How To Keep Patriotic Consumption From Burning Down

During the Fourteenth National Games, Olympic champion Chen Yufei was injured.

In a photo released by the BWF World Badminton Federation on September 9, Chen Yufei's socks are soaked in blood, his toes (thumbs) are cut open, and his skin is turned over.

The shoes he wore on the day of injury were new professional badminton competition shoes released by a domestic head sports brand this year. The price on the official website is 1099 yuan.

Although the cause of athletes' injury has not been determined, the gap brought by "such expensive shoes, quality and safety are so worrying", has pushed the brand to the "crest of the storm" of public opinion.

However, in fact, after the "Xinjiang cotton" incident, doubts about domestic brands have never stopped.

Previously, under the upsurge of patriotic enthusiasm, domestic sports brands were sought after. But soon, consumers found that some domestic brands began to raise their prices in the dividend period.

For example, some netizens said: "a pair of slippers was bought in 18 years, the price was 129, the price was discounted in 19 years, 99 bought another pair, and this pair of slippers is still in 199 this year."

This is not based on technological change and product innovation, but by virtue of the rising price of the industry, it has won business temporarily, but it can't hold people's hearts. It can be seen that since 2021q3, the terminal retail flow of domestic sports brands has declined month on month.

Consumer dissatisfaction at the same time, the market performance also appeared a big reversal. As shown in the figure below, since 2021q3, all brands have changed their previous upward trend and declined collectively.

In the article "super cycle of sportswear: How did ten times Anta lining be refined?" we mentioned that under the superposition of various factors such as boom recovery and inventory optimization, the sports apparel industry is experiencing a wave of super cycle.

So, why is the market suddenly cold after the "Xinjiang cotton" fever has passed? Next, we analyze the valuation logic and development certainty.

DTC eliminates the risk of inventory cycle and switches valuation anchor

In the article "super cycle of sportswear: How did ten times Anta lining be refined?" it was discussed that the development of sportswear industry was accompanied by the change of industry prosperity (supply and demand relationship) and formed one inventory cycle after another.

Based on this, in each industry cycle, the market valuation of the transport and service industry is anchored in the performance of the enterprise in the inventory cycle - overstocking, crisis and low stock price; The stock went smoothly and the stock price rose.

But in this round of rising market after the outbreak of the epidemic, the "common sense" of the industry seems to be broken.

As shown in the figure below, after the epidemic situation was unsealed, the online and offline business was still limited. Compared with the downward stock price of Tebu, Li Ning had a rising trend.

The opposite performance is related to the channel situation of the two brands.

According to the data, Tebu is still dominated by the traditional distribution system, and the franchise wholesale income accounts for about 75% of the total revenue. Therefore, the market trend is highly related to the inventory cycle

· in 2020, the inventory will be high: in 2020q1, the inventory turnover will reach 5.5, and in the next few quarters, it will be around 5, and the stock price will be depressed.

· in 2021, the inventory level will be reduced to about 4. In addition, with the "Xinjiang cotton" incident, the demand for domestic brands will increase greatly. Special step will undertake the demand, and the stock price will rise sharply.

In contrast, Li Ning's latest data shows that DTC is the main channel revenue, accounting for 53.8%.

(DTC mode refers to that the brand bypasses the distribution channels of the third-party wholesalers and retailers and directly sells goods or services to consumers.)

So, what's the difference?

As shown in the figure below, in 2020, Li Ning's inventory has a better performance: the number of months of overall inventory turnover decreased from 4.7 in 2020h1 to 3.1 in 2021h1; The proportion of products under 6 months increased from 71% in 2020h1 to 83% in 2021h1.

Such inventory optimization certainty, the market gave Li Ning a higher valuation.

To sum up, DTC mode breaks through the consistent performance of "inventory cycle" by eliminating the risk of inventory turnover (inventory crisis).

With the gradual implementation of DTC reform by various companies, for example, in the latest research report of Tebu, the proportion of online business (DTC) will rise to 40% in the future, and the inventory level of the industry will be further maintained at a healthy level.

In this way, theoretically, the market is optimistic about the development of the transportation and service industry. But the reality is that as mentioned above, the transportation and service industry has suffered a wave of correction, even Li Ning is no exception, and its share price has fallen by nearly 30%.

The reason is that the market has changed its valuation logic for transport and service enterprises.

In the process of sorting out the industry, we found a very interesting phenomenon: everyone began to quietly buy back Nike and ADI.

As shown in the figure below, the year-on-year growth of domestic brand sales slowed down, while that of overseas brands narrowed.

This shows that, regardless of the influence of the event trend, consumers pay more attention to the brand and product power itself. As industry giants, Nike and Adi are hard to be wiped out because of an incident.

And throughout the development history of Nike and Adi, we can see that many times of crisis, they also rely on product strength to pass customs.

For example, from 1985 to 1993, Adidas entered a period of negative growth and loss due to the missing of two development opportunities of jogging fever and female sports tide.

However, in 2013, Adidas ushered in a new cycle of accelerated growth through the launch of boost technology and a series of shoes using boost technology (including coconut, UB, etc.).

Nike also has a similar trajectory. In the late 1980s and early 1990s, due to the failure of Reebok and Reebok in women's sports shoes and basketball shoes, as well as Jordan's retirement, its brand growth encountered bottlenecks.

After that, through the continuous upgrading of air cushion technology, several generations of technologies such as airsole, airmax and zoomair were launched successively, which greatly enhanced the product strength and the revenue.

We believe that this may also be the market's new expectation for domestic transport and service brands: when the short-term risk of the inventory cycle is no longer the core contradiction, the valuation anchor is transferred to the long-term value development, that is, the product power.

However, after the switch of valuation anchor, although the value space of product force is attractive, can domestic brands realize it?

　　 What is the certainty of the realization of domestic brands under the anchoring of "product force"?

As far as strategy is concerned, the focus of the development of domestic transport and service brands is really focused on product strength, such as:

Anta: it plans to invest 4 billion yuan in R & D in the next five years to open R & D centers in China, Japan, South Korea, Italy and the United States.

· special step: the new five-year strategy will be released in September 2021 to establish a differentiated product matrix covering elite runners, mass runners and potential runners.

However, technology research and development is not a matter that can be done well with a lot of money. How certain is it, we have to talk about it in terms of production.

Next, we take the product line that determines consumer reach and appeal to consumers as an example to carry out the analysis.

At present, consumers' demand for sports products is constantly refining. They will not only purchase specialized products for different sports such as running, basketball, badminton, but also have different demands on individual sports. For example, running shoes can be divided into jogging, racing and cross-country running.

In this context, enterprises need to have a wide range of advanced product technology, in order to cover as many scenarios as possible.

But in fact, there is a big gap between domestic brands and overseas giants in terms of the number and depth of product series.

As shown in the figure below, among the three categories of running shoes, basketball shoes and fashion shoes, Nike is far ahead, and adidas' series of running shoes is double that of domestic brands. However, Li Ning in basketball shoes and fashion shoes, series richness has been comparable with ADI.

In addition to breadth, domestic brands are relatively backward in product line depth and technology. For example, "shoe insole technology" has always been an international brand leading scientific and technological innovation, and domestic brands will follow suit.

Taking the mainstream material cushioning technology in the market as an example, the specific paths of the two main lines in the industry are as follows:

· in 2013, Adidas boost technology used TPU or e-tpu materials. In 2017, Li Ning and BASF jointly launched drivefoam, using special TPU as foaming raw material; In the same year, Anta launched a-flashfoam, using a mixture of TPU and EVA for foaming.

· in 2017, Nike zoomx technology used PEBA materials. In 2018, Li Ning launched Li Ning, and in 2021 Anta and Tebu launched nitro speed NUC and power nest Pb respectively, which were foamed with PEBA materials.

The gap of scientific and technological innovation level also affects the value of popular products of various brands.

As shown in the figure below, the core products of ADI and Nike are sold for more than 1000 yuan, and even Nike's high-end basketball shoes are as high as 2799 yuan; In contrast, the price of core products of Li Ning and Anta is between 700 and 1600, and the average price of Li Ning is slightly higher than that of Anta.

To sum up, it is difficult for domestic brands to compete with overseas brands in terms of product strength breadth and depth. It is not difficult to understand why the share prices of various brands have fallen after the valuation anchor has been switched to products.

However, from the above layout, enterprises are also aware of this. So, under the investment of R & D, what is the certainty of the future product power of each brand?

From the data point of view, before 2014, Li Ning's R & D investment accounted for much higher than Anta and Tebu, so the current product force performance is better.

However, since 2020, the R & D proportion of Li Ning not only decreased, but also was lower than the proportion of marketing investment. At the same time, the focus of Li Ning is also biased towards design, which has the potential risk of weakening the brand product strength.

Anta, however, has been catching up with its R & D investment since 2014, and its growth rate is also significantly higher than that of Li Ning and Tebu. But seven years later, the results are not satisfactory.

Data show that in September 2021, Anta held the first science and technology conference since its establishment 30 years ago to release innovative achievements, and launched the innovative research and development of nitrogen technology in the bottom technology. However, this technology has not been innovated in sports technology and in the material of the insole.

Such performance, no doubt let domestic brand next product innovation certainty, cast a shadow.

Since the outbreak of the epidemic, sportswear industry has experienced a new inventory cycle. But different from usual, the valuation logic of transportation and service industry has changed in this inventory cycle.

Due to the reform of industry channel DTC and the reduction of inventory turnover risk, the impact of inventory cycle on the normal operation of the company will be weakened. Based on this, the market valuation of the transportation and service industry has changed from short-term inventory cycle to long-term product value construction.

However, the current product strength of domestic brands lags far behind overseas brands, and the uncertainty of future product power is also relatively large, which may affect the market's confidence in the domestic transportation and service industry.