Sports Brand Sees Future Competition Pattern From Capital Stock

From the agency of Tiger in Japan shoes Started to cooperate with OEM manufacturers to launch the "NIKE" brand, until it became the world's sports giant, its light asset operation mode has become the benchmark of sports brand development. Whether Adidas, Puma and other foreign brands, or Lining, Anta and other domestic companies, in the development process turned to light asset operation. As a sports brand in the middle of the supply chain, capital flow, information flow and logistics are organically combined with the front end production procurement and the back-end retail distribution. We believe that cash flow is the core factor in the normal operation of the sports industry.

In 2012, the development of sports goods industry in China encountered "Waterloo", and many external diseases were exhausted. We start with cash flow in order to further analyze sports products industry. The cash flow analysis is carried out in three parts: net cash flow from operation activities, net cash flow generated by investment activities, and net cash flow generated by financing activities. The sum of the three is the change of cash and equivalents in the year.

Cash flow of operating activities varied, Lining lost, 361 degree and XTEP fluctuated drastically.

The cash outflow of Lining's business activities in 2012 was 931 million yuan, the only one of the 6 sports brands that recorded "loss". Since the accrual basis is used in the compilation of the profit statement, and the cash flow statement is implemented by a cash basis, there is a link between the net cash outflow and the loss on the profit statement, but it does not draw an equal sign. Most of the 1 billion 970 million yuan loss on the Lining income statement comes from the impairment of assets. Therefore, the net outflow of 931 million yuan in business activities may reflect its deficit situation more.

In 2011, the revenue growth of 361 degrees, but operating cash expenditure amounted to 1 billion 344 million yuan, mainly due to a substantial increase in accounts receivable and bills receivable, that is, the increase in revenue from credit sales. By 2012, due to the increase in receivables, deposits, advance payments and payables (the increase in recoveries and the decrease in payroll), operating cash inflows increased substantially, making cash reserves abundant. Increasing the recovery of accounts receivable and extending the accounts payable period (the increase in accounts payable turnover days), the performance of 361 degrees in operating cash flow seems to tell us that in the face of complicated market environment, increasing capital reserves at hand is the best policy.

However, the recovery of accounts receivable will inevitably bring pressure to downstream channel operators, and the extension of accounts payable will also make upstream manufacturers more torment. We doubt that the brand strength of 361 degrees can support such a squeeze on the upper and lower parts of the supply chain. Of course, it is not excluded that suppliers and channel managers should be a bit stressed to make the report look good.

XTEP's performance is similar to 361 degree, while Anta maintains its strong cash flow through its steady sales ability.

Cash payments for investment activities are generally reduced.

Whether it is branding or channel business, investment activities in 2012 are all convergent. This is not difficult to understand. In the words of Anta chairman Ding Shizhong, the era of "making money with closed eyes" has passed. In the face of weak demand and increasingly fierce competition in the same industry, brand operators' investment moves are more cautious.

The trend is regarded as a heterogeneous brand of sports brand. In 2007, when IPO was successfully raised by 6 billion, the way of operation was not like a retailer, but more like an investor. Especially after the KAPPA business in the second half of 2010, the 670 million yuan invested in Yunfeng fund, 230 million yuan invested in Mcglaughlin, and 150 million yuan settled in the CITIC fund. In 2012, the volume of investment products issued by commercial banks was as high as 2 billion 261 million yuan. Actively using the funds at hand to join the financial market may be worth learning from sports companies in difficulty.

Active financing to ensure survival

From the perspective of net cash flow generated by financing activities, Lining and 361 degree had greater moves in 2012, and each of them issued a convertible bond of about 750 million yuan to replenish funds. Lining's situation is more serious. Facing the two challenges of "business mode transformation" and "channel reorganization", raising enough cash is the top priority of the current work.

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In the second half of 2012, Lining has made great efforts in reforming: 1. large-scale channel inventory repurchase; 2. integrating inefficient shops; 3. increasing market research investment, developing a well selling SKU portfolio (A+ product portfolio); 4. optimizing ordering mechanism, and trying to quickly respond to the supply chain. Every change of Lining needs financial support, while Lining's capital stock is the least among several sports brands. It is hard for us to be optimistic about Lining's future.

Bank lending is an important channel for sports brand and channel financing. In 2012, apart from KAPPA and 361 degrees, the major sports brands and Baosheng bank loans increased greatly. The top three loans were Baosheng (1 billion 972 million yuan), Lining (1 billion 450 million yuan) and Anta (1 billion yuan).

We believe that channel managers' financial pressure is even greater than that of brands. Baosheng expands its business through self run and joint operation (first injection of better regional sports agents, if performance is up to standard). However, because most of the business of joint business is concentrated in domestic brands, and the inventory backlog and sales shrunk in recent two years, many agents are heavily indebted. This has increased the financial pressure of Baosheng and has had to increase its financing to help its channel operators improve their operation.

Compared with Baosheng, BELLE's sports products business has a good momentum of development. As BELLE sells 90% of its products from Nike, ADI and other first-line sports brands, with its strong brand influence and channel sinking strategy, BELLE sports products business revenue and gross profit performance are relatively stable. Moreover, the first-line brand is more effective in helping channel businesses, so BELLE's agency business is still expanding even though it is facing the problem of discounted sales promotion and single shop growth. In addition, with the support of a strong women's shoe business, BELLE has plenty of capital and is very competitive as a sports product distributor.

Looking at the future competition pattern from the stock of capital

The stock of capital (cash and equivalents + bank deposits) at the end of 2012 provided us with several domestic sports brand's wealth ranking. Anta (4 billion 990 million yuan) and KAPPA trend (4 billion 980 million yuan) are among the two richest in the sports industry.

Farewell to the crazy growth, the market entered the adjustment period. In the next two or three years, the M & A events in the sports goods market will probably increase, and the competitive big brands will stand out. But will there be a takeover between several sports products?

Combined with the market value of each brand, we can not help but imagine the future competition pattern. At present, the sports brands whose market capitalization is smaller than Anta and the trend of capital reserves are Lining, PEAK and 361 degrees. In particular, PEAK, whose market value is only 2 billion 700 million yuan, jokes that the Jinjiang enterprise, which focuses on basketball and the first to create a brand, will be acquired in the future competition. Of course, Anta's own basketball product is already the core business. On the face of it, there is not much benefit to integrate PEAK.

From the perspective of cash flow, we expect that Anta will become the core of the sports market in the next two to three years, and there will be some acquisition actions. XTEP will continue to develop in the direction of leisure sports, and form a differentiated competition with Lining and Anta. Lining will continue to reform, but in view of the weakness of its capital chain, the adjustment period will be quite long.

Crossroads under heavy pressure

In view of the problems of market saturation, serious homogenization of products and unclear positioning of consumers, domestic sports brand manufacturers, manufacturers and channel traders are facing increasing pressure. For brands, after the wholesale mode meets the ceiling, the new business model must not be formed in the short term. Therefore, adequate capital and stable cash flow are the basis for long-term change. When the seller's market is transformed into a buyer's market, is it a professional retailer (vigorously developing proprietary business) or an innovative wholesaler (a more scientific distribution mode)? The Chinese sports brand is walking at the crossroads. It is undeniable that cash flow will be the lifeline of changing sports brands.