Deepening of domestic sports brand depth adjustment

Among the six sports brands listed in Hong Kong, only Yutebu International, 361 degrees. China Dongxiang has not announced its interim results. However, we can also see some industry trends. With the deepening transformation of several major brand channels, the number of closed stores has significantly decreased. Including the growth of orders, improved gross margins, and declining inventory turnover period, some encouraging signs boosted confidence for the market and companies.

"I am cautiously optimistic about the industry and I believe that in the first half of next year, some brands will take the lead out of the predicament and others will sink into it," said Zhang Qing, CEO of the key sports consultancy.

The in-depth adjustment of the "China Sports brand is still in the depth adjustment phase, now is a very critical time." Zhang Qing said. On August 6, Anta announced its interim results. Net profit fell by 18.7% to RMB 626 million, but the decline was lower than market expectations. Since then, Li Ning released a mid-year report showing that the net loss for the first half of the year was 184 million yuan, compared with 44.29 million yuan in the same period last year. Immediately afterwards, on the 13th, Peak's interim results announced that net profit dropped by 62.5% to 8.90 million yuan.

In 2011, Anta's revenue of 8.9 billion yuan approached Li Ning's 8.929 billion yuan. In the second half of the year, the industry faced a serious inventory backlog and entered a downward adjustment phase. In 2012, Anta and Li Ning’s revenues both fell sharply. Anta became the industry champion with 7.62 billion yuan. At that time, the domestic sports brands were turbulent, and the “off-store tide” spread.

Starting from the second half of 2011 and continuing today, the industry-wide adjustment of self-rescue, the first is to go to inventory. The channel rejuvenation plan proposed by Li Ning at the end of 2012 is such a case.

"This is to solve the 'immediate' problem, so that dealers clean up inventory in order to free up excess funds." Zhang Qing said. At the same time, there is a channel transformation: from the wholesale model to the retail model, which involves the adjustment of the entire supply chain, including the entire process of raw material storage, order production, ordering, logistics and distribution, in order to improve the brand The speed of reaction to the market.

“The channel transformation needs a 2-3 year time period, and the effect can be observed in the first half of 2014. The transformation of some brands has now achieved initial results.” Zhang Qing believes. From the number of closed stores can also see the industry adjustment in depth. In the first half of the year, Li Ning, Anta, Peak, and 361 degrees shut down 410, 241, 289, and 601 stores, respectively, of which 361 stores opened 325 new stores at the same time.

In 2012, the number of Li Ning and Peak stores were 1,821 and 1,323 respectively.

"Open the store opened, the customs store." Li Ning's executive vice president Jin Zhenjun said that a large number of stores had been closed before, and the pace of post-store closures will slow down. He stressed that he will not blindly pursue store growth, nor set a target for closing stores. "From the passive closing of the shop caused by the blind expansion, to the current dealers have consciously adjusted their own initiative, and the large-scale closure of stores has become a thing of the past. The closing of the store in the future will be slow and small," said Zhang Qing.

Signs of recovery Among the industry's deep adjustments, some promising signs including order growth are worth looking forward to. In addition to the Anta report, the order book value for the first quarter of 2014 also achieved high growth year-on-year, which was the first positive increase in orders since the third quarter of 2012.

The data shows that the order volume of ANTA's order book in 2012 showed a percentage decline in high single digits. The amount of order booked in the first three quarters of 2013 was a year-on-year decrease of 20%-30%, 15%-25%, and 10%-20%. . The decline in the amount of orders has continued to narrow, and it has finally grown positively, reflecting the confidence of channel dealers recovering.

As for the increase in the amount of orders, Anta's board of directors and CEO Ding Shizhong said that the main driving force has been the past efforts to inventory, optimize products and stores, and implement a series of retail changes, so that dealers and franchise confidence rebound. He frankly stated that the goal in the second half of the year will be better than the first half.

“Only by seeing channel transformations effective, distributors’ confidence can be reflected in the order volume; and now several big sports brands are controlling orders in moderation,” said Zhang Qing. Li Ning's “Good News” in the middle report is that the overall gross profit rate increased from 43.2% in the same period of last year to 43.6% during the period, an increase of 0.4% year-on-year.

The reason for this is that the performance of new products has been significantly improved, and the gross profit rate has increased. At the same time, a large number of old products were cleaned up and the corresponding inventory provisions were reversed with the cleanup of old products.

In addition, in the first half of the year, the average turnover period of Li Ning's channel inventory fell from more than 9 months to less than 7 months, which is close to normal, and the total inventory decreased by more than 30%. According to Li Ning’s report, more than 90% of distributors have participated in the channel rejuvenation program during the first half of this year, and the average turnover period of channel inventory has dropped significantly, from the peak of 9 months to less than 7 months.

The JPMorgan Chase Report believes that Li Ning's channel inventory has been less than seven months, close to the company's defined health level (6 months), and the channel structure has been healthier than before. Jin Zhenjun said that he believes cash flow inventory will continue to improve; the second half of the year will be the period during which profits will be reflected and optimized. He also revealed that self-operated stores accounted for 9% of same-store sales growth in the first half of the year, which is a good performance compared with peers.

Although the future of Anta, Li Ning and other brands may be on the way to a long-term recovery, the recovery of the domestic sports brand industry remains to be seen. Ding Shizhong said that for Anta, the worst time has passed, and it is confident that it can be the company that has come out of the bottom for the first time. Jin Zhenjun said that in the second half of the year, Li Ning will no longer experience negative cash flow problems, and large inventory problems will no longer exist. The channel rejuvenation program that began at the end of 2012 has already completed 50%. Li Ning has gone through the most difficult road.

Deutsche Bank reported that ANTA’s orders for the first quarter of 2014 have resumed growth, reflecting that the market contraction may have ended. It is believed that the growth of Anta orders will continue and it is expected that the five-year sales compound annual growth rate will reach 10%-12%. Li Ning is also expected to follow a similar upward trend and expects sales to increase quarterly and year-on-year in the second half of the year.

"Now it is better than expected, and the signs of a better turn are more obvious." Zhang Qing said, "I am cautiously optimistic about the industry. I believe that in the first half of next year, some brands will take the lead out of the predicament, while others will sink." It is impossible to have so many sports brands. Retail transformation has become a turning point in the industry. The stronger the stronger, the weaker is eliminated.

For the uneven development of the industry as a whole, there are still a long way to go for more companies that have not yet undergone transformation.