The "Secret Warfare" Of The Three Sports Giants In China

With the clarity of the domestic sports brand strategy, an ambitious battle will inevitably be inevitable, especially with the three major domestic sports giants listed in Hongkong.

According to the latest news from a number of Korean media, XTEP, the domestic sports brand, will buy the shoe brand K-Swiss of the United States at the price of 270 million US dollars or 1 billion 800 million yuan.

K-Swiss was founded in 1966, and was first known for being the world's first double leather tennis shoes. It was bought by E-Land World, Korea clothing group's clothing and entertainment group in 2013, when the paction price was about $170 million.

Data show that K-Swiss net profit in 2018 was US $110 million.

This further confirms that the strategic clarity of XTEP's development from single brand to multi brand group also means that XTEP and Anta, Lining and other competitors have entered the second wave of collective climbing.

With the strong recovery of the domestic sporting goods industry and returning to the fast growth channel, the new stage of development of the domestic sports giant has basically taken shape.

According to China Business Industry Research Institute, the main business income of domestic sporting goods industry reached 148 billion 490 million yuan in 2017, an increase of 6.3% over the same period last year.

From 2013 to 2017, the income and profit of China's sporting goods industry were increasing. The average annual compound growth rate in five years was 7.64% and 9.37% respectively, and the growth rate was very fast.

With the support and guidance of national policies, the sporting goods industry is expected to achieve rapid development.

It is estimated that the scale of sports industry income will exceed 200 billion yuan by 2022.

Another consulting company Azoya Group data, China's sports apparel market value is estimated to exceed 31 billion U.S. dollars, the second largest market in the world.

XTEP: professional sports, multi brand, channel sink

Looking at the latest initiatives of XTEP in the past two years, its multi brand and internationalization strategy is very clear now.

In March this year, XTEP issued a statement that the wholly owned subsidiary of Xtep Holdco and the joint venture partner Affiliated Companies Wolverine have signed a number of joint venture agreements to jointly operate the outdoor sports brand Merrell Mai le and running shoes brand Saucony St. John's brand shoes, clothing and accessories in the Greater China region's development, marketing and wholesale business.

The announcement shows that Xtep Holdco and joint venture partners have paid the initial capital of the agreement to the joint venture company for about 155 million yuan.

XTEP directors believe that the joint venture will help companies upgrade to multi brand portfolio groups to cater to the growing maturity of Chinese consumers.

From K-Swiss to San Kang and Mai Le, XTEP aims to target the high-end professional sports brand directly, and continues its consistent professional sports strategy.

As early as 2007, XTEP began to focus its attention on the professional running market, and began sponsoring the marathon, becoming the first sports brand to sponsor marathon in China.

In 2010, XTEP put forward the slogan "love running and love XTEP".

Since then, the marathon race has been rising rapidly in China. Since 2015, the number of marathon races has increased rapidly from 134 in 2015 to 1102 in 2017, mainly due to the growth of the number of two or three cities.

This makes XTEP a direct beneficiary of the marathon bonuses, and 95% of XTEP's more than 6000 retail outlets are located in non tier cities.

XTEP has established six XTEP running clubs in China, and XTEP running club has more than 123 thousand members.

Therefore, GF Securities analyst said that the growth of the number of Marathon events in non tier cities will benefit XTEP's sales of running shoes.

Although XTEP used to be slightly understated in the domestic sports brand, its performance has been rising positively thanks to its steady product and channel strategy.

By the end of March, the first quarter results showed that XTEP's same store sales growth rate was low double digits, including retail sales growth of online and offline channels was more than 20%.

The group said growth was mainly affected by promotional activities during the lunar new year, and the turnover period of retail inventory was about 4 months.

Last year, XTEP's gross revenue rose 24.8% to 6 billion 383 million yuan over the same period last year, with the growth rate of 30.4% in the second half of the year, up 18.1% from the first half of last year, and the net profit rose by 60.9% to 656 million yuan. This is also the first full annual report released after the pformation of XTEP. The beautiful performance has attracted widespread attention. In addition, XTEP recorded 12 billion 200 million last year's retail sales, which has stabilized the position of one of the top three local sporting goods brands and one of the top five global sporting goods brands.

He Ruibo, chief financial officer, said at the meeting after the earnings conference that in the past three years, XTEP's brand positioning has shifted from fashion to sports brand, focusing on the professional running market, and from wholesale to retail. These measures are beginning to bear fruit.

Ding Shuibo, chairman and chief executive officer of XTEP International Holdings Limited, said XTEP has developed into a brand management company with a clear brand image and a focus on professional running. It has successfully pformed XTEP into the preferred brand of Chinese runners.

The brand will continue to pursue a two pronged strategy. On the one hand, it will actively expand its business in the Asian market. On the other hand, it will expand XTEP from a single Brand Company to a multi brand combination group in the next stage of development.

Obviously, apart from the three brands mentioned above, XTEP will also focus on more domestic and foreign sports brands, especially those in outdoor sports, water sports and ice sports.

Ding Shuibo said earlier in an interview that Chinese companies now have the opportunity to negotiate better prices for potential targets.

Many international brands have a very strong brand DNA and history, but the overall economic situation and consumption boom of some European markets may no longer support the strong growth of these brands.

But tiger sniffing net analysis that XTEP had no experience in mergers and acquisitions before, multi brand operation will be a long-term pformation process, and if the energy is scattered, can not effectively integrate resources, XTEP will probably affect the original market, the rapid acquisition of multiple brands may even become a "performance bottle" of performance.

Anta: multi brand, international, event sponsorship

With the pformation and expansion of XTEP, Lining and Anta, the difference between the competitive advantages and layout of the three major sports brands began to appear.

Anta has demonstrated its strong international ambitions with its accumulated channel sinking and competitive resources, as well as its recent acquisitions of international acquisitions both inside and outside the industry.

According to Anta sports recently released the first quarter of 2019 operating performance, Anta brand product retail sales recorded a year-on-year growth of 10% to 20%, including FILA and other brand products retail sales recorded an increase of 65% to 70%.

With the strategy of "single focus, multi brand and all channels", the group handed over the best report card in 11 years last year, and its revenues, operating profits and profit attributable to shareholders reached a record high, and maintained double-digit growth for five consecutive years.

In 2018, group sales increased by 44.4% to 24 billion 100 million yuan compared with the same period last year, net profit increased 32.9% to 4 billion 103 million yuan, gross profit margin increased 3.2 percentage points to 52.6%, and operating profit increased 42.9% to 5 billion 700 million yuan compared with the same period last year.

By the end of 2018, there were 12188 stores in the Anta group, accounting for more than 30% of the shopping malls, and 40% of the second tier cities, which means that the first tier cities in the city were relatively balanced with the sinking channels, while the base stores in the low line cities were relatively solid.

Most of the brands purchased by the group are located in the high-end consumer market. The main brand Anta is expanding in the three or four tier cities, FILA is facing the first tier and second tier cities, and Desanto Descente is positioned more high-end.

At the end of last year, Anta's acquisition of Amer Sports, an international sports giant, has become one of China's most attractive acquisitions in 2018, pushing Anta into a new stage of multi brand internationalization.

Ding Shizhong, chairman and chief executive officer of Anta group's board of directors, also said that this is the "most important decision" he made in his 27 years of entrepreneurship.

It is reported that Anta's investors' consortium with Fang Yuan capital, AnameredInvestments and Tencent is buying out about 4 billion 660 million euros in the outdoor sports brand founder bird company, amamon Amer Sports.

The tender offer was closed in March 29th. The results showed that Anta's shares in the tender offer accounted for about 98.11% of Amer Sports's total shares and voting rights, and Amer Sports was about to be delisted from the Helsinki stock exchange.

At present, the new board of directors of amamin sports has been formally established, and Ding Shizhong has been appointed chairman of the board of directors.

Ding Shizhong said earlier that the brand value of amamin sports is difficult to measure with money, rather than relying on money in the short term. The group looks at the growth space of the company's brand in the Chinese market.

Zheng Jie also said that the biggest role of the acquisition is to let Anta go further on the multi brand road. No matter how many brands it purchases, the positioning of Anta's main brand will not change.

The reason why Anta has the strength to "swallow" the top brands of the industry is due to the deep ploughing of the brand in the domestic sports market in the past 10 years.

According to Anta's IPO prospectus, Anta's revenue in 2006 was 1 billion 250 million yuan, nearly 2 times that in 2005, and net profit was 147 million yuan, 3 times that of 2005.

After ten years of listing, Anta's operating income in 2016 reached 13 billion 350 million yuan, the growth rate reached 20% in third consecutive years, and net profit increased 16.9% to 2 billion 390 million yuan.

The turning point is to sponsor the Olympic Games in China.

Since 2009, Anta has reached a strategic cooperation agreement with the Chinese Olympic Committee twice, becoming a sports apparel partner of the Chinese Olympic Committee from 2009 to 2016, providing champion equipment for Chinese groups to participate in major international events.

In 2014, Anta further expanded its sports resources and signed formal contracts with the State Sports Administration's gymnastics and sports management center to carry out comprehensive strategic cooperation.

Since 2014, Anta has become an official NBA market partner and NBA authorized dealer. It has signed several NBA stars including Thompson to enter the global sports arena.

In addition to sponsorship, Anta has made a move towards a multi brand strategy.

Anta is aware that there will be a new turning point in the Chinese sports industry. Too single brand structure will be quickly eliminated by the market. Since then, the multi brand operation strategy has been put into practice. It has acquired Italy's advanced sports leisure brand FILA, the old city brand Sprandi, the Japanese functional clothing brand Descente, and the Korean outdoor brand Kolon Sport.

Among them, the acquisition of FILA proved to be one of Anta's most successful strategic initiatives. Last year's annual growth rate reached more than 80%. It has become the largest growth engine for group performance, and the first fashion week in Milan in 2018. Its goal is to enter 10 billion clubs in three years and upgrade from sports Nouveau to top three brands in the domestic high-end market.

Group executive director and Anta brand President Zheng Jie even said that without the acquisition of FILA, Anta could hardly make the decision to acquire amamin sports.

Anta CFO Lai Shixian said that the substantial growth of the group's performance last year mainly benefited from the steady growth of Anta's main brand and the rapid growth of other brands including FILA. Among them, the Japanese sports brand, Descente, was growing at 200% because of its low base.

It is noteworthy that, because of the end of the "hostile takeover" of Desanto Descente launched by Japanese business magnate Itou Tada last year, Itou Tada has taken the place of the founder faction of the brand to seize the right to speak.

Anta and Itou Tada, from the very close, earlier publicly supported itoin's takeover offer and the replacement of itoin's commercial plan, including the board.

In 2016, Anta and Desanto Descente and Itou Tada jointly established a joint venture in China.

Ding Shizhong and his relatives have 7% stake in Descente of Japan's Sant Corp., which is the second largest shareholder after Itochu.

Itou Tada's control of power will also be a great benefit for Anta.

At present, Anta group, by acquiring brands for different positioning and market segments, fills the gap in these markets on the one hand, and absorbs the experience and professional and outdoor brand technology of mature brands on the other hand, and initially forms a brand matrix of three segments, namely, mass professional sports, high end fashion sports and professional outdoor sports.

However, because of the smaller scale of the brand of amavin sports in China, Anta needs to help them play synergy, which poses a great challenge to Anta's digestion and collaborative management capabilities.

Lining: sports fashion, brand IP, first tier cities

Unlike Anta and XTEP, in order to implement multi brand strategy with international acquisitions, Lining focuses on the main brand, develops around Lining IP, and then strengthens its product lines.

Lining said this week that with the tag price, the Lining brand product order of the fourth quarter of 2019, which was held by the franchisee in March 2019 (excluding children's clothing brand Lining YOUNG), was recorded in the middle 10%-20% growth year by year.

At the beginning of the same quarter of last year, the Lining point of sale calculation has been put into operation since the beginning of the same quarter. As of the first quarter of March 31, 2019, the sales volume of the same platform grew by 10%-20% in the middle of the year.

In 2018, Lining's income increased by 18% to 10 billion 511 million yuan, gross profit margin was 47.1%, and net profit rose 39% to 715 million yuan.

According to the announcement, revenue growth is mainly due to the rapid development of the electricity supplier business, the good sales performance of terminal, and the best selling of basketball and sports fashion.

As of December 31, 2018, Lining had 6344 sales outlets in China and a total of 793 sales outlets for Lining YOUNG.

With the movement of fashion and founder of Lining after the return of a series of business strategy adjustment initiatives, Lining since 2016 began to turn around and enter the performance recovery.

Especially in the past two years, Lining began to reflect on his founder's influence and the spirit of sports as a brand foundation. He made an article around the IP of Lining's brand story and told the millennials about the brand stories that resonate with him.

Following the landing in New York fashion week last February and the men's week in Paris in June, Lining's fashion strategy became clearer.

By strengthening the property of "China Lining", the fashion and tide brands of sports shoes and sportswear are upgraded. Aiming at the millennial generation of young consumers, Lining has gone out of a differentiated fashion of sports and fashion compared to Anta and XTEP.

Lining's high-end fashion strategy has gradually affected the brand's channel strategy, and will be dominated by a second tier city in the future.

In the first half of last year, Lining's clothing business income exceeded the core footwear business income, accounting for 48.7% of total sales, which means that Lining's promotion of fashion and the "going out" plan came into effect.

Sports fashion category retail sales growth rate reached 42%, higher than other categories of growth, annual sports fashion clothing sales exceeded 5 million 500 thousand.

In March this year, Lining held the fashion line 2019 autumn and winter product launch in Shanghai, and put forward the concept of brand fashion line for the first time. The product line aims to provide sports and fashion products for the high-end market.

It is reported that the Lining fashion line will be sold under the domestic online and offline outlets, including the opening of Lining fashion independent store, the simultaneous sale of some fashionable line products in the Lining flagship store, the purchase of multi brand collection buyer stores in China, the opening of Tmall Lining fashion flagship store and the online platform of YOHO, BUY, Xiaohong book and so on.

Lining's high-end fashion strategy has gradually affected the brand's channel strategy, with a second tier city as the main battlefield.

However, the high rent in the second tier cities and the unsatisfactory operating efficiency of Lining limit the expansion of its stores.

Zhitong financial analysis pointed out that the cost of rent and related costs of Anta and Lining was very small, but in 2017, the number of sales points for Lining was 6262, and the number of Anta shops was 9467.

Similar rent, the number of points of sale exceeds 3200.

Apart from Lining's main brand, Lining has also maintained a relatively prudent development strategy for the acquisition of international brands.

In 2016, it acquired the exclusive right to operate the American Dance brand Danskin in mainland China and Macao. The brand is positioned as high-end women's fashion sports brand, so far it has only opened more than ten stores.

Lining said in an interview that the women's market is the weakest market ability of Li Ning Co. At present, it is still in the exploratory stage. It is still necessary to control the number of stores and find a replicable and expanding mode.

In addition, Lining also runs the Italy sports brand Lotto Lotto and the French outdoor brand Aigle AI Gao, but these brands are still on the periphery.

Tianfeng textile clothing analysts believe that Lining still has strong growth.

As Lining is still in the stage of performance improvement, its net interest rate has much room for improvement compared with other companies in the same industry, and its profitability will continue to improve in the future.

Secondly, the company's children's clothing business Lining YOUNG has been developing rapidly in recent years, and is expected to become a new growth point of the company's future performance.

In addition, the sports and fashion market has a strong response, and it is expected to form the Lining category of China to further enhance Lining's performance.

After turning over, Lining's demand for young consumers is moving towards a new line of non-traditional sporting goods brand, which is still full of uncertainty, but provides new development ideas for the domestic sports market.

But at that time, Lining lagged behind Anta. In a few years, he relied on solid operational efficiency and acquisition strategy to counter Lining and sit firmly in the position of the largest sporting goods group in China.

Although there is still a gap between XTEP and the two, they are increasingly ambitious.

The 361 degree of professional sports has been falling behind in the industry competition, and a profit warning was issued earlier this year. Profits are expected to decline sharply last year.

It is foreseeable that the three sports brands will not only face fierce competition in the domestic market, but also represent the Chinese brands and the global sports brands such as Nike and Adidas. The Chinese market has become the most important strategic market for Nike and Adidas. Adidas has already set up its Asia Pacific headquarters in Shanghai, China.

According to Tianfeng securities data, in 2018, China's sports user market had only 28.6% share of local brands, while foreign brands had a 54.3% share. For domestic sports brands, it is still a long way to catch up with brands like Nike and Adidas.

The professional performance of rammed products is still the moat of the brand, and it is also a consensus of the sports industry.

Despite the blurring of the boundaries between the accelerated sports brand and the fashion brand, Lining and Anta do not forget the essence of the sports brand. As The Nike Air Shoe is like Nike, the sports brand wants to win the hearts of the people and needs unique technical support.

Lining's "Li Ninggong" and Anta's "flash energy technology", like Nike Air series, will become a powerful weapon for both ordinary consumers and professional consumers.

As of Friday's close, Lining's share price was HK $14.18 per share, with a market value of HK $31 billion 90 million.

Anta sports shares are HK $55.3 per share, with a market value of HK $148 billion 490 million.

XTEP's share price is HK $4.89 and its market value is HK $12 billion 190 million.