Chairman’s Statement

Dear Shareholders,

I am pleased to present to you the annual report and consolidated financial statements of China Outfitters Holdings Limited (the “Company” or “China Outfitters”, together with its subsidiaries, the “Group”) for the year ended 31 December 2018.

In 2018, the growth of Chinese economy slowed as the growth rate of Gross Domestic Product (“GDP”) was 6.6%, recording the lowest growth rate in the 28 years since 1990. The growth rate of the total retail sales of consumer goods decreased by 1.2 percentage points from 10.2% in 2017 to 9.0% in 2018; the growth rate of the retail sales of the top 100 key and large-scale retailers decreased by 2.1 percentage points from 2.8% in 2017 to 0.7% in 2018. Particularly, the retail sales of apparel products for the top 100 key and large-scale retailers achieved a growth rate of 1.0% year on year, with the growth rate down by 3.3 percentage points compared with last year.

Suffering from the consistently sluggish macro economy, the Group recorded a total revenue of RMB898.3 million during the year (2017: RMB918.3 million), representing a decrease of 2.2% compared with last year; but the profit attributable to equity holders of the parent increased by 9.7% to approximately RMB60.2 million (2017: RMB54.9 million).

To respond to the ever-changing and challenging market, the Group has taken positive measures during the year and continued to increase investments in brand, business digitalisation and logistics warehousing for the purpose of laying a foundation for future growth.

BRAND

The continuing implementation of the multi-brand strategy is the key to our sustainable expansion and growth. We have completed the acquisition of “MCS” business during the year, making “MCS” a brand wholly-owned by the Company in the Greater China region. We believe that adding “MCS” to the portfolio of Company’s self-owned brands will be beneficial to attainment of the strategic objectives of the Company that is to increase the sales proportion from the self-owned brands.

In addition to the investment in brand acquisition, our brands also sponsored sports and culture events and film and television works from a number of our brands to further enhance brand awareness and better demonstrate the history and culture of the brands and the life style represented by the brands.

BUSINESS DIGITALISATION

The combination of science and technology and retail puts China’s retail industry in a transformative phase where conventional retail is substituted by new retail. The emergence of new technologies not only enhances customer experience, but also requires retail companies to reform their models of operations to adapt to new retail models. In order to adapt to the changing market environment, the Company launched the strategy of “Digitalisation driven, retail terminal empowerment” in 2018.

We are pleased to see that digitisation has been deeply applied in various business processes and procedures of the Company. We launched several business systems driven by information technology during the year, including “Apparel Pattern and Fitting System”, “Ali’s Smart Store”, and “Electronic Payment System of Third-party Retailers”, so as to optimize the operation processes and improve operational efficiency.

Meanwhile, our self-developed O2O system which allows our customers to order and purchase a desired product even though the product is not available in a particular location, and the Group will then distribute the product to customers through a third-party logistics company. The sales contributed by the O2O system sustained an increase of RMB6.7 million, or approximately 8.9%, from RMB74.9 million in 2017 to RMB81.6 million in 2018.

In addition, our sales staff can use the customer relations management (“CRM”) system at mobile terminals to communicate and interact with our customers anytime, anywhere, and achieve targeted marketing by sharing our product information and brand stories. We are also working with Weimob to look for new ways of increasing sales by using and activating our existing resources such as sales staff, VIP consumers and e-commerce consumers through social marketing and e-commerce tools such as WeChat Public Account and Weimob and its WeChat Business system.

LOGISTICS WAREHOUSING

The growth of e-commerce, new retail and other non-conventional store businesses led to a significant increase in B2C single-piece logistics. As a result, the Group continued to increase investments in logistics warehousing during the year to adapt to the new logistics warehousing model. From the 2017 fall/winter season and onwards, the Group has implanted Radio Frequency Identification (RFID) microchips into the product tags of our products, and installed RFID identification and reading equipment in warehouses in Shanghai and Guangzhou. With the application of RFID technology, the receiving and dispatching of goods in the warehouse have been simplified from the original itemby-item scanning by manual operation to contactless and mass scanning of full containers by using of automatic equipment, thus greatly improving the efficiency of goods receiving and dispatching activities in the warehouses.

At the same time, we also equipped the warehouses with automatic packers, automatic box makers, vertical rotary containers and other mechanical and automatic equipment, and connected the hardware equipment through network and software systems to improve the operational efficiency of warehousing logistics.

FUTURE PROSPECTS

We will remain committed to the strategy of “Digitalisation driven, retail terminals empowerment” and aim to attract new customers, activate existing customers and improve their consumption experience through the use of digital tools such as O2O system, CRM system, Ali’s Smart Store, Weimob and its WeChat Business System. At the same time, we will continue to accumulate images, videos and other digital assets, and apply them to different scenarios and retail channels to achieve sales conversion. With regard to the development of offline physical conventional retail channels, we will increase cooperation with local boutiques, selected shops and customized stores, and expand and develop of retail network of self-owned brands. We believe that the implementation of these measures will further enhance the competitiveness of the Company in the Chinese apparel retail market.

ACKNOWLEDGEMENT

I would like to thank the former Chairman of the Company, Mr. LO Peter. Under his leadership, the Company steadily advanced the business, which laid a solid foundation for the future development of the Group. I would also like to thank my fellow directors for their support and wise advice on the development of the Company since I took over as Chairman of the Company.

In closing, on behalf of the Board of Directors, I would like to take the opportunity to express my sincere gratitude to all shareholders for their sustained support and staff members for their professional dedication, diligence and contributions to the Group, all of which laid the foundation for the sustainable development of the Company.

ZHANG Yongli
Chairman

Hong Kong, 18 March 2019