A Li-Ning store in Beijing. (File photo/China Times)
Six major sporting goods brands in China have suffered dearly from over-ambitious expansion, most notably Peak Sport, which closed some 1,000 stores across the country in the first three quarters of 2012.
Peak reported that as of the end of September, the company's franchised retail outlets numbered 6,739, 1,067 fewer than a year earlier.
The value of the unshifted inventory held by the six brands—Li-Ning, ANTA, 361 Degrees, Xtep, Peak and Dongxiang—inventories topped 3.72 billion yuan (US$597 million) in the first half of 2012. In order to get rid of excess stock, each of these companies not only offered hefty discounts but also regularly closed stores throughout the year.
In the first half of 2012, Dongxiang shut 569 stores, decreasing the number of its retail outlets to 2,550; ANTA reduced the number of its stores by 110 to 9,187; and Peak slashed the number of its outlets by 1,000 — a scale similar to that of Li-Ning.
Most of the stores closed by Li-Ning are located in third or fourth-tier cities with poor sales. An insider told Shanghai's Securities Daily that Li-Ning will continue closing underperforming stores.
In the same vein, Liu Xiangzeng, a senior manager at Peak, noted that bad sales offer a good opportunity to review and overhaul sales channels.
Industry insiders note that the spate of closures is a result of franchised businesses' ineffective sales channels, as inefficiencies in the procurement and selling of stock tends to cause inventory buildups, unlike directly managed stores, which can make quick adjustments.
Other than Li-Ning, which directly manages 8.8% of its stores, the other five companies rely entirely on dealers and retailers, no stores under direct management.
In the first half of 2012, Peak raked in reported a net profit of only 240 million yuan (US$38.5 million), down 43% from a year earlier, with average sales falling 30%.