Anta sprints ahead in China’s sportswear market rebound
Will China’s sportswear companies learn from the mistake of over-expanding their business in the run-up to the 2008 Beijing Olympics as they chase another Olympics in 2022?
Before the 2008 Olympics, major homegrown sportswear brands rushed to go public and expand their footprint to ride the tide, which eventually led to oversupply and waves of store closures. According to a recent research report by HSBC, more than 7,000 shops have been closed since 2011, when their numbers peaked.
“We expect the companies to pay more attention to upgrades of select store locations and overall store efficiency but not significant store openings. Growth won’t be as fast as it was before the 2008 Beijing Olympics, but we think it will be at a healthier and more sustainable rate because of greater demand,” the report said.
Sales recovery of local brands kicked off last year after three years of store adjustments and inventory control, which Anta has managed well. Among domestic sports brands, Anta is the favourite pick of industry analysts for its multi-brand strategy and acquisition potential that may boost its earnings growth.
Locking in the biggest market share among domestic peers – 9 per cent – Anta responded to the market downturn by cutting low-performing stores in past years.
Back in 2009, when the company acquired Fila’s loss-making China business from Belle International, the industry doubted if Anta would be able to turn it around. Today, Fila’s apparel sale has become a key profit contributor to Anta. A war chest of 5.6 billion yuan in net cash also means Anta has the wherewithal to pull off a similar acquisition of another China operation of an international sports brand.
“Anta has accumulated solid experience and a strong track record from operating Fila in China. Its in-house production flexibility and strong management should allow it take up more brands,” wrote analysts from Deutsche Bank in a note.
Another sign of an industry rebound is the comeback of the old heavyweight Li Ning that saw its business swing back into the black for the first time in almost four years. It managed to cut operating costs and improve sales but its unending hunt for a permanent chief executive and slow clearance of excess inventory still poses risks to its recovery, analysts warn.
But the market restructuring is far from over and there could well be further industry consolidation in next few years, they say.
“We think there is less risk of the sportswear sector in China repeating the cycle of overexpansion and excess inventory, as supply in the market is more in line with demand, inventory levels have remained stable over the past year or so, and the brands now have a better understanding of how stores are performing,” said HSBC analysts in the report.
China’s sports industry still has immense room for growth, given that annual spending on sportswear is only US$17 per person, compared with US$285 in the US and US$196 in Hong Kong, according to consultancy Euromonitor International.
“The products offered by sporting goods companies are relatively more insulated than other consumer categories, thanks to technical features and instant brand awareness,” said the HSBC report.