization, the company's administrative expense ratio rose by 1.37 percentage points to 7.54%, resulting in a decline in the operating income and net profit of Aokang International in 2013.

Red Dragonfly's 130 newly added independent stores are all located in the core business circle of key cities. The shoes, leather goods, clothing and children's products of the Red Dragonfly brand are displayed and sold in the same store, which is the company's brand image display store.

According to people who have been engaged in the footwear industry for a long time, if you want to open a comprehensive large direct independent store under the Red Dragonfly Program, the store leasing risk is the largest. The so-called store leasing risk is, first of all, the rising cost of commercial housing rent in major cities in China. More importantly, if the contract cannot be successfully renewed later, the store will be closed immediately in a short time, causing huge losses.

At the same time, the quality requirements of the managers and ordinary staff of such stores are high, so the salary is also a big expense item. From the perspective of the company as a whole, these stores can be regarded as profitable. However, if these independent stores, like franchise stores, are regarded as separate business entities, it is estimated that only 30% of the 130 stores can be profitable. Because the image display and advertising significance of these stores is greater than the actual operating profit.

According to Red Dragonfly's prospectus, this project will build 20 flagship stores and 80 standard stores by leasing, including 20 flagship stores with an area of 7000 square meters and 80 standard stores with an area of 15000 square meters. It means that the company will add 22000 square meters of commercial rental area in two years. The store rental fee is calculated based on the rental standard of the business district or block where the proposed store is located. The store rental fee in the normal operation year is 137.7 million yuan. It is planned to add 1658 new employees in the project, and the average annual salary and welfare will be estimated according to the standard of the area where the store is located, and will be calculated and summarized store by store. According to this calculation, the normal annual salary and welfare during the operation period is 33.601 million yuan in total.

The opening of direct stores will also increase the inventory pressure and further increase the inventory pressure of enterprises.

The industry is still sluggish, and the direct marketing faces the risk of failure

As a listed company in the footwear industry similar to Red Dragonfly, Yu Xiongping, the secretary of Aokang International, told reporters that it is an indisputable fact that the clothing and footwear industry is in a downturn, and the performance of all companies is not ideal. Aokang still maintains a downward trend of performance, especially because the company implemented the direct marketing strategy in 2013, resulting in a year-on-year decline of 46.6% in net profit in 2013, Put pressure on revenue and net profit data.

The Red Dragonfly, which is mainly engaged in footwear, is also difficult to be independent. According to the prospectus, from 2011 to 2013, the company realized an operating income of 2717933400 yuan, 30681264 yuan and 3221543600 yuan, respectively, with the growth rate slowing year by year; The net profit reached 277.01 million yuan, 293.4337 million yuan and 256.9388 million yuan, especially the net profit of the company decreased by 12% year on year in 2013.

Predictably, Red Dragonfly In the case of the downturn of the footwear industry and its own poor operating conditions, it is no doubt that the company's future development risks will be increased by vigorously building independent stores with huge potential operating risks. In the prospectus, the company also admitted that in China, as a traditional industry, the shoemaking industry has a low entry threshold and fierce competition. During the reporting period, the company's business growth slowed down. Therefore, the company faces risks caused by changes in the market environment. There is a risk that the company's operating profit will decline by more than 50% in the year of listing.