The development model of domestic sports brands that focused on rapid expansion and quantity-driven growth has become unsustainable. Rising labor and rental costs, along with severe product homogenization, have reduced the marginal benefits of intensive store openings and even led to losses.
Recently, companies such as Peak, Li-Ning, and Anta have all reported declining profits, with many brand stores closing down, signaling a strong sense of a cold winter. Experts analyze that after the rapid expansion and “extensive” development following the Beijing Olympics, domestic sports brands have entered a phase of deep adjustment, and the entire industry is about to undergo a major transformation.
Domestic sports brands face a cold winter
Domestic sports apparel company Peak Sports recently released a report showing that as of September 30 this year, it had 6,739 authorized retail outlets in China, a decrease of 1,067 from the end of last year. Peak Sports’ order situation is also not optimistic, with the total order value at its 2013 second-quarter trade fair declining by 20% to 30% year-on-year. Peak Sports issued a profit warning indicating that net profits for the first half of the year ending June and the full year ending December are expected to significantly decrease compared to the same periods last year, due to widespread inventory adjustments in the industry this year and weak economic conditions negatively impacting demand for the group’s sports products.
In response, Peak CEO Xu Zhihua stated that while store closures may seem sensitive, from an industry perspective, they are essentially a process of survival of the fittest.
Other data also shows that multiple domestic sports apparel companies have exhibited signs such as a reduction in retail outlets and declining profitability. In the first half of this year, Li-Ning Group continued to advance sales channel reforms. On the basis of opening 248 new stores, it conducted a profitability assessment of its stores, adjusted its business structure, and closed 1,200 underperforming stores, a closure rate as high as 15%. As of June 30, the number of Li-Ning regular stores, flagship stores, factory outlets, and discount stores was 7,303, a decrease of 952 from the end of last year. In addition, Anta Sports has also reduced its total number of stores by 110 this year.
Reporters found during interviews in commercial areas such as Beijing’s Xidan and Wangfujing that in many malls crowded with domestic sports goods, dealers mostly advertised price cuts and promotions. However, compared to the bustling fashion brand and international sports brand clothing stores with heavy foot traffic, the stores selling sports brand clothing appeared relatively quiet.
Xiong Xiaokun, a light industry researcher at China Venture Capital Consulting, told reporters that the development model of domestic sports brands that focused on rapid expansion and quantity-driven growth has become unsustainable. Rising labor and rental costs, along with severe product homogenization, have reduced the marginal benefits of intensive store openings and even led to losses.
Overexpansion leads to “malnutrition”
From the development trajectory of domestic sports brands, it can be seen that in just a few short years, domestic sports brands experienced an “explosive” growth process. The 2008 Beijing Olympics brought unprecedented development opportunities for Chinese sports brands. With consumers’ sports enthusiasm ignited, along with commercial sponsorships, advertising marketing, and subsequent listings on the Hong Kong stock market, many sports brands gained ample capital, and their businesses flourished.
During this process, many sports brands opened a large number of stores in second- and third-tier cities. On one hand, this provided “performance” for Hong Kong listings, and on the other hand, it helped them capture the market in these cities.
In 2009, the revenue of the sports brand Li-Ning surpassed that of sports goods giant Adidas, jumping to second place in the Chinese sports goods market, and the gap with industry leader Nike was gradually narrowing.
“Due to the lack of focus on developing brand characteristics during rapid expansion, severe homogenized competition emerged. Now, too many sports brand stores are clustered together, leading to increasingly fierce competition among them. Many of these stores are also inefficient, with poor operational and management efficiency,” said Jiang Yunlu, an online marketing expert.
According to the semi-annual reports released by six major apparel brands—Li-Ning, Anta, Xtep, 361 Degrees, Peak, and 361 Degrees’ affiliate Trend—in the first half of this year, the total inventory of the six brands reached 3.721 billion yuan, a slight increase from 3.699 billion yuan at the end of last year. Among the six brands, although 361 Degrees and Trend saw a decline in inventory, Peak’s inventory continued to rise. Compared to the end of last year, its first-half inventory had increased to 529 million yuan, a rise of 25.65%.
Jiang Yunlu believes that sports brand enterprises not only face competitive pressure from homogenization within the industry but are also squeezed by the casual wear market. With the emergence of more and more fashion clothing brands, consumers have more choices. In fact, before the large-scale emergence of Chinese casual wear brands, domestic sports brand apparel to some extent served the function of casual wear. Now, casual wear is gradually taking over part of the sports brand apparel market. Coupled with the development of e-commerce, many low-priced products meet consumers’ online shopping needs.
Deep adjustment period faces transformation pressure
Experts believe that to change the current situation, enterprises should first clarify their positioning, focus on adjusting their product structures, and enhance product distinctiveness. Xiong Xiaokun said that domestic sports brands are currently facing dual pressures from both domestic and international markets. On one hand, numerous domestic sports brands are fiercely competing with each other; on the other hand, international sports brands such as Nike and Adidas are entering second- and third-tier markets with low-price strategies, putting tremendous pressure on domestic sports brands. Therefore, domestic brands urgently need to identify their brand positioning, clarify their development strategies, adjust their product structures, and build their brands by offering personalized products.
Secondly, enterprises need to shift away from extensive development models and improve profitability. Some experts pointed out that the large-but-not-strong development model of domestic sports brands, represented by Li-Ning, which focused on scale expansion, is facing difficulties. Sports brands should change their business development strategies. They should abandon the current extensive development model of intensive store openings and quantity-driven growth; segment product lines, and improve single-store profitability through various measures such as channels, marketing, and services, truly achieving both scale and strength.
Thirdly, marketing methods should be adapted to the characteristics of current e-commerce. Jiang Yunlu suggests that in the era of rapid development of the internet and new media, enterprises should focus on effectively utilizing e-commerce and integrate multi-channel operations. E-commerce can reduce investments in the marketing chain and lower the final delivery cost of apparel, thereby creating a price advantage.