Mainland Sportswear Industry: Brand Leading Value

　　 In the past two weeks, major sportswear companies in the mainland have released their first half results of 2008 that surprised the market. Driven by sales network expansion and product upgrading, its revenue grew between 52% and 174%, while its profit grew between 68% and 214%. The most surprising thing is that although the production cost continued to rise in the first half of the year, the profit margins of most companies still rose. Among the three largest sportswear companies, the profit margin of two companies rose and that of one company was flat.

We believe that the excellent performance of profit margin should be attributed to the hedging strategy of the company's management on commodity and raw material prices, the increase in the proportion of high gross profit clothing in the product portfolio, and the increased bargaining power with the growing brand awareness. In addition, the Beijing Olympic event not only improved the public's sports awareness, but also promoted the overall demand for domestic sports clothing. According to market estimates, from 2007 to 2010, the sales of sports apparel in the mainland can still maintain an annual growth of more than 20%.

With the perfect closing of the Beijing Olympic Games, many investors believe that the popularity effect of the Olympic Games on sports brands and clothing industry will disappear, and sales growth will also slow down, leading to the problem of excess inventory in retail stores. The share prices of the mainland sportswear companies have dropped sharply from the peak last year, which has reflected the views of these investors from the side. So, is the prospect of sportswear industry after the Olympic Games as bleak as its share price?

From the guidance of the management of sportswear companies and the exciting quarterly sales performance, we can find that the actual situation is quite different from the stock price performance. The management of one large sportswear company believes that its distributors can still sell 80% of the inventory at the normal price this quarter, maintaining a normal sales trend. In addition, in the first quarter of 2009 distributor sales fair held recently by several large sportswear companies, the overall orders still maintained an annual growth of 40% - 50%. Such amazing sales situation clearly shows that the growth of leading brands in the industry after the Olympic Games is not as pessimistic as expected.

In the long run, due to the relatively limited financial resources and the rising demand for high-end products from the increasingly affluent consumer groups, low-end brands with small market shares will not be able to compete with well-known first-line brands at home and abroad. Those enterprises that can invest resources in product research and development, logistics management, improve the operating efficiency of distributors, and establish a unique image for the brand through targeted advertising will eventually gain greater market share.