GIL: 内衣

I think a blurb out of Taipei flew beneath many radars today.  Unless this is a misprint, Gildan plans for 45% of its sales to come from Asia within three years due to strength in China. They've made it no secret that Asia is an opportunity for them, but this is well above above what they've noted before. I don't get it... Really, I don't. Here's why...

1) First off, let's hope for GIL's sake that the Asian demand accounting for nearly half of its business is not due to the denominator - its US screenprinting business -- shrinking. 

2) Is it an accident that the company is stepping this up at a time when Broder - 30% of sales - could potentially go bankrupt? This would actually be good risk management on GIL's part. But Broder is an efficient and profitable core customer. Asia is an undesirable substitute.

3) Shifting focus on Asia at the same time that the much-touted branded mass-market strategy is proving marginal at best? Again, this makes me come back to the original thesis that the company used sourcing savings over the course of five years to cut price and drive its core business (which gave GIL undeserved cult-stock status). Once it maxed out share, it also ran out of sourcing opportunity. Now it is growing into less profitable business where competition is fierce, the balance of power shifts out of its hands, and it has to spend more for increasingly volatile returns.

4) Gildan does not have a brand. It is currently the low-cost producer of a commodity product. That's not a bad thing by any means as long as management recognizes it, and respects it for what it is. Virtually all of its sourcing operations are in Latin America - which works as it relates to product going to the US and Europe. But the only way to win in Asia will be on price, and it will take state-of-the-art local manufacturing (and allies on the ground to set up shop) to establish such capacity. Does GIL buy someone? Maybe. Either way, I smell a capital outlay to compete for business that the Chinese have owned for the better part of 20 years.