Newspapers last year were littered with stories highlighting concerns about expanding retail inventories driven by short-sighted management chasing top-line growth. Blind expansion from 2006 to 2011 resulted in unstable inventory levels as total industry points of sale more than tripled, and EBIT margins dropped by close to half.

Today, there are signs that the industry has turned a corner. Starting in 2012 brands began to curtail store expansion plans and started to close down poorly-performing stores. An increasing number of players also built larger self-operated channels, which helped decrease the reliance on distributors. These shifts have collectively begun to restore profitability and are cultivating a healthier demand and supply balance in the industry. 
Through a better balance of self-operated and distributor points of sale, leveraging e-commerce, and pursuing more modern sales channels, retail players can more effectively control inventory levels in China. Our sector mapping analyses have revealed that average inventory turnover days within certain retail subsectors have decreased by nearly 40% from 2012 levels, from +600 days to 365 days. Cash previously held hostage in excessive inventory has been reallocated to product development, M&A and debt reduction. Sportswear is a case in point. Total POS swelled to 47,000 from 15,000 between 2006 and 2011. Destocking began in earnest in 2012 along with a focus on cleaning up overexpansion in store networks, which has resulted in strong same-store sales growth and better margins across the sector. Our trade fair due diligence checks have indicated improved consumer demand, signaling stabilization in channel inventory and performance.
Lunar has long championed prudent store expansion and disciplined inventory management in our portfolio companies. In 2012, we professionalized the management of our baby business, Yeehoo, and introduced leading designers from well-known overseas brands, such as Jacadi, to upgrade our product lines. Concurrently, we aggressively sold aging inventories, which were not a clear fit within the new store and brand image. The team proactively developed a clear destocking plan through multiple channels, including specialized e-commerce platforms and designated outlet stores. These specific steps quickly reduced inventory levels, preventing damage to our brand image. 
Our teams also introduced better analytical and reporting systems into our businesses, linking POS feedback to production, and providing better data input throughout our production process. As a result, orders placed for each season are more accurate, better reflecting market demand. We have now achieved inventory turnover averaging 250 days, which is just about the lowest in our industry. 
Disciplined expansion, carefully monitored inventory levels, and consumer analytics are increasingly crucial for our management to ensure that quality products are being delivered to consumers. These processes also assist in assessing the demand from different consumer cohorts and allow our businesses to more effectively plan product innovation. We believe that we have helped our companies develop the processes and strategies necessary to lead on the key operating metrics that will ensure strong margins across our portfolio, and better returns for investors.