After breakneck growth in the past two decades, China’s sportswear makers have run into a hurdle in recent years. Dragged by high inventory and intensifying competition, six leading brands closed 2,200 outlets among themselves in the first half.
Some have put the blame on the copycat mentality of Chinese sportswear makers, citing insufficient expenditure on research and development (R&D).
For Xtep (01368.HK), Peak (01968.hk) and 361 Degrees (01361.hk), R&D spending accounts for less than 2 percent of the cost of sales.
Such level is not particularly low compared with the R&D cost of international brands.
Take a look at the 2012 annual report of Adidas A.G. (ADDDF.PK, ADDYY.PK). Its R&D spending accounted for a mere 1.6 percent of the total cost of sales. During the same period, PUMA S.E. (PUM.GR) spent just 0.7 percent of operating expenses on R&D, according to a regulatory filing.
That shows the ratio of R&D spending is not as critical as which field of research the money is actually spent.
The success of Lululemon Athletica Inc. (LULU.US) offers some insight. The Canadian sportswear firm targets a growing population of female athletes with its stretchy yoga outfit which has become a big hit.
Lululemon’s net revenue rose 37 percent year on year to US$1.4 billion for the year to February.
Specialization may be the answer. Global brands already have a strong lead in mainstream sports gear such as those for football, basketball, tennis and running. Chinese makers, however, may have a better chance of developing their niche in other sports.
Li Ning Co. Ltd., which suffered a huge loss last year, actually saw an 11.7 percent increase in sales in its table tennis brand Double Happiness and a segment profit of 79 million yuan during the period.
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