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China’s Sportswear Industry Getting Back in Shape
Aspire, Thought Leaders | 10 August 2015
By: Louis Wong
Articles (12) Profile

Since 2011, China’s sportswear industry has been struggling with overproduction that resulted in heavy discounting to reduce inventory. Financial results of listed companies were adversely affected. Li-Ning(2331.HK), a leading sports brand that represents China worldwide, posted losses for the third consecutive year in 2014. Other listed companies such as ANTA Sports (2020.HK), Xtep International (1368.HK) and 361 Degrees (1361) reported weaker financial results in the last three years.

Companies that Recovered and Improved

After several years in the doldrums, China’s sportswear industry finally shows signs of recovery with sales picking up.  Take ANTA Sports for example, the order value (at wholesale value) of products of its own brand for trade fairs achieved low double-digit growth on a year-on-year basis in all four quarters of 2015. Same-store sales (at retail value) of products of its own brand achieved high single-digit growth in the first quarter of 2015 as compared to the same period of 2014.

As for Xtep International, the order value from its trade fair for the first quarter of 2016 increased 10 percent year-on-year, the tenth consecutive quarterly improvement since the fourth quarter of 2013. Same-store sales recorded a high single-digit growth for the second quarter of 2015, representing remarkable improvements from the mid single-digit quarterly growth in the past.

361 Degrees also announced encouraging trade fair results. Its 2016 Spring Fair orders rose by 15 percent compared with the same period last year. Both the Group’s two main categories, footwear and apparel, registered remarkable improvements. Footwear orders increased by 12 percent in volume with the average selling price (ASP) improving by 6 percent. Apparel volume and ASP increased by 7 percent and 6 percent respectively.

What have they done right?  

ANTA is the first domestic sportswear branded enterprise to achieve a turnaround. It managed to gain market share by enhancing product differentiation and offering innovative products such as its new A-Web 2.0 running shoes that appeal to consumers.  ANTA has implemented a retail-oriented strategy that successfully improved its retailers’ competitiveness and profitability.  From the product planning stage, it has been working closely with retailers to gather customer feedback in order to develop products that are well received by the mass market. Its real-time monitoring system provides timely market information and retail data that enables it to stay abreast of consumer demand and to formulate more accurate product development plans, ordering guidelines and replenishment forecasts for retailers. It provides precise order guidelines on a per store basis so as to achieve greater accuracy in orders and to better control in-store inventory levels. Meanwhile, its clearance channels, including factory outlets, discount stores and e-commerce platforms, enable its retailers to reduce inventory at a faster pace. In terms of production capabilities, its strategic mix of in-house and outsourced production enables it to be more flexible in product replenishment and further enhances its product efficiency. To drive future growth, ANTA has intensified its penetration into selected international markets in Southeast Asia, Eastern Europe and the Middle East.

Its net profit attributable to shareholders increased by 29.3 percent to RMB1.7 billion in 2014, which was only marginally lower than the record profit of RMB1.73 billion achieved in 2011.  Barring unforeseen circumstances, it is expected to break its profit record in 2015.  Its share price has run ahead of its results and achieved a new high since its listing in 2007.

Louis is one of the most experienced fund managers in Hong Kong and has more than 25 years of solid experience in the financial markets. He employs a strict criteria for choosing his stocks, which is deeply insistent on having a thoughtful and sophisticated analysis of the company before making any investment decision.

Please click here for more information about this author.

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