Anta first to break away from loss-making Chinese sportswear pack
Despite Anta's return to profitability, a full recovery at competing brands may prove elusive
Investors cheered this week as Anta, the mainland's largest sportswear brand, reported profit growth - the first company to emerge from the Chinese sportswear sector's recent slump - despite overexpansion and poor branding at the group level.
A sector-wide recovery, however, is not likely to happen any time soon.
As Anta chief executive Ding Shizhong said at the company's August 6 results briefing, "our performance does not represent the industry. Not everybody can get out of this consolidation".
It remains to be seen whether competitors such as China Dongxiang, Xtep and 361 Degrees can pull through. Li-Ning, the other major sportswear brand, is expected to have staying power due to its market share and brand equity from celebrity athlete founder, gymnast Li Ning.
However, it is still on shaky ground.
The company is due to report results on August 14 although it has already warned that it expects its losses to widen in the first half to at least 550 million yuan (HK$691 million).
About 300 million yuan is attributable to upfront product investments and the shift to a directly owned retail store network.
An additional 300 million yuan has been set aside to cover bad debts, the closure of flagship stores and other one-off expenses, the profit warning stated.
As the two biggest mainland players, the turnaround plans of Li Ning and Anta will test whether Chinese consumers are ready to embrace domestic brands over foreign ones when the price tags are more or less the same.
Ding has made it clear that he views Anta as a mid-tier brand for the masses, leaving its higher-end mainland distribution to Fila, the Italian but South Korean-owned label that appeals to Chinese consumers' aspirational tastes.
Li-Ning, on the other hand, is counting on developing a premium performance-based product as part of its strategy. Its three lines range in price from 299 yuan to 999 yuan, with the top end competing in the same price range as global sports titans Nike and Adidas.
Li-Ning interim chief executive Kim Jin-goon said the new product lines were enjoying strong sales but a performance product has high barriers to entry, including significant research and development costs and marketing spending needed to convince shoppers to leave Nike LeBron 11 iDs on the shelf in favour of a pair of Li-Ning Way of Wade 2.0s.
On the other hand, Anta's strategy leaves its products open to greater competition from lifestyle brands. If it is looks rather than function and performance that people want, they also have a wide choice from the likes of fast fashion retailers such as Zara, Uniqlo and Topshop, which have introduced trainers into their collections.
An HSBC report noted in July: "Consumers are much more volatile than before and open to buying sporting goods as a lifestyle statement. Consequently, the sector is broadly challenged by any company that manufactures sneakers or casual apparel, be it in luxury (e.g. Prada and Louis Vuitton), casual wear (Lacoste and Diesel) or vertically integrated retailers (e.g. Uniqlo)."
