Battered sportswear sector attempts China recovery

Sportswear sellers say market is slowly improving after years of declining sales

PUBLISHED : Monday, 19 August, 2013, 12:00am
UPDATED : Monday, 19 August, 2013, 3:40am

After experiencing sharp sales decline and painful structural adjustments over the past three years, the mainland's sportswear sector is recovering, albeit slowly and unevenly.

Earlier this month, in the centre of Shunping County, a small town in Hebei province, businessman Wang Zhanquan opened a fifth shop selling Anta-brand sports apparel and shoes.

His latest 110 square metre shop is just a stone's throw from the other four shops he runs on the same street, from which he sells local and foreign sportswear brands Li Ning, Nike and Adidas.

"Last year was the most difficult year. But recently business has been getting better," said the 53-year-old Wang, who was the first to introduce "brand stores" into his hometown, a place with a population of 300,000.

In the first seven months of this year, said Wang, sales at his first Anta store grew by about 10 per cent year on year; while his Nike and Adidas shops, which have been open for just one year, showed a better-than-expected performance. In addition, the profit margin for his Li Ning store had improved slightly thanks to higher prices.

Speaking with 13 years of experience in the retail trade, Wang said it was becoming more and more difficult to run a profitable business due to intense competition and a weak market environment.

"There are already a dozen different sports brands in our town. But I will be optimistic about my business as long as the brands can control their inventory reasonably and keep offering good stuff."

The mainland sportswear market has been cooling down since 2010 as the industry suffered from over-expansion, slowing economic growth, and declining consumer demand.

Local brands, including Anta, Li Ning, Xtep, and Peak, responded by ramping-up efforts to clear old stock, close low-efficiency shops, restore supply chains, and upgrade products and services to adapt to consumers' needs. By the end of last year, the six major local brands closed nearly 5,000 shops, more than 10 per cent of their total outlets.

Now signs of recovery are emerging, evident in falling inventory levels, lower discounts offered by retailers, and rising trade fair orders. But the situation in some areas remains tough.

Yang Jun operates a small shop in Beijing that has sold Li Ning, Nike, and Adidas products for nearly a decade. Most of his sales revenue comes from orders placed by large enterprises and government departments.

"It's true that the inventory level is declining. But demand is declining even faster," said Yang. Aside from adverse market conditions, the frugality campaign launched by the central government last year had taken a toll on the sportswear sector as well.

The result was that sales of high-end goods had declined significantly and he now expects profit to be 30 per cent lower for the whole year.

In May, Yang opened a second shop in the Beijing suburb in a bid to expand the customer base and capture opportunities in the mass market. "The business is not bad so far," he said.

But other retailers believe the market is on track for a recovery.

"We believe the worst is behind us," Jin-Goon Kim, executive vice-chairman of Li Ning, said last week. One of the hardest-hit retailers in the industry, the Beijing-based brand initiated a transformation plan last year to clear channel inventory, rationalise store networks, enhance product designs, and improve its capital structure.

Despite these initiatives it last week reported a net loss of 184 million yuan (HK$231.38 million) for the first half of this year, compared to a profit of 44 million yuan a year ago. Sales decreased 25 per cent to 2.9 billion yuan.

But analysts said that was better than they had expected and Kim said the results did not yet fully reflect the benefits of the investments the group had made.

Meanwhile Anta, the mainland's largest seller of home-grown sportswear, said first-quarter orders this year were up by high single digits in both volume and value, the first rise in the past seven quarters.

The group earlier reported that sales revenue for the first half was 3.37 billion yuan, down 14 per cent, while profit dropped 19 per cent to 626 million yuan.

Some discount rates, meanwhile, remain large. Li Ning offers buyers a 50 per cent discount if they purchase three items; Xtep offers 40 per cent off for any purchase of two pieces; and Adidas offers 30 per cent off on most summer products, a relatively deep discount for the brand.

While most analysts agree some segments of the sportswear market have seen improvements, they are divided on when a real turnaround will arrive.

Spencer Leung, an analyst at UBS, believed the industry would rebound in the first half of next year, but Jerry Peng, an analyst with Guotai Junan International, was more pessimistic.

"I don't believe a turnaround is likely to appear next year. The market will bottom up, but not so fast. Anta is apparently a leader in recovery, yet other local players are still not doing well," he said.

On a recent shop visit in Shenzhen, Peng found that some apparel and shoes made as early as 2010 and 2011 were still on shelves in Li Ning and Xtep's shops, while autumn collections were not in yet.