Sports Shoes Enterprises Are Facing The Sharp Pain Caused By "High Inventory".

In December 26th, after 10 years of rapid growth, Chinese sporting goods enterprises have entered the stage of mature development. When the number of channels has reached a large base, they can only raise the gross profit margin through brand pull through brand break out, that is endogenous growth, which is the only way for enterprise development.

What causes China's sports products business to suffer from "flu"? Let's take a look at the following set of data: this year, Lining (02331, HK) fell 62%, PEAK sports (01968, HK) fell nearly 60%, China's trend (03818, HK) fell 60%, 331 degrees (01361, HK) slightly better, but the decline also reached 44%.

So how much did Hang Seng index fall during the same period? The answer is 19%.

In other words, these sporting goods stocks did not win the market.

Reporters noted that even more oddly, despite the fact that China's consumer confidence index dropped from 105.8 in May 2011 to 97.03 in November, retail sales remained strong.

Statistics show that in November this year, China's total retail consumer goods totaled 1 trillion and 600 billion yuan, an increase of 17.3% over the same period last year, totaling 16 trillion and 350 billion yuan, an increase of 17% over the same period last year.

What's the performance of these sporting goods companies? According to CFA, as of the end of the first half of June 2011, the median profit of Lining was 294 million yuan (RMB the same below), a decrease of 49% compared with the same period last year. The larger trend was China's trend, and its net profit in the first half of the year dropped by 71%. In the same period, Anta sports (02020, HK) profit increased by 22% over the same period; in addition, the net profit of 331 degrees increased by 30% over the same period.

This is a very interesting phenomenon, although the performance of these companies is uneven, but their share price has been severely sell-off.

Reporters found that Chinese sporting goods companies used to expand their channels too fast. In recent years, franchisees have largely digested their stock instead of expanding orders and intensified competition with foreign sporting goods suppliers, which are the three major factors contributing to the above phenomenon.

Large consumption and prosperity sports goods stocks collectively "fall"

According to China Merchants Securities (600999, stock bar) report, in the past 10 years, China's sporting goods market has experienced a period of rapid development.

By the end of 2009, Lining's sales of $123 million were basically the same as that of Nike in 1988.

Meanwhile, Lining's sales in 2010 were almost 3.8 times that of the seven wolves, about 7.5 times that of baozi.

Behind the surge in sales, the channel is springing up like mushrooms.

According to China Merchants Securities report, there are about 8684 men's clothing companies listed in A shares and Hongkong market in 2010.

In the same period, the size of sporting goods market is only 1/2 of men's clothing, but the number of shops is about 57893, which is 5.7 times that of men's clothing companies.

Take Lining as an example, the total number of shops listed at the end of 2004 was 2887, of which 2526 were Franchised Distributors, 120 were self operated retail stores and 241 were self appointed special counters.

By the end of June 2011, Lining's store had increased to 8163, and it has increased 1.83 times in six and a half years.

Reporters noted that in May of this year, Lining group has announced 3 managers leaving.

In response, Li Ningyuan, chief operating officer with more than 8 years of experience in logistics and purchasing management, pointed out that sporting goods enterprises have hit the ceiling by relying on the path of thickening performance of new stores.

In fact, after 10 years of rapid growth, China's sporting goods enterprises have entered a mature stage of development, which is different from the development stage.

Therefore, when the number of channels reaches a large base, we can only raise the gross profit margin through brand pull through brand break out, that is endogenous growth, which is the only way for the development of enterprises.

In 2010, many domestic sporting goods companies were expanding too fast, and almost every household has maintained nearly 7000 channels.

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Now, the whole industry is facing adjustment, so we need to adjust the channel first.

For example, we should take control of routes and increase direct battalion.

However, it is important to note that some sporting goods operators are in the hands of large dealers in some two or three line cities.

This means that if they are to withdraw completely, they will touch on interests, so this adjustment will not happen overnight.

High inventory enterprises face repurchase pressure

In fact, due to the obvious seasonal and fast updating of clothing products, how to deal with increasing inventory has become a headache for the garment industry.

In the first half of this year, Lining's interim profit was 294 million yuan, down 49.49% compared to the same period last year.

But at the same time, inventory reached 992 million yuan, an increase of 186 million yuan compared with the beginning of the year.

In the first half of 2011, Lining's average inventory turnover period was 72 days, which was half as long as 48 days in 2010.

Lining stressed that the goal of opening stores has now included sales outlets for "clear goods".

In July, Lining announced that it would spend about 300 million yuan on the sale of "unsold products" to the distributors this year. Da Mo said earlier that it expects the group to purchase about 1 billion 448 million yuan of inventory in the next two years.

Compared with Lining, XTEP's stock explosion is even more serious.

According to the China Daily, XTEP's inventory was 887 million yuan at the end of 6 in 2011, an increase of 424 million yuan or 91.77% compared with the same period last year, of which the product increased from 4 yuan to 474 million yuan at the beginning of the period, increasing 4 times.

In the first half, XTEP's inventory turnover lasted for 81 days, compared with 46 days in the same period last year.

In a semi annual report, XTEP pointed out that the first half of the year's footwear and apparel products were more than 2000 and 2700 design styles respectively.

In the continuous introduction of new models, how can XTEP complete nearly 500 million yuan inventory digestion?

What is worth mentioning is that, as of the middle of this year, XTEP did not make any allowance for its inventory.

But in fact, in the sporting goods business, the book inventory is only part of its actual inventory, and a large part of it has been sold wholesale to dealers but not sold.

In the case of XTEP's continuous development of new products, the stock that has been granted to dealers is likely to be faced with the pressure of repurchase and depreciation as Lining did, resulting in a sharp decline in net profit.

"The expansion of domestic sporting goods stocks has been too fast, which has led to a serious problem, that is, dealers have been digesting inventory in recent years, and the demand for terminal providers has not been able to keep up with them, so the industry needs self-regulation," a researcher from a veteran broker dealer told reporters. "But this process may be relatively long."

Fierce competition, Nike and Adidas dream dimples

The dilemma of sporting goods stocks such as Lining and XTEP is not without historical reference.

In fact, Nike, ADI and other sporting goods "originator" also encountered high inventory trouble.

In 2008, as a sponsor of the Beijing Olympic Games, Adidas was overoptimistic about the market and increased its production scale. Unfortunately, it suffered from the global economic crisis after the Olympic Games.

It took Adidas more than two years to clean up the backlog of sales channels.

It can clean up huge inventory and play an important role in brand appeal.

As an imitator, Chinese sporting goods enterprises have to face another pressure: fierce competition from these foreign brands.

Statistics show that this year marks the thirtieth anniversary of Nike's entry into the Chinese market.

The world's largest sporting goods manufacturer has been selling for 1 billion years in China for 26 years, but it has only doubled the figure in 4 years.

In 2010, Nike sold us $7 billion 580 million in the US market, followed by US $2 billion 60 million in the Chinese market.

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At present, Nike has more than 7000 retail outlets in China.

In addition, the Oriental Securities report shows that during the period of entering the Chinese market, the annual compound growth rate of Nike's sales revenue and net profit reached 15% and 18% respectively; in 2011, the net interest rate of the company reached 10.2%, which was higher than that of the industry average 6.5%.

Compared to Nike and Adi, China's sporting goods companies are quite different after going to sea.

In December 22nd, an article entitled "Lining brand struggling in the US market" attracted market attention.

The report said, "Lining has made great efforts to enter the US market by signing several high-profile spokesmen such as basketball star Shaquille ONeil (ShaquilleO Tribulus Neal), but now the operation of the front office in Portland, Oregon has encountered difficulties, and about half of the 30 designers and other employees who design tennis shoes and clothing in the US market are leaving this year."