Sportswear firms report disappointing earnings
Several major domestic sportswear companies have reported disappointing earnings for the first half of the year, and analysts said Thursday the firms have come to the end of a 10-year phase of rapid development and now need to improve their business model and brand positioning.
The company's profit margin for the second half of the year is expected to be similar to the first six months but it is also possible that the firm may post a loss for 2012, Li Ning's chief financial officer Chong Yik Kay was quoted by Reuters as saying Thursday.
Four other major sportswear brands - China Dongxiang Group, ANTA Sports, Peak Sports, and 361 Sports - all reported double-digit declines in net profit for the first half, with Dongxiang recording the largest fall of 58 percent. The companies also reported poor sales volumes.
"The profit decline is within expectations," Wang Qianjin, an analyst at textile industry information website corp.webtextiles.com, told the Global Times.
"The country's sportswear sector has experienced around 10 years of fast expansion, and met a bottleneck when both internal and external economic growth slowed down, accompanied by a rise in labor costs," Wang noted.
Li Ning closed 952 non-performing stores nationwide in the first half, with 7,303 stores remaining, according to the company.
Other domestic sportswear companies were also forced to shut down retail stores. Dongxiang Group reported Wednesday that it closed a total of 569 stores last year.
Besides the macro-economic factors, a lack of brand image influence and innovations is another reason for the companies' poor performance, Ma Gang, who works at a sportswear company but did not wish to reveal his company's name, told the Global Times.
"Companies with similar brand characteristics have few tools to compete with others, apart from price wars," Ma noted.
Meanwhile, the domestic sportswear companies' foreign competitors Nike and adidas saw a 14.3 percent rise in sales in China in the first half, the two companies' Chinese agent Belle International Holdings reported Wednesday.
Nike will raise its product prices by 5 to 10 percent globally as a result of rising costs, the Wall Street Journal reported Tuesday.
"As a response to declining sales in the US and European markets, the foreign brands have enhanced their competitiveness to grab larger shares of the Chinese market, and this has squeezed the domestic players," Ma said.
Domestic consumers have also become less enthusiastic about sportswear than they were 10 years ago, when access to sports apparel was relatively new and trendy, said Ma.
To reverse their poor performance, domestic sportswear companies must make adjustments in their supply chain and improvements in their merchandising model, Ma noted.