China Moves To Expand Sales Through Capital Cooperation

If the 1988 China PEAK and the 1989 Lining sports established the sportswear brand as the starting point, in the past 20 years, the Chinese local sports apparel enterprises have developed two different business models in the process of rapid progress. The first category is represented by the brand name Lining sports and the Chinese trend emerging from the "Lining Department". They learn from Nike and use the light assets operation (virtual operation) mode to try to control the market by controlling the production and integration channels through the brand's appeal.

The second category is the local sportswear brand of Jinjiang department, represented by Anta sports. They start from wholesale and manufacture, then gradually turn to brand orientation.

They have a certain production capacity, adopt the "vertical integration" mode, respond to changes in market or channel demand with rapid response, and penetrate into the two or three tier cities with cost advantage, and gain greater market space.

For the number of brands, this type occupies at least half of China's local sportswear brand.

The "light assets operation" mode was first created by Nike in the 70s of last century.

From the 70s of last century, Nike made full production to manufacturers in Japan and Western Europe; by 80s, its production was further outsourced to South Korea, China's Taiwan, mainland China and India; and in the 90s of the last century, Nike was committed to making Southeast Asian origin.

From the constant changes in the production base, we can see that Nike's response to global production cost changes is very fast. By passing the production line to other manufacturers, Nike can focus on the design, development and marketing business, so that financial resources can be concentrated in the industry chain, which can stimulate sales and bring benefits, and thus achieve higher return on investment.

With the confirmation of Nike's success, "light asset operation" has now become a popular business mode of sports apparel industry, and all major brands have been adopted, while Lining sports and China are also strong followers.

Unlike the "light assets operation" mode, Anta sports has 5 production bases in Fujian.

In 2006, Anta sports produced about 8 million 900 thousand pairs of footwear products in Jinjiang's own production equipment, accounting for about 75.4% of the total footwear output in that year. Because most of Anta's sports products are produced by itself, they can control almost all operation stages from product design, development, manufacture to distributors, and marketing of finished products. This mode is called "vertical integration".

Unlike Lining sports and China's trend asset structure, Anta sports occupy some of the financial resources of enterprises, and the proportion of illiquid assets is significantly higher than that of the former. The Chinese trend is aimed at differentiated products, while Anta sports positioning in the low-end market trend in China, despite the trend of "light assets operation", but in the market positioning of products, it has gone out of a differentiated route which is different from Lining sports. That is, keeping the connotation of Kappa brand sports, integrating fashion and leisure elements, positioning Kappa brand in "sports, fashion, sexy, taste", avoiding the "professional sports" supplies market of sports giants at home and abroad.

This is also the key to China's success.

"Nike sells to people who really like sports, and Kappa sells them to people who pretend to like sports and are really trendy."

In addition, in terms of product mix, China's trend is focused on clothing products that show individuality.

Because the gross profit margin of clothing products is usually higher than that of footwear products, this provides a basis for China's trend to maintain a higher profitability.

Lining sports and Anta sports are inferior to the trend of China in the market positioning differentiation. They still follow the professional sports brand line, but there are still differences between the two.

Since the second half of 2003, Lining sports has shifted its axis of its brand promotion from the low end to the high-end professional sporting goods market, facing Nike and Adidas, which have long been entrenched in the high-end sporting goods market.

While Anta sports is located in the middle and low end market, the average selling price and gross profit margin of the products are far lower than that of Chinese sports and Lining sports, and the sales outlets are dominated by second tier and three tier cities.

In terms of product mix, Lining sports and Anta sports shoes and clothing products proportion is more balanced, but Anta sports more focus on low gross margin footwear products.

Anta sports is positioned in the low-end market. It is a wise move to avoid the positive competition between high-end brands such as Nike, Adidas and Lining. It can also play the cost advantage of "vertical integration" business mode and directly expand the two or three line city with wider market space. At the same time, because the "light assets operation" enterprises do not have the cost advantage, they can maintain the price advantage to deal with competition in this market.

An important feature of the "light assets operation" mode is the importance of design development and market promotion. For example, the proportion of product development and marketing of Lining sports is significantly higher than that of Anta sports (Table 3).

However, similarly, the trend of China's "light assets operation" business mode is the lowest among the three companies, which is related to China's unique marketing strategy.

The marketing strategy of sportswear enterprises generally follows the Nike mode, mainly through sponsoring sports events, sports teams and endorsement by sports stars. Lining sports and Anta sports are all the same, and the marketing strategies of the two are very similar.

For example, Lining sports has sponsored the Olympic Games and Asian Games Chinese sports delegation since 1990, and signed the national diving team. In recent years, Lining sports has accelerated the pace of the internationalization of the brand, signed international tennis stars such as tennis player Ivan Ljubicic, NBA O'neal and other international sports stars, sponsored the Argentina National Men's basketball team, Sultan national track and field team, and the national table tennis team. In addition, Anta sports signed the NBA Rockets player Francis and straga respectively in 2007, sponsoring the Chinese men's basketball professional league and becoming its long-term strategic partner, and the two sides all attached great importance to the dissemination channels of CCTV5.

Unlike Lining sports and Anta sports, China has never done TV commercials, and has withdrawn from the sports sponsorship team. It adopts popular promotion methods of fashion brands: sponsoring hosts and stars, and promoting the fashion of pure fashion. For example, China has spent 3 million yuan on sponsoring the Chinese star soccer team.

Its brand Kappa has developed a cross industry joint marketing model.

In June 19, 2007, Kappa and PepsiCo began a cross industry strategic cooperation and launched a new series of Kappa- Pepsi "Shadow Dance" series. After that, the "Dongfeng Citroen C2 Kappa brand united city Show" large-scale roadshow took a month to tour in ten major central cities such as Beijing, Guangzhou, Dalian and Shanghai.

At the same time, the designers of both sides have begun the design work of "C2 Kappa flashy dress" of C2 owners' exclusive clothing, and launched a series of online promotion and terminal promotion of three-dimensional joint activities.

In fact, the promotion mode of China's trend is based on the positioning of its product "sports fashion", which also greatly reduces the cost of marketing. The proportion of international sports brand promotion costs in turnover is generally about 13-16%, while China's trend is only about 8%, which is conducive to improving profitability.

Lining sports expansion of the number of dealers, China's trend to expand sales channels through capital cooperation, sales of sports apparel enterprises mainly rely on the establishment of a broad network of franchisees.

According to the announcement, Lining sports manages 5301 stores through 244 distributors. Meanwhile, Lining sports has 375 Direct stores in Beijing, Shanghai and 13 provinces. The total number of stores is 5676, and the distribution network is the broadest among the sports apparel enterprises in China.

Anta sports manages 39 distributors and 4716 Anta franchise retail outlets through 6 regional operations centers.

China's distribution network is the smallest among three companies, which manages 1945 stores through about 39 major distributors.

Most of the sales of the three companies came from the franchised dealer network, while Anta sports and China accounted for more than 90% of the sales volume from the licensed dealers, while Lining sports also reached nearly 80%.

Distribution network is so important that it is very important to strengthen control over distribution network.

If the number of dealers is concerned, Lining sports up to 244 dealers obviously risk less than the Chinese trend and Anta sports.

However, China's strategy to enhance channel control is more ingenious.

First, it introduced the retail giant Yintai department store as a strategic investor, and intime department store is the largest department store chain in Zhejiang province. At the same time, "Yintai" is one of the largest shareholders of a number of department stores listed in 8.50,0.30,3.66%, bar (600683), Bai Da group (600865) and e Wu Shang (000501), which is undoubtedly conducive to the expansion of distribution outlets in China. Secondly, the China trend 2007 annual report reveals that its plan is to form joint ventures with major distributors so as to directly invest in major distributors and become small shareholders of joint ventures.

This strategy will strengthen control over distribution network and reduce channel risk.

Anta sports revenue grew fastest, China's trend of profitability is the strongest, Lining sports operation efficiency is low, Lining sports, Anta sports and Chinese trend three different development mode has led to different financial effects.

From the stock perspective, in 2007, Lining sports ranked the first place in China's local sportswear with 4 billion 350 million sales, and the gross margin was basically stable at around 47%. China's trend and Anta sports sales in 2007 were 1 billion 710 million yuan and 3 billion 180 million yuan, respectively, with gross margins of 58.5% and 33.2% respectively.

However, in terms of increments, sales of Anta sports and China in 2007 increased by 154% and 99% respectively. The sales growth rate of Lining sports was only 37%. Meanwhile, the gross profit margin of Anta sports increased by 8.1%, while Lining's sports basically remained unchanged. China's trend was that the footwear products with lower gross margin were higher in the product mix, and the gross margin fell by about 3.9%.

From the stock of profitability, Lining sports net profit in 2007 was 470 million yuan, and the net profit rate was 10.9%, which was the lowest among three companies. The net profit of China trend and Anta sports in 2007 was 730 million yuan and 540 million yuan respectively, and the net profit rate was 42.9% and 16.9% respectively. In 2007, the net profit of Lining sports increased 62%, which was much lower than that of Anta sports and China's trend. The net profit rate only increased by 1.6%.

Compared with the operational efficiency of the three companies, Anta sports is obviously dominant, and Lining sports is at the bottom of the three companies (Table 4).

From the average days of receivables turnover, Anta sports does not exceed 20 days, while Lining sports is as high as 50 days.

This shows that Lining sports gives dealers a more relaxed account period, although it is conducive to product sales, but also increases its own financial risks.

Generally speaking, inventory turnover is negatively related to accounts receivable. This is because relaxing account periods and increasing accounts receivable will speed up inventory turnover, while shortening account periods will reduce dealer's enthusiasm for purchase and lead to a decline in inventory turnover.

However, from the average inventory turnover days, although Lining sports gave dealers a more relaxed account period, the average turnover days of Lining sports were also higher than that of Chinese sports and Anta sports, which increased the financial pressure of enterprises and reduced the profitability of enterprises.

From average payroll turnover days, China's trend is higher than that of Lining sports and Anta sports. This shows that China's trend makes full use of the supplier's credit period, which helps to improve profitability.