Foreign Media Say China's Sports Brand Will Usher In A "Knockout".

It is reported that in order to cope with the sequelae caused by massive borrowing and too rapid expansion, China's

Ken Lee, an analyst at UOB KayHian, said in a research report released last week that too many stores are beginning to lead to life and death competition and price war.

He said that this problem can be traced back to the initial public offering fever in Hongkong in recent years. With this upsurge, mainland China's consumer related enterprises can easily raise funds to promote their ambitious growth plan.

Take the Peak Sport Products Co Limited (Peak Sport Products Co.) as an example, it passed in September 2009.

In addition, clothing company 360 degree International Limited (361 Degrees International) also raised $231 million through initial public offerings, which was traded on June 2009.

At that time, people who advertised the company said that the 31st Degree International would benefit from the increase in consumer spending on sportswear, which is expected to maintain an annual growth rate of 30% over the years.

Ken Lee says the next thing is the retail competition of sportswear manufacturers, which leads to a market supply exceeding the purchasing power of consumers.

According to the data released by the end of 2010, China's five largest sportswear manufacturers in Hongkong have 7000 or more retail outlets in mainland China.

Sixth Chinese sportswear manufacturers listed in Hongkong focus on the richer coastal cities, which have 3750 retail outlets.

Dahua Jian Xian recently inspected some retail outlets of these sportswear manufacturers, and found that their products often depreciate from 50% to 90% sales, and summer wear even buy two gifts and one promotion.

Ken Lee visited the six cities in the mainland of China in June this year. He said that we had never seen such a large and high discount.

In a study published earlier this month, analysts at Credit Suisse said they expect some Chinese sportswear manufacturers to integrate for survival needs, as the industry may break out in the second half of this year.

So far, multinationals who produce sportswear do not seem to have suffered from excessive competition.

In the second quarter of this year, Nike Nike sales increased 16% in the Greater China region compared with the same period last year.

But for Chinese sportswear manufacturers, the recent profit warning of the two companies is a realistic portrayal of their immediate predicament.

Li Ning Co Ltd (Li Ning Co.) issued an early warning in July 7th that the company's performance in the first half of the year will be relatively weak. A day later, the China Dongxiang Ning, a famous sportswear brand maker (Kappa), issued an early warning that its profit in the first half of this year will be lower than that of the same period last year.

We see this as a turning point, Ken Lee said, which shows investors are losing confidence in Chinese sportswear producers.

He said his reason was that after the above profit warning was issued, all the Chinese sportswear manufacturers' shares had suffered a sharp sell-off.

Li Ning Co's board of directors cautioned that higher raw material prices were a factor in the weakness of its upcoming earnings data.

In the first half of the year, profits could fall by 56%.

At the same time, China's trend indicated that profits fell by 75% in the first half of last year, as sales fell and the provision of 220 million yuan ($34 million 100 thousand) was used to repurchase backlog stocks to distributors.

The distributors are responsible for supplying independent retail stores.

Before the company issued a profit warning, Ken Lee downgraded the sports apparel industry from the previous market to the "reduction".

He is particularly vigilant about Lining's retail strategy.

This strategy includes the increase in retail stores from about 8000 to 10 thousand in three years.

In some cases, retailers intend to open new stores in neighborhoods where four stores have been opened.

Ken Lee said opening more stores would not help, and said that Lining management should reconsider expansion strategy.

Citigroup said in a Li Ning Co research report that the newly opened factory outlets pushed up the operating expenses of Li Ning Co, but it hardly helped increase overall sales.

Citigroup said that Li Ning Co is firmly pushing forward the expansion strategy of factory outlets, which may be used to deal with backlog stocks.

Nevertheless, Dahua's Ken Lee believes that the trend of sales decline is basically irreversible. He predicts that Li Ning Co will start losing money in the first half of next year.

A key indicator that must be noted is the sales figures that will be released in August and the data on wholesale demand in 2012 this autumn.

The problems that once again plagued retailers include credit lines and retailers' lengthening the return period of wholesale customers.

In order to deal with the backlog commodities, the sellers cut prices one after another, and the profit rate dropped sharply.

Last week, Morgan Stanley (Morgan Stanley) took the trend of Li Ning Co and China to continue to buy over the season inventory as the reason to see the sports apparel industry's market outlook.

Nike and Adidas (Adidas AG) provided a revival model for their profitability.

But Ken Lee says China's domestic brands are facing bigger problems.

Since the end of 2008, Nike and Adidas have experienced a painful two-year cycle in China. The two companies have overcome their inventory problems during this period.

Ken Lee said that even after the stock price plummeted, we are still pessimistic about the industry.

Nevertheless, some Chinese sports brands still hold optimistic expectations for the future.

Xtep International Holdings Ltd., which is listed in Hongkong, said that XTEP plans to add 500 retail stores this year, mainly in the two or three line city center of International.

The clothing group is partly owned by Carlyle Group.

XTEP International said the move is intended to take advantage of 15% to 18% of China's sportswear sales growth.