Date
17 August 2017

Sportswear brands’ recovery a false dawn

In an apparent bid to soothe investors’ nerves, mainland sportswear firms have been sending out word recently that they are seeing signs of business recovery. Anta Sports Products (02020.HK) has said that its orders for the second quarter next year were up “a high single digit” percentage in value terms on a year-on-year basis.

Xtep International (01368.HK), 361 Degrees (01361.HK) and Peak Sport Products (01968.HK) have also said that they have begun to regain lost ground in product orders.

With leading brands appearing to pull out of the bottom, there were hopes that the sector overall is at least halfway out of the tunnel. A UBS analyst has even concluded that the worst is over for the industry.

However, if one takes a closer look, the situation on the ground still warrants plenty of caution. A recent investigation by the Hong Kong Economic Journal, the parent publication of EJ Insight, has indicated that key brands may be nowhere near an inflection point.

According to the HKEJ report, Jinjiang {晉江}, a county-level city known for sizable clusters of garment and shoemaking industries in the southeastern Fujian province and home to firms such as Anta, Xtep, 361, Peak and Fuguiniao (01819.HK), is still entangled in bleak recession with numerous sportswear manufacturers struggling amid painful destocking process and cut-throat price wars.

With products priced as low as just 30 yuan (US$4.94), Anta’s factory outlet at its headquarters in the city is trying to sell old stock that has been piling up since 2009, the year when the bottom fell out of the market due to oversupply and product homogenization. The same is the case with Xtep, which also sells goods at 30 yuan but in a more radical “buy one and get two free” format.

Huge inventory of jerseys and sweatsuits has prompted 361 Degrees to sell off those products at 70 percent discount even though a large proportion of the goods were from new product series launched earlier this year.

Media reports say that in Jinjiang, the number of outlets and franchise stores managed by these brands has dropped to just 70 from more than 500 earlier.

Given this situation, the share price rebound seen in the sector recently could just be a flash in the pan.

– Contact the writer at [email protected]

RC

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