Sports Brands Have Problems Nike China'S Fourth Fiscal Quarter Growth Is Sluggish

The London Olympics is in full swing, Sports brand It also competes in "betting" on Olympic marketing. However, the high stock of sports brands is still fermenting. Not only domestic brands, Nike and other international brands are also playing a promotional strategy.

"They made some mistakes in their estimation of the Chinese market." Ma Gang, an independent clothing commentator, told reporters that Nike's previous growth expectation for the Chinese market was to maintain high growth every year. If we follow this plan, there must be problems in inventory. The fourth fiscal quarter report released by Nike a few days ago also shows this trend. Some insiders believe that this shows that high inventory has spread to first-line brands.

Sales growth of Nike in China slowed down

Earlier, the reporter came to a Nike discount store in Changning District of Shanghai. A person in charge of the store told the reporter that at present, the old models have been sold at a minimum of nearly 40% off, while the new models on the market are generally sold at a discount of 8% or 9%. When the reporter asked about the recent sales in the store, the person in charge said, "This can't be disclosed." But from the reporter's entry to departure, there were few customers in the Nike store.

Previously, the fourth fiscal quarter report released by Nike (as of May 31, 2012) showed that the sales revenue of Greater China, Nike's second largest market, showed a downward trend in the fourth fiscal quarter. In the quarter, the total sales revenue of Nike products in Greater China, including shoes, clothes and accessories, was $667 million, down 3.89% from the third fiscal quarter.

The financial report also showed that, contrary to the sales situation, Nike's inventory growth. By the end of May 2012, Nike's inventory had reached $3.35 billion, up 23.39% from $2.715 billion in the same period last year.

Ma Gang said to the reporter: "There is too much inventory, and many things are not bought. (The dealers) certainly dare not purchase in large quantities, so orders will decrease, and sales will naturally slow down." The slowdown in sales is bound to further affect inventory.

Morgan Stanley's research report shows that in the fourth quarter of 2012, the growth of Nike's global future orders slowed down from 18% to 12%, especially in China, where the growth of orders dropped sharply from 20% to 2%.

In July, the flagship store of Nike's second direct selling factory in the world opened in Guangzhou Wanguo Outlets. Two days before the opening, the whole store offered a discount of 100 yuan less than 600 yuan, and a discount of 80% on three items. "I remember that two years ago, only internal employees could enjoy the 7% discount on Nike products. Now many products have reached 40% or 50% discount," a consumer told reporters.

Belle International (01880. HK) and Baosheng International (03813. HK) are the main dealers of Nike and Adidas in Greater China, and these two main dealers are under great operating pressure.

The interim report of Baosheng International by the end of March 2012 showed that its inventory had reached 554 million US dollars, up 37.16% year on year. The report also showed that Baosheng International's operating profit fell 71.6% to 12 million US dollars compared with the same period last year. By the end of March, the company had lost $15.7 million, down 144% from the profit of $35.5 million in the same period last year. One of the reasons why the company explained the loss was to increase the sales discount rate to customers because of its efforts to reduce the backlog of inventory. As of March 31, the operating revenue of the company's brand agency business decreased by 3.6% to $27.6 million compared with the same period last year.

　 Nike misjudged the Chinese market?

The downturn of sports brand sales and the decline of overall consumption this year are the direct reasons for the slowdown of Nike's sales. After 2008, sports brands expanded at a high speed, and homogenized competition was cruel. "The industry integration of sports brands has not been completed, which will be more painful than other sub industries," said Zhang Bin, an analyst with Guojin Securities.

In the case of overall weak market, Nike is suffering from "internal and external attack". As a direct competitor of Nike Adidas , and its performance in the second quarter of 2012 was very gratifying. According to the public data of Adidas, the sales volume of Adidas in Greater China was 732 million euros, up 19% year on year. Adidas forecasts that the annual net profit growth will be adjusted from the previous 12%~17% to 15%~17%. "The management and marketing strategies of Nike and Adidas are quite different," Ma Gang said. {page_break}

Chen Changsong, an analyst of the business community, pointed out that compared with domestic brands, Nike products have higher prices, and the first tier cities are its main battlefields.

Some analysts pointed out that one of the reasons for the high inventory caused by the slowdown of Nike sales this time may be the company's misjudgment of the market forecast. Ma Gang said to the reporter, "They (Nike) had made some mistakes in their estimation of the Chinese market." He pointed out that Nike's previous expectation was that the growth of the Chinese market would remain high every year. If we follow this plan, there must be problems in the inventory situation.

In May 2010, Nike announced that it would achieve a turnover target of 27 billion dollars by 2015, and achieve a cumulative operating cash flow of more than 12 billion dollars. Nike also said that it would actively invest in developing regional markets such as Greater China, Central and Eastern Europe and emerging markets, and increase its annual revenue by an additional $3 billion to $3.5 billion at the end of fiscal year 2015. This plan is obviously too optimistic from the current situation.

For the future market situation of Nike and other international sports brands in China, the above analysts are all optimistic.

Zhang Bin said: "The characteristics of foreign brands are good, and China's future consumption will be more rational. Enterprises will focus on winning with product characteristics in the future, which is why Nike products are excellent and have advantages, and will continue to make efforts in China in the future."

Ma Gang believes that after similar situations occurred in 2009, Nike After international brands encounter high inventory, they will adjust more quickly, and this round of sales slowdown will not be so affected. "The accumulated inventory will be relatively small, and they will have preventive measures."