Sportswear firms face another tough year
This year will still be "challenging" for Chinese sportswear makers, after a bleak 2012 meant losses for many brands, according to a senior industry source.
Ding Shizhong, chairman and CEO of Anta Sports Products Ltd, said that his company's growth stalled last year, for the first time since it was established in 1994.
Anta was one of many Chinese sportswear makers that reported lackluster results in 2012, as fiercer competition and weaker demand took a toll on some players.
"In 2013, the market has plenty of room for growth, but the challenges are equally big for the industry," Ding said at a news conference in Hong Kong on Monday. "Anta will be more responsive to the market changes to remain competitive."
In 2012, the Hong Kong-listed company's net profit dropped 21.5 percent year-on-year to 1.36 billion yuan ($216.04 million).
In December, Li Ning Co, one of Anta's rivals, released a forecast warning of a "substantial" full-year loss, after seeing its first-half profit drop 85 percent year-on-year. Analysts expect Li Ning to post a net loss of 120.8 million yuan, according to an average of 11 estimates compiled by Bloomberg.
Peak Sports Products Co Ltd also saw its worst results in four years in the first half of 2012, with profit plummeting 43.35 percent to 240 million yuan.
Combined, China's six biggest sportswear makers shut over 3,000 stores in 2012 as inventories shot to alarming levels.
Goldman Sachs said in a report earlier this year that China's sportswear industry faces a structural demand shift as consumers move away from sports brands in favor of casual wear brands.
"Even if channel inventory is cleared in one to two years, demand is unlikely to recover to more than double-digit growth," the report said.
Anta closed about 300 stores in 2012, in what the company described as a shift of focus from scale to quality.
Ding expects another 300 closures in 2013. The company is doing comparatively well in terms of inventory, which stood at 687 million yuan at the end of 2012, up 11 percent year-on-year.
Ding said that the high inventory levels held by some companies are still pressuring the sector as a whole, without mentioning names.
Same-store sales - an important measure of business strength in the retail rector - saw a single-digit decline in 2012.
"Same-store sales improved a little in January and February this year, but are still in negative territory," said Lai Shixian, Anta's chief operation officer.
Despite dwindling profits, Anta said it will maintain its advertisement spending this year at around 11 to 13 percent of its total turnover. Anta's turnover dropped 14.4 percent year-on-year in 2012 to 7.62 billion yuan.
Anta shares increased 1.2 percent on Monday to HK$7.56, amid a 0.17 percent rise in Hong Kong's Hang Seng Index.