August 9, 2017 12:33 am JST

Taiwan's Nike supplier hints at Amazon apparel deal

Eclat expects new customers to bring 15% revenue growth in 2018

CHENG TING-FANG, Nikkei staff writer

Eclat said inventory adjustment in the apparel market had largely come to an end. (Photo by Cheng Ting-Fang)

TAIPEI -- Taiwan's leading apparel maker Eclat Textile, a key supplier to Nike, Under Armour and Lululemon, said on Tuesday it wants to drive growth by focusing on e-commerce platforms in the next three to five years.

"We will start to ship to a new e-commerce customer at the end of August," said Eclat Chairman Hung Chen-hai. "For this year, the e-commerce customer will account for roughly 0.5% of our revenue only ... but the trend is definitely going up in the next few years." 

While Hung did not name the new customer, analysts say it is U.S. tech titan Amazon.

Amazon is expanding aggressively into the apparel market not only by selling more clothes online but offering clothing under its own brands.

Hung said that the e-commerce platform will overtake Walmart to become the biggest clothing retailer in three to five years. He added that the margin to supply to the e-commerce customer was higher than for traditional brands.

Since last year, Eclat has suffered from inventory adjustment problems, and saw its annual revenue drop 3.9% year-over-year to 24.52 billion New Taiwan dollars ($812 million) for 2016.

For the first half of 2017, Eclat generated revenue of NT$11.08 billion, 2.9% less than a year ago. The company's net income of NT$1.06 billion in the period was down 27% year-over-year, due to unfavorable foreign exchange and a one-time loss of some $800,000 on a design issue for a customer. 

But Hung said inventory levels from most of its brand customers had already fallen very low, and they had returned to add orders in the first half of 2017.

"We will regain robust growth momentum especially from the fourth quarter this year, which is better than I thought previously," said Hung. 

Eclat's sales for 2018 would likely increase 15% year-over year, thanks to several new customers from the U.S., Europe, and Australia, and a better product mix with high-end fabrics, according to Hung.

The company makes some 7.5 million pieces of garments per month, 1.3 million units more from a year ago, after its two new facilities in Vietnam went into production this year.

Nearly 70% of the company's clothes production and half of its fabrics output, around 2.6 million kilograms a month, is from the Southeast Asian nation. 

Peggy Shih, an analyst at Yuanta Investment Consulting, said the industry is done with inventory correction and is now on a recovery trajectory.

"The dark time has passed. We expect Eclat's margin would start to pick up in the second half of 2017," said  Shih, adding that consumers' growing willingness to buy clothing online could further disrupt the global apparel market.

Eclat's shares closed 0.39% lower at NT$380 ahead of the earnings conference on Tuesday. They have gained nearly 13% so far this year, while Taiwan's benchmark index expanded more than 14%.

Asia300

Eclat Textile Co., Ltd.

Taiwan

Market(Ticker): TAI(1476)
Sector:
Industry:
Process Industries
Textiles
Market cap(USD): 2,659.89M
Shares: 274.36M

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