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Inventory Is Concentrated In Channel And Terminal Dealers. Inventory Pressure Is Huge.

2013/8/1 17:17:00 11

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with the sharp decline of the performance of sports brands such as Lining and PEAK, the domestic sports market has attracted people's attention. When many media discuss the sports market, they mention the "serious backlog of inventory". But what is the stock situation and how to measure it?

In this article, we will start with financial data, focusing on the inventory problem of sports goods market and the status of retail channels.

inventory is concentrated in channels and terminals. The inventory pressure of dealers is huge.

as of December 31, 2012, the total inventory of 6 major domestic sports brands (Lining, Anta, XTEP, PEAK, 361 degree and KAPPA) was 3 billion 324 million yuan, 3.5% less than that of the same period last year (Figure 1).

As a sportswear channel, Baosheng's stock is 3 billion 727 million yuan, a 37.4% increase over the same period last year.

comparing the absolute value of stock with light, we can not form a clear concept.

But through the change of growth rate, we can roughly interpret the following interpretation: compared with 2008 and 2009 (-3.5%), the growth rate of stocks in 2010 (36.8%) and 2011 (40.9%) increased significantly.

It shows that the selling degree of products is decreasing, and the supply-demand relationship of the market is changing.

"P" inventory is not the lower the better, for sports goods, a certain amount of stock (stock) is the necessary support for sales.

But what kind of inventory is healthy? Zhang Qing, the founder of sports information company, said: the reasonable scope of inventory is generally 20% to 30% of the sales volume of the season, and more than 50% is the dangerous level.

In 2012, the share of the 6 major sports brands accounted for 11.2% of their total sales, while Baosheng's inventory accounted for 27% of its total sales, and on the surface it was at a healthy level.

But is this really the case? Obviously not.

channel inventory multiplier estimate

Lining's gross profit margin in 2011 was 46%, then the measured value of its 1 billion 133 million yuan book inventory to the first level agency in 2011 was about 2 billion 100 million yuan [11.33/ (1-46%)], while in 2012 it was about 1 billion 500 million.

According to Baosheng listed materials in 2007, it is the largest agent of Lining in China. Its agent Lining brand stores account for 10% of its total stores (Lining disclosed in 2012 earnings report: the group has no revenue generated from pactions with any single external customer, or exceeds 10% of the group's revenue).

In view of the store efficiency of Lining shop is smaller than that of Nike and Adidas, we estimate that the income from Lining brand accounted for 7% of Baosheng's total revenue. In Baosheng's inventory of 3 billion 727 million yuan in 2012, Lining's brand inventory accounted for about 260 million yuan. In addition, Lining accounted for 4.3% of the largest customer's sales in 2004, and then we estimated that Baosheng sales accounted for 6% of Lining's total sales in 2012. Therefore, we estimate that the total inventory of Lining products on the first level channel is 4 billion 300 million yuan (260 million /6%), and the ratio of the inventory on the channel to the brand dealer's inventory is about 2.9 (4 billion 300 million /15 billion). We define this 2.9 as the channel inventory multiplier.

After calculating the average gross profit margin of the 6 major domestic sports brands at 38%, we estimate that the total inventory of the 6 major brands at the first level channel is about 15 billion 600 million yuan, accounting for 53% of the total sales.

through the above estimates, although the results may not be accurate, we can generally draw the conclusion that the main inventory of sports goods industry is concentrated in the channel, and the pressure on the distributors is far greater than that of the brand dealers.

This can also be verified from the phenomenon of branding through wholesale mode to channel traders.

how much stock is there on the channel? There is another side evidence: according to Zhang Qing, Nike's stock in the Chinese market in the first quarter of 2012 has accounted for 56% of its quarterly sales.

It can be imagined that the brand value of Nike is far higher than that of domestic brands, and is the situation of domestic brands even more serious?

inventory turnover slows down, stock condition is worrying. /p >

in theory, inventory is a dynamic concept. It is not appropriate to measure the inventory of the industry by the inventory at the end of the year.

We think that the turnover days of inventory [365/ (sales cost / average stock amount) are more reasonable indicators.

It measures the average state of inventory in the whole accounting period.

From Figure 2, we find that the turnover speed of both the brand and the channel is slowing down, and the turnover time of the channel operators is significantly higher than that of the brand dealers. This also confirms the conclusion that the pressure on the stock market is higher than that of the brand.

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KAPPA (trend), as early as 2011, the stock repurchase on the channel began to take place, and it was the earliest sport brand to expose problems.

Then Lining started the channel revitalization plan in the second half of 2012. Repurchasing inventory and adjusting the store are the two most preferred means, but the current inventory turnover days (90 days) are still at a higher level.

KAPPA's inventory turnover time has been more than 200 days, so we can see that the industry crisis is still continuing.

We expect that in the next 2~3 years, the turnover days of other sports brands will be on the rise, and the profitability of enterprises will be worrying.

In addition, Nike's inventory turnover has also been on the rise recently, in 2012 for 87 days, while Adidas's inventory turnover is improving, and 2012 is 116 days.

channel inefficiency /p >

although other sports market players except 361 degrees and BELLE are vigorously shutting down, the drop in store efficiency (average annual sales per store) is still irresistible.

The success of Baosheng store was mainly due to the decline in the number of stores and revenue growth, but its gross profit fell sharply, resulting in a loss in 2012.

XTEP's revenue and store efficiency are unchanged from 2011, and it is the best performing domestic sports brand.

BELLE's store efficiency is declining due to the increase in store sales than the increase in revenue.

Why does P's profitability decrease? Why does inventory turnover slow down? Market saturation, economic downturns, and shrinking sales are more intuitive reasons.

But where is the deeper reason?

1. excessive competition among agents

why does the BELLE store of Nike and Adi drop so violently? On the surface, the shops are expanding too fast, but the chaotic competition among the channel businesses may be a deep reason.

As far as we know, the agents of Nike and ADI in the Chinese market have not implemented the exclusive regional system. Generally speaking, there are many agents in the same area. For example, Baosheng, BELLE and Shari agents can set up shop in Beijing.

In this way, Nike and ADI's terminal distributors not only compete with domestic sports products such as Lining and Anta, but also compete with other distributors who run the same category.

Under the background that the sports goods market tends to be saturated, the pressure of dealers is gradually increasing.

In addition, the competition between agents makes market competition more chaotic.

Zhao Ping, deputy director of the Ministry of consumer economics of the Ministry of Commerce, believes that the most important thing for a brand is to make competition among distributors and to form a game of interaction. This will not only lead to declining performance, but also harm the brand image.

On the other hand, BELLE and Baosheng's multi brand agency strategy, when other second-line brands (Reebok, CONVERSE, Puma, MIZUNO, etc.) do not operate well, will slow the return of Nike and Adidas.

Perhaps this is one reason why Nike's orders for the next quarter will drop.

2., blindly extensive growth

for the domestic sports brand, although most of them implement the regional exclusive agency system, the competition among their agents is relatively small. However, due to the blind expansion, the competition among the lower level agents is fierce.

There are many rare brands of sports shops in the same town. This is obviously a state of oversupply.

By constantly opening stores and continuously distributing goods to the channel, the domestic brand's first two years' earnings report is very beautiful, but when the craziness goes on, the real market's performance will make it hard for brands to resist.

Lining is a good example.

3. the cost growth is rigid, and the loss of terminal gold medal guides is less than /strong > /p >

the rising cost is a major reason for the weakening of channel profitability.

For terminal retailers, store rents and manual wages account for the vast majority of operating expenses.

According to our field survey, the rental and labor costs of sporting goods stores in Ningbo have risen considerably over the past two years.

Compared with two or three years ago, store rents have doubled, and manual wages have risen by more than 30%.

The rise of costs directly reduces the profit margins of distributors.

The supply of some brands is very strong, and the discount rate and order adjustment are very small. Many dealers have abandoned their business.

Another reason for the inefficient P channel is the loss of the shopping guide.

As we all know, shopping guide is the key to terminal sales performance.

It is understood that many terminal agents' decisions at the ordering meeting are made by experienced shop assistants or guide buyers.

We can see the value of the gold medal guide to an agent.

At present, many sports brand shop staff turnover is serious.

In order to retain high-quality human resources, the cost of human resources for retailers is rising, and with the slump of sales, many retailers are unable to do so.

coping strategy: inventory buyback

In order to save himself, Lining launched the "channel revitalization" plan in the second half of 2012 to improve profitability of the sales channels, especially focusing on the profitability of the shop floor, improving the sales and inventory management in the channel, improving the freshness of the products and optimizing procurement policies, etc. p

And in closing down inefficient shops, vigorously carry out channel inventory repurchase action.

According to our understanding, after the inventory crisis in 2008, Adidas routinely converted channel inventory repurchase operations, and strongly supported dealers' orders (providing higher rebates).

We do not know much about how domestic brands support distributors, but Lining's repurchase of channel inventory should be a good omen.

Through the joint efforts of brand dealers and channel traders, we hope that the sports goods market can return to reason and come out of the mire of recession as soon as possible.