Month: July 2019

Competitive Landscape – Companies

Nike and Adidas have been the unchallenged leaders in the China market for years. This can be explained by (1) their early entrance to the China market, (2) their higher ASPs than major domestic brands, and (3) significantly higher exposure in Tier 1 & 2 cities, where per-capita consumption power is higher than in the rest of China. Their dominating position is also in line with their global market share. [1]

Among domestic companies, Anta is the only local company that has enjoyed a notable market share gain over the past few years, and its position as the leading domestic sportswear company has been further deepened with the help of the Fila brand. Li Ning, once the leader among domestic companies, is still in the recovery stage, after the Company underwent a major management change in 2012-2014. 361 Degrees and Xtep are usually considered second-tier domestic brands. The market share of Xtep, however, has dropped due to its restructuring. [1]

Competitive Landscape – Brands

Generally, since the 2011 downturn, domestic companies have been struggling with various internal problems. The downturn was mainly due to inefficient channel management, leading to excessive inventories at the distributor level. At the same time, foreign companies took more market share by executing precise marketing strategies, offering superior products, and not being too aggressive in pricing. It took domestic companies years to regain their growth momentum, under various reform initiatives such as ramping up product designs, improving inventory monitoring systems and implementing radical changes in their management systems. [1]

Anta is a very rare domestic company that gained market share (in terms of retail sales value) over the past few years. However, Anta gained market share mainly because of Fila, an Italian brand which Anta acquired in 2009. The core Anta brand is also growing, albeit at a slower pace. Li Ning, Xtep and 361 Degrees have been somewhat flat over the past few years, but they are domestic brands that are doing relatively well. For smaller domestic brands, such as Erke and Peak, the market share loss is more serious. [1]

By and large, the market share of top five foreign brands, Nike, Adidas, New Balance, Skechers and Fila, increased rapidly. In contrast, the market share of the top five domestic brands, Anta, Li Ning, Xtep, 361 Degrees and Erke, modestly while other brands losing market shares fast. The market of China sportswear has become more concentrated. [1]

[1] http://www.chinastock.com.hk/ewebeditor/uploadfile/20180709142620143.pdf

The industry faced a downturn in 2011 and recovered in 2014. According to Euromonitor, the sportswear market achieved a CAGR of 12% between 2013 and 2017, and in 2017, the market size of sportswear in China reached RMB212.1 billion, accounting for 46% of the total sporting goods market[1].

 

 

According to Euromonitor’s latest report on China Sportswear, the 2018 market size is RMB264.8 billion. Meanwhile, US Sportswear, market size is USD117.1 billion in 2018, about 3 times larger (using 1USD = 6.9RMB). (Euromonitor[2]^,[3], screenshots)

 

 

The industry can be furthered categorized into Sports Apparel and Sports Footwear, which are sized at RMB116.2 billion (44%) and RMB148.6 billion (56%) respectively. Footwear is the faster growing category compared with apparel. (Euromonitor2, screenshots)

 

 

Both footwear and apparel can be further divided into three product types: performance, outdoor and sports-inspired. Sports-inspired products, especially footwear, have been the largest product category over the past few years. Sports-inspired products refer to products with elements of both fashion and sportswear. Typical examples include Nike’s Converse and Adidas Originals1^,2.

 

 

 

[1] http://www.chinastock.com.hk/ewebeditor/uploadfile/20180709142620143.pdf

[2] Euromonitor “Sportswear in China” COUNTRY REPORT | APR 2019

[3] Euromonitor “Sportswear in the US” COUNTRY REPORT | FEB 2019

Amer Sports Oyj is a Finland-based company engaged in the manufacture, sale and marketing of sports equipment, apparel and footwear to the sports equipment industry. The Company is organized into three business segments: Outdoor, Ball Sports and Fitness. Its products are marketed through such brands as Wilson, Salomon, Precor, Atomic, Suunto, Arc’teryx, Louisvillle Slugger, ENVE Composites, DeMarini, Peak Performance, Sports Tracker and Armada. The Company operates internationally in over 30 countries through a number of subsidiaries, notably Queenax. The Company’s main market areas are the Unites States, Europe and Japan[1].

 

Amer Sports’ net sales in 2018 were EUR 2,678.2 million (2017: EUR 2,574.6 million). Net sales increased by 7% in local currencies. Organic growth was 4%[2].

 

Amer brand portfolio

 

Wilson is the number one equipment brand across more sports than any other brand. The company’s core sports include tennis, baseball, basketball, American football, golf, volleyball, soccer, softball, badminton, and squash;

 

Salomon has created a vast range of revolutionary new concepts in bindings, boots, skis and apparel for both alpine and nordic skiing and brought innovative solutions to footwear, mountaineering, hiking, trail running, and many other sports;

 

Precor designs and builds premium commercial fitness equipment for workouts that feel smooth and natural.

 

Atomic manufactures products which are perfectly tailored for ski racers and freeskiers, crosscountry skiers and backcountry skiers, beginners and World Champions alike.

 

Suunto has been at the forefront of design and innovation for dive computers, instruments and sports watches used by adventure seekers all over the globe.

 

Arc’teryx is a technical high-performance outerwear and equipment company based in North Vancouver, Canada.

 

Louisville Slugger is the Official Bat of Major League Baseball (MLB) ® and the #1 bat in MLB. Since 1884, Louisville Slugger bats have been a part of every post season run, World Series Championship and the most historic moments of the game.

 

Located in Ogden, Utah, ENVE Composites is a manufacturer of handmade carbon fiber bicycle rims and components.

 

DeMarini is an American manufacturer of baseball bats and other sports equipment headquartered in Oregon, United States.

 

Peak Performance is a Sports Fashion brand founded in Åre, Sweden 1986.

 

Sports Tracker is the original sport and fitness application for running, cycling and every-day training.

 

Armada Skis is known as the athlete-focused ski brand with athlete-driven, design obsessed and technologically superior products. Armada is headquartered in Park City, Utah.

 

Acquisition & tender offer

 

In September 2018, Anta announced that, together with the private equity firm FountainVest Partners (“FountainVest”), it has submitted a non-binding preliminary indication of interest to Amer Sports Corporation (“Amer Sports”), a sporting goods company whose shares are listed on the official list of Nasdaq Helsinki Ltd., to acquire the entire share capital of Amer Sports at a cash consideration of EUR40.00 per share (the “Possible Acquisition”), subject to a number of conditions[3].

 

In December 2018, A consortium led by China’s Anta Sports (2020.HK) made an offer to acquire Finland’s Amer Sports (AMEAS.HE) in a deal that values the company at 4.6 billion euros ($5.23 billion). The consortium includes Tencent, FountainVest Partners and Anamered Investments, , which is owned by Canadian billionaire Chip Wilson, founder of yoga apparel company Lululemon Athletica Inc.[4]^,[5]

 

According to the proposal, (i) Anta will indirectly through Anta SPV own 57.95%, (ii) FV Fund will own 21.40% (and FountainVest SPV will indirectly, and Tencent will indirectly through Tencent SPV, in each case as a limited partner in FV Fund, respectively own 15.77% and 5.63%), and (iii) Anamered Investments will own 20.65% of the shares in the Offeror by way of equity contribution to the share capital of JVCo.29

 

The final result of the tender offer was announced on March 12, 2019. With the shares tendered in the offer representing approximately 94.98 percent of all the shares and votes in Amer Sports, Anta has satisfied all of the terms and conditions of the tender offer, which entitles the Chinese company to complete the purchase.[6]

 

To finance the acquisition, Anta entered launched syndication of a five-year €2.2bn (US$2.51bn) loan with Bank of China, Citigroup and JP Morgan as joint global coordinators[7].

 

[1] https://www.reuters.com/finance/stocks/companyProfile/AMEAS.HE

[2] https://s3-eu-west-1.amazonaws.com/amersports-wordpress-exove/uploads/20190207140601/Amer-Sports-Financial-Statements-2018.pdf

[3] https://www1.hkexnews.hk/listedco/listconews/sehk/2018/0912/ltn20180912023.pdf

[4] https://www.reuters.com/article/us-anta-m-a-amer/chinas-anta-sports-led-group-buying-finlands-amer-sports-for-5-2-billion-idUSKBN1O60VR

[5] https://www1.hkexnews.hk/listedco/listconews/sehk/2019/0204/ltn20190204723.pdf

[6] https://www1.hkexnews.hk/listedco/listconews/sehk/2019/0312/ltn20190312492.pdf

[7] https://www.reuters.com/article/anta-sports-kicks-off-china-ma/anta-sports-kicks-off-china-ma-idUSL3N1ZB31Z

Sprandi

 

In December 2015, it is reported that Anta has acquired Sprandi, a leading brand in Russia and east Europe[1]. The estimated consideration is “Tens of Million US$” in CGIS Research1, although “Payments for acquisition of interest in a subsidiary” in Anta’s 2015 cash flow statements is RMB26.3 million[2]. In Anta’s 2016 annual report, Sprandi China appears in Anta’s group structure with 85% owned Anta[3].

 

Number of SPRANDI stores in China stood at 104 at the end of 20186.

 

Descente JV

 

Founded in 1935 in Osaka, Japan, DESCENTE focuses on high-end sportswear, especially skiing, cross-training and running[4].

 

In 2016, Anta formed a joint venture with Descente Global Retail Limited (“DGR”), a subsidiary of Descente Ltd. (a company listed on the Tokyo Stock Exchange with stock code 8114) (“Descente Japan”), ITOCHU Textile (China) Co., Ltd. (“ITOCHU”), a subsidiary of ITOCHU Corporation (a company listed on the Tokyo Stock Exchange with stock code 8001), (ITOCHU, together with Anta and DGR, the “JV Parties”) and Descente Japan in relation to the proposed formation of a joint venture group (the “JV Group”) to operate and engage in the business of design, sale and distribution of all categories of products (the “Business”) bearing the “Descente” trade marks in the People’s Republic of China (excluding Hong Kong and Macau) (the “Territory”) on an exclusive basis. Anta, DGR and ITOCHU’s interest in the JV Group is proposed to be 60%, 30% and 10%, respectively. The total initial capital injection into the JV Group is proposed to be Renminbi 250 million and each of the JV Parties will inject the capital into the JV Group in proportion to its interest in the JV Group , respectively[5]^,[6].

 

The first Descente China store opened in August 2016 in Changchun, Jilin[7]. By the end of 2016, Descente has opened 6 store in mainland China16.

 

Anta argued in its 2016 annual report that since 2000, China has increased its number of ski resorts more than ten-fold to nearly 600 in 2015, with approximately 13 million skier visits. Winter sports in China would be on track for major boost from the 2022 Beijing Winter Olympics. The Chinese government also aggressively promotes winter sports and targets to increase the number of winter sports participants to 300 million skier visits in the future16.

 

Number of DESCENTE stores in China stood at 117 at the end of 20186.

 

Kolon Sport

 

Founded in 1973, KOLON SPORT promoted an outdoors lifestyle. Kolon Sport first entered the Chinese market in 2006 and currently operates 214 stores in China as of Dec. 2016. The company has posted a double digit sales growth in the last three years[8].

 

In February 2017, Anta entered into the agreement to form a 50/50 joint venture company with Kolon Group to operate KOLON SPORT in China, Hong Kong, Macao and Taiwan21. The JV formation completed in September 2017 and KOLON SPORT Holdings appeared as a 50% subsidiary in Anta’s group structure in its 2017 annual report5.

 

Anta has been closing Kolon Sport store since the JV formation, with 181 standing by the end of 2018 (33 store closed in 2 years)6.

 

KINGKOW

 

Founded in 1998, KINGKOW provides quality kidswear to 0 to 14 kids in mid- to high-end market. As at the end of September 2017, KingKow had 81 stores in mainland China, Hong Kong, Taiwan and the United States.[9]^,[10].

 

The acquisition price is said to be around HKD60 million[11].

 

Total number of KINGKOW’s stores decreased 4 by the end of 2018 (77 in total)6.

[1] http://www.cggthinktank.com/2015-12-24/100074922.html

[2] https://www.todayir.com/webcasting/anta_15ar/ann.pdf

[3] https://www1.hkexnews.hk/listedco/listconews/sehk/2017/0302/ltn201703021344.pdf

[4] http://www.files.services/files/394/2019/0226/20190304161737_36877020_en.pdf

[5] https://www1.hkexnews.hk/listedco/listconews/sehk/2016/0223/ltn20160223097.pdf

[6] https://www.itochu.co.jp/en/news/press/2016/160223.html

[7] http://ir.anta.com/en/news_detail.php?id=39757

[8] http://www.businesskorea.co.kr/news/articleView.html?idxno=17372

[9] http://ir.anta.com/en/news_detail.php?id=38696

[10] https://cn.reuters.com/article/anta-kingkow-ma-idCNKBS1CP07J

[11] https://36kr.com/p/5090471

FILA brand was originally founded by FILA brothers in Biella, Italy in 1911, and was acquired by FILA Korea in 2007 in a USD400m LBO. FILA Luxembourg, a wholly owned subsidiary of FILA Korea, is the trademark owner[1]^,[2].

 

BeLLE acquired the Fila Business (85% interest in Full Prospect and 100% interest in HK Retail Co) in the second half of 2007 through setting up Full Prospect (being a 85:15 joint venture with FILA Luxembourg) which owns the Fila PRC Trademarks, with a view to strengthening its market position. However, it transpires that the specific skill set and experience required to develop an international sports brand in China are different from BeLLE’s experience in developing footwear brands and managing sportswear distribution network in the PRC. The Group considers unlikely that its objectives can be achieved in short period of time. This problem is further aggravated by the current weak economic conditions. Hence, BeLLE decided to dispose the Fila Business (i.e. its 85% interest in Full Prospect and 100% interest in HK Retail Co) and focus on developing and strengthening its own footwear business. The pricing for the disposal of Fila Business is determined after taking into account: (i) the original value of Fila PRC Trademarks at the time of BeLLE’s acquisition in 2007 (being the RMB equivalent of US$48 million) and (ii) the net asset value as of the date of completion of Full Prospect and HK Retail Co respectively. In contemplation of the disposal of the Fila Business, BeLLE is also in discussion with third party distributor(s) nominated by Anta for the transfer to them the operation of the stores and department store concessions in the PRC engaging in the Fila Business. It is expected that these stores will be transferred to such third party distributor(s)[3].

 

The deal price was signed as RMB332 million, plus a loan to pay down any outstanding loans and payable owned to Belle11.

 

Total considerations paid by Anta were RMB424.9 million and HKD32.3 million, including debts and other obligations of Fila Business[4].

Notes: [5]

• Company = ANTA Sports Products Limited, the listed company
• Full Prospect (IP) holds the Fila PRC Trademarks
• Speed Benefit is responsible for sourcing Fila products bearing Fila PRC Trademarks
• Fila PRC Limited is responsible for marketing of Fila products bearing Fila PRC Trademarks in the PRC
• Fila Marketing is responsible for distribution of Fila products bearing Fila PRC Trademarks in Hong Kong
• Fila (Macao) Limited is responsible for distribution of Fila products bearing Fila PRC Trademarks in Macau

 

Anta’s Board considers that the acquisition and operation of the Hong Kong and Macau operations of Fila Marketing will be strategically important for the development of the reputation of the “Fila” brand in the PRC. Given the strategic importance of the “Fila” retail stores in Hong Kong and Macau for the development of reputation of the brand in the PRC market, Anta intends to operate the “Fila” branded stores in Hong Kong and Macau itself following Completion and therefore entered into the Fila Marketing SPA. Upon Completion, Motive Force intends to enter into the Assignment and Assumption Agreement at the request of Belle and in order to assume Belle’s rights and obligations under the Assigned Documents as part of the arrangements for the Acquisitions, including contributing 3% of Full Prospect’s wholesale revenue as Design Service Fee to FILA Korea10^,13.

 

Anta’s FILA Expansion

 

FILA’s kidswear brand, FILA KIDS was set up in 2015, aims to provide high-end apparel and footwear for children aged 3 to 126.

 

FILA officially launched FILA FUSION in 2018, targeting the youth market aged 20-306.

 

Number of FILA stores (including FILA KIDS and FILA FUSION standalone stores) in China, Hong Kong, Macao and Singapore stood at 1,652 by the end of 2018, up from 1,086 by the end of 2017. By the end of 2019, the management expects the total number of FILA stores (including FILA KIDS and FILA FUSION standalone stores) in China, Hong Kong, Macao and Singapore to reach 1,800-1,9006.

[1] https://www.businesswire.com/news/home/20070330005505/en/Fila-Korea-Closes-Acquisition-Fila

[2] http://info.fila.co.kr/ir/ENG/DATA/2019_1Q_IR_Material.pdf

[3] http://www.belleintl.com/uploads/2014/08/211659229553.pdf

[4] https://www1.hkexnews.hk/listedco/listconews/sehk/2009/0930/ltn20090930522_c.pdf

[5] https://www1.hkexnews.hk/listedco/listconews/sehk/2009/0812/ltn20090812546.pdf

ANTA & ANTA KIDS

 

ANTA brand is positioned as a functional sportswear brand in mass market and is committed to offering high value-for-money professional sportswear to consumers. In late 2015, ANTA brand also tapped the potential soccer market by launching high value-for-money professional soccer gear to cater to increasing demand. Stores were mostly located in China’s second- and third-tier cities[1].

 

ANTA KIDS has been launched in China in 2008, which was the first Chinese sportswear brand to tap the children’s sportswear market. It is positioned as a children’s sportswear brand in mass market and it offers good value-for-money and highly comfortable products to children aged 0 to 14. ANTA KIDS stores are mostly located in China’s second- and third-tier cities8.

 

Number of ANTA stores (including ANTA KIDS standalone stores) in China stood at 10,057 by the end of 2018, up from 9,467 in 20176.

 

ANTA sponsored 24 Chinese national teams, including winter sports, boxing and taekwondo, gymnastics sporting management event centre, weightlifting, wrestling, judo and rowing. As the official sportswear partner of the COC, ANTA fully supported the Chinese national teams at the PyeongChang 2018 Olympic Winter Games6.

 

In 2018, ANTA signed an endorsement contract with Gordon Hayward, an NBA star. Hayward, alongside Klay Thompson, Rajon Rondo and Luis Scola, became ANTA’s basketball endorsers6.

 

In the first half of 2018, ANTA confirmed its strategic partnership with Zhejiang Greentown Football Club, and announced a brand new home and away shirt design for the club’s 2018 season. This was ANTA ’s first professional soccer club collaboration, proving our commitment to developing in this area6.

[1] http://ir.anta.com/en/brand.php

ANTA brand was established in 1991, while ANTA Sports Products Limited, a leading sportswear company in China, was listed on the Main Board of HKEx in 2007 (Stock code: 2020.HK). ANTA Sports has been principally engaging in the design, development, manufacturing and marketing of ANTA sportswear series to provide the mass market in China with professional sporting products including footwear, apparel and accessories. By embracing an all-round brand portfolio including ANTA, FILA, DESCENTE, SPRANDI, KINGKOW, and KOLON SPORT, and by setting up an investor consortium to successfully acquire Amer Sports Corporation in 2019, a Finnish sportswear group that has internationally recognized brands including Salomon, Arc’teryx, Peak Performance, Atomic, Suunto, Wilson and Precor etc., ANTA Sports aims to unlock the potential of both the mass and high-end sportswear markets[1].

 

 

ANTA has grown into the largest domestic sportswear brand in China and the third largest in the world in 2017[2]. Anta reached RMB24.1 billion revenue in 2018, increased by 44.4% year over year. Apparel, footwear and accessories accounted for 61%, 35.8%, and 3.2% of revenue respectively[3].

 

As multi-branding has been a very important strategy for Anta, the following report will be focusing on brands (mainly by acquisitions) and corporate actions.

 

[1] http://ir.anta.com/en/about.php

[2] http://webcast.live.wisdomir.com/anta_17ar/ann.pdf

[3] https://www1.hkexnews.hk/listedco/listconews/sehk/2019/0226/ltn20190226159.pdf