Recently, the share prices of sports brands have reached new highs one after another, such as US $193.71 in LULUX, and HK $61 and HK $20.55 in Anta and Li Ning Co. Ltd. respectively. China Merchants reviews the logic behind the industry for you through horizontal and vertical comparison of peers. The full text is 6000 words and it will take at least 10 minutes to read it.

-Editor's Note

First, the domestic sporting goods industry is in the best track, which is easy to give birth to the leader of large market capitalization.

Sports shoes and clothing industry is one of the few public fine molecular industries with large scale, rapid growth, high concentration and high competition barriers.

International birth of Nike, Adidas popular professional sports brand leader, as well as UA, lululemon and other professional subdivision category leader. China's local market has a large space, and the leading local popular sports brands have experienced expansion-fighting-elimination-centralization and ushered in a recovery in 2014. Anta and Li Ning Co. Ltd. maintained rapid growth.

We believe that due to the rise of the national fitness boom, the introduction of a number of national sports industry support policies and other external factors, as well as the innovation and upgrading of various head brands to meet the demand-side professional changes, sports shoes and clothing leaders, which are both professional and fashionable, are expected to remain evergreen in the future.

1. The upsurge of national fitness continues, and the scale and growth rate of sports shoes and clothing are in the forefront of all sub-industries.

The sporting goods sub-industry is in a large-capacity market and is the first to experience the integration of the rise and fall cycle of the industry. since the recovery in 2014, the sports shoes and clothing industry has achieved an average annual compound growth rate of 15.59% in the past five years. In the future, with the improvement of the breadth and depth of residents' sports participation in our country, under the catalysis of professional, subdivision, scene product demand and other factors.It is expected that in the next five years, the sports shoes and clothing market is still expected to maintain an average annual compound growth rate of 10%, and the market capacity is expected to reach more than 400 billion yuan, an increase of nearly 50% over 2018.At the same time, sports-based industry through scientific and technological innovation to create product functional differentiation of the core competition barriers provide a natural barrier, product innovation and iteration become the core innovation to promote the development of the industry.

2. at the present stage, we should firmly grasp the two major trends of "demand segmentation + professional fashion", and the leader will achieve the improvement of concentration in the periodic fluctuation.

By analyzing the changing trend of the market share of the sports leaders in China and the United States in the industry cycle, we believe that only the brands that predict / lead the changing trend of demand and actively adjust the corresponding product / operation mode can continue to become bigger and stronger. Specifically at this stage, whether in the United States or China, only brands that can take the helm in product professional segmentation and sports fashion by virtue of innovation can adapt to the changes on the demand side and perform better.

1) American market: from popularization to professional segmentation and fashion infiltration, the leader competes for hegemony and the homeopathic wins.

2) Chinese market: from extensive expansion to fine operation, leading change comes first.

China's sports industry development time and maturity are lagging behind the United States, domestic industry leaders Anta and Li Ning Co. Ltd. in recent years to meet the needs of changes, multi-dimensional change, the leading position is stable, but the distance from Nike and Adidas in the domestic industry position is still large.

二、Overseas giants review:Annual double-digit growth in performance, market capitalization has repeatedly reached record highs

Nike and Adidas have different positions at the beginning of their development. In the early stage of brand development, Nike stands out by providing popular sports products with high quality-to-price ratio, while Adidas takes high-end specialization as its initial positioning. Although it has experienced many performance adjustments in the process of growth, the growth rate of the giant's annualized performance has been stable at double-digit levels in the past 30 years, and the market capitalization has repeatedly reached record highs.

1. NIKE: scientific and technological innovation is endless, and the market capitalization has increased by more than 1400 times in the past 40 years.

From its listing in 1980 to the end of 2018, Nike's revenue and net profit increased by 134x / 161x, with a compound annual growth rate of 13 per cent and 14 per cent. During the period, its market capitalization rose more than 1400 times, and its valuation rose from the lowest 10 times to the current 35 times. The development of Nike has gone through three main stages.

• Brand start-up period (1964-1989):With the rapid rise of strong R & D + cost-effective products, waffle shoes and Agan shoes quickly occupied the market, surpassing Adidas in 1980 to become the number one sports brand in the United States. Subsequently, with the help of air cushion technology basketball shoes and Jordan endorsement, it realized the leap from the agent to the leading brand.

• Brand / category / channel rapid expansion period (1989-2008):In line with the changes of American sports consumption from the public to professional subdivision of consumer demand, adhere to technological innovation, category expansion and subdivision of multi-brand operation, have created their own golf / Jordan series, acquired Hurley/Converse/STARTER/Umbro/ColeHaan and other professional subdivision brands. The supply chain and channels are expanding from Europe and the United States to Asia, and their leading position is constantly strengthening.

• Digitization & refined operation upgrade phase (from 2009 to now):Sell some poorly managed brands

• Focus on the fine operation of the four brands of Nike/Jordan/Hurley/Converse In addition to continuous scientific and technological innovation to strengthen sports functions, products create a sense of scarcity through joint names + sales restrictions, and give brand investment attributes. At the same time, rely on big data, AI and other technologies to digitize and upgrade the channel / supply chain to improve the overall operational efficiency.

2. Adidas: integration of Fashion and function, performance growth after 2014 & improvement of valuation Center

Adidas was founded in 1920. From its listing in 1995 to the end of 2018, its market capitalization has increased nearly 20 times, revenue / net profit has increased 11 times / 13 times, and its valuation has risen from about 10 times to about 35 times today. Its development has gone through four stages since its listing.

• Product specialization reshaping (1991-1997):In the early 1990s, Equipment/Tubular Technology/Predator/Feet You Wear series of professional sports shoes were launched, and technological innovation brought Adidas back to the growth track. The acquisition of Salamon, which is famous for selling ski / golf equipment.
  

• Brand / category / channel expansion (1998-2007):The Golf sub-brand was founded in 1997 and Reebok was acquired in 2005. With active overseas expansion, the share of overseas revenue surpassed that of Western Europe for the first time since 2005, and the share of sales in Asia was as high as 22% in 2007.
  

• Destocking / streamlining products and brand / channel adjustments (2008-2014):Affected by the slowdown in product innovation, inventory crisis in China, declining channel management and control capabilities, and overall operational inefficiency, the growth rate of the main business performance has slowed down or declined. In addition, the previous frequent mergers and acquisitions have made it more difficult to manage many new brands.
  

• Professional and fashion integration, back to the track of rapid growth (2015 to date):On the one hand, sell underperforming M & A brands and refocus on football / running / women's / sports classics and children's categories. On the other hand, to strengthen the research and development of new technologies, the emergence of Boost shock absorption technology effectively competes with Nike air cushion technology, and is widely used in many of its series; at the same time, coconut shoes in cooperation with Kanye sell well, detonating the fashion trend of sneakers after 2015 and saving the performance that has been growing for many years.
  

三"Sports gene + science and technology ability + efficient operation" creates the global hegemonic position.

In the ups and downs, we sum up the common drivers of market capitalization and performance growth:

The main results are as follows: 1) the sports gene was implanted at the beginning of the brand, and the enhancement of the sports gene was adhered to in the subsequent development.

2) grasping the trend of differentiation of demand sports categories, product technological innovation continues to iterate out new product differentiation barriers.

3) "joint name + limited edition" pushes up the brand premium and gives the product investment attribute.

4) with the extensive combination of new technology and retail, digitization, rapid supply and scientific and technological innovation have become the driving force for the growth of the new retail era.

The main results are as follows: 1. The implantation and continuous strengthening of exercise genes lay the foundation of the brand.

1) Sports brands without sports genes cannot survive for a long time.

Throughout the development of sports brand giants, what they have in common is that they attach great importance to the implantation of sports genes at the beginning of the establishment of the brand.

• Nike Marketing: maximize Brand Communication by betting on potential athletes

• Adidas: top-down brand marketing through sponsorship of major sporting events and national teams

2) the integration of brand and sports scene to cultivate users' sports enthusiasm and nurture brand consumption.

In recent years, sports brands pay more and more attention to the relationship between brands and users, not only the connection of products, but also the resonance of spirit. The way of marketing no longer stays in media advertising, but increases the interaction between brands and individuals by organizing offline activities, and carries out community marketing through fitness running, basketball games and fitness clubs to stimulate and cultivate users' enthusiasm for sports. drive brand consumption.

2. Follow the trend of visual subdivision of demand sports, integrate technology with fashion to shape product differentiation, and limited sales push up the brand premium.

1) leading the way to the technological upgrading of sporting goods

The reason why Nike can achieve the dominant position in the world is closely related to grasping the trend of demand differentiation according to sports category, and making use of scientific and technological innovation to make products continue to iterate and lead the demand.

• With an innate sense of innovation, the brand stood out at the beginning of its establishment.The 1974 "runner World" survey declared that the Nike Cortez is "the most popular long-distance running training shoes in the United States", which greatly promoted the development of sports shoes.

• The establishment of the world's first sports innovation laboratory, the official opening of the road of systematic R & D innovation; and the company'sLong R & D cycle / large capital investment / extremely stringent performance requirements.Since 1999, the number of Nike patents has reached 9875, including 2233 soles, 2349 uppers and 5293 other footwear-related technologies, far exceeding those of their peers.

• Has a number of epoch-making innovative technologies.Such as the more classic midsole technology Nike Air, Lunar, Zoom, ZoomX, React and so on.

Adidas: in recent years, Adidas relies on Boost mid-bottom cushioning technology to help reverse the declining trend, which forms an effective counterbalance with Nike.

• In terms of uppers, Adidas developed an integrated woven upper almost at the same time as Nike, which is named Primeknit, which is flexible, stable and supportive. And released the world's first knitted football shoes in February 2014.

In terms of soles, there is mainly ADIPRENE,ADIPRENE+,Bounce technology in the field of basketball and running shoes, but in more than 30 years when Nike air cushion swept the market, Adidas basketball sole technology has been suppressed until the successful research and development of Boost.

2) to meet the requirements of the fine differentiation of sports majors, to expand new categories / functions through incubation or mergers and acquisitions.

A single category has the ceiling of audience groups, regions and channel resources, so after the success of one category, it will often attack other categories one after another in order to expand market coverage.

2) reduce the number of suppliers and strengthen deep cooperation with high-quality manufacturers

In order to strengthen the control of suppliers (including quality, delivery time, production environment, labor treatment), and to reduce manufacturing costs and improve management efficiency, brand giants have reduced the number of suppliers, while orders gathered to the head of high-quality suppliers.

3) Digital and intelligent management of empowered suppliers to improve supply flexibility and efficiency

At present, how to minimize costs, improve efficiency and deliver the best-selling products to consumers in each link of the supply chain is the focus of the current reform of the two brand giants.

• Nike launches "Express Lane" program in 2017The goal of the plan is to complete all product updates and design changes within 90 days, and to complete production within two days, compared with at least one year previously. The efficiency of supply chain mainly depends on digital upgrading and the application of artificial intelligence.

• Adidas will flexibly deploy production based on the sales data for the current quarterIt is planned to shift from the mode of pre-season development to the development of products in the current season, creating products with market hotspots, and it is estimated that full-price products will account for 20% of sales by 2020.

4. Efficient & digital channel operation to achieve more accurate consumer access

1) early use of high-quality large dealer model to achieve rapid channel expansion

In the initial stage of the development of the two giants, the practice is relatively similar. In order to seize the market as soon as possible, the multi-tier agent model is usually used for rapid channel expansion.

2) increase the proportion of direct sales and retail operation, and strengthen direct connection with consumers

With the rapid expansion of sales scale, the task of horse racing enclosure has been completed in stages. In order to enhance the control of terminal channels and strengthen direct connection with consumers, Nike and Adidas have increased capital investment in direct channels in the last 10 years, and the growth rate and share of direct channels have increased significantly.

• The proportion of direct revenue of the main Nike brand has been increasing in the past 10 years.From 13% in 2009 to 30% in 2018.

• Adidas: online rapid development, offline streamlining the number of stores, improve the profitability of individual stores.

3) accelerate the application of digital technology and the rapid development of new retail

• Gather online traffic to independent APP, establish data kingdom, grasp the core users and needs, and accumulate data for product development, product launch and precision marketing in the future.

Nike uses mobile to dig deep into user data to improve retail accuracy, while Adidas's layout on the mobile side is comparable to that of Nike.

• Accelerate the construction of offline large-scale experiential digital stores to realize the integration of members, goods and shopping experience through all channels.

Nike connects directly with consumers through offline experiential stores, while Adidas streamlines the number of offline stores, but increases the size of individual stores and shopping experience.

4) Multi-dimensional efficiency, and the net operating cycle is significantly shortened.

From the perspective of inventory turnover, although the two companies have increased the proportion of direct sales in the last decade, the number of days of inventory turnover shows a relatively stable trend, which verifies the fine and efficient management and control ability of the two leaders at the channel end.

Both accounts receivable turnover shows a state of acceleration, on the one hand, due to the increase in the proportion of direct sales, on the other hand, it is also related to the best-selling goods and faster payment back by dealers.

Taking into account the efficient operation of the channel, inventory remains benign; the recovery of best-selling products is accelerated; the supply-side production cycle is shortened, and the payment to suppliers is accelerated; the overall capital operation efficiency of the two leaders continues to improve.

四、Opportunities and challenges of domestic sporting goods leaders

1. Sports marketing resources need to be upgraded synchronously with the brand.

Over the years, domestic brand leaders have attached great importance to the control of domestic sports marketing resources, such as the maintenance of the relationship between the Olympic Committee and the national team, sponsorship of major sports events and brand endorsements. Domestic brand Li Ning Co. Ltd. / Anta / 361 / Xtep is very fierce in the scramble for sports resources.

But compared with overseas brands, the gap lies in: first, the lack of perfect athlete mining and training mechanism, the high cost of signing well-known athletes; second, the short history of brand development, brand precipitation is not enough, it is difficult for international well-known athletes to sign successfully. At present, domestic leaders such as Anta and Li Ning Co. Ltd. are in the stage of brand upgrading, and sports marketing resources can not only stay in domestic events or champion endorsements, or international second-tier sports stars. In the long run, proper consideration of endorsements of first-tier big-name athletes will help to shape brand strength.

2. Adhere to independent research and development and enhance innovation for a long time.

It often takes several years or even 10 years for overseas leaders to break through new technologies, while domestic sporting goods leaders Li Ning Co. Ltd. and Anta have a history of only 20 years since they were founded in the 1990s, but they are mainly wholesale channels in the early stage. the support for R & D and innovation of product functions is insufficient. The upgrading of the R & D strength of domestic leading product innovation only began to be substantially strengthened after 2017, and the gap with Nike and Adidas in product functions is gradually narrowing.

If we want to compete with Nike and Adidas in the future, the key factor is to invest a large amount of long-term funds to support the improvement of independent R & D strength and the innovation of product functions.

3. Highlight Chinese elements and change from a follower of the trend to a manufacturer

For a long time, due to the strong brand influence and limited sales strategy, fashion trends are led by overseas leading brands. It was not until Li Ning Co. Ltd. exploded New York Fashion week in 2018 that consumers realized that domestic brands also had a sense of fashion. Since then, the sales of the "China Li Ning Co. Ltd." series have been booming, and Li Ning Co. Ltd. 's performance has been adjusted for many years. This shows that as a domestic brand, instead of following the international trend and being denounced as "plagiarism", it is better to strengthen independent design and rely on Chinese elements to improve their fashion.

However, compared with international brands, domestic brands are slightly inferior in controlling the shipment volume of trendy products, weakening the scarcity attributes, such as Li Ning Co. Ltd. 's Wade series and Anta's Thompson series, although they are joint models, but the pricing still follows the people-friendly route.

4. Make use of digital technology to improve the retail power of the channel and meet the terminal demand more accurately.

Since 2013, domestic leaders have put forward the strategy of strengthening the building of retail capacity, taking the lead out of the industry adjustment. For example, Li Ning Co. Ltd. promotes the expansion of e-commerce and offline stores, while supporting high-quality dealers to enhance the digital level of the entire channel system. Anta changed its online business and flagship stores operated by a third party into a self-owned store to establish a big data analysis system to enhance its ability to respond to changes on the demand side. Offline is to reduce the level of management, the headquarters set up a sales and operation department in charge of goods operation, the establishment of retail management department in charge of channel image management; encourage dealers to open direct stores, reduce secondary agents. Adopt flat sales management, through the company's comprehensive monitoring system, as well as regular channel inspections of sales staff, so that the company can closely monitor the performance of retailers.

However, the key links that the domestic leader still needs to improve in digital retail are: 1) to improve the management efficiency of the dealer system by optimizing and streamlining the dealer team. Different from the mode of large dealers in Nike and Adidas, there are a large number of domestic Anta and Li Ning Co. Ltd. dealers and uneven quality levels, so it is difficult to achieve overall digital and efficient management. There are problems of serial goods in different channels and inconsistent prices. If the number of dealers can be simplified and the quality can be optimized in the future, it will lay a good foundation for improving the management efficiency of the distribution system. 2) the direct operation system connects the online and offline members and goods data, and realizes the efficient integration of people, goods and markets, which is conducive to the accumulation and application of consumption data, the full service of members and the seamless connection of shopping experience.

5. try capacity transfer to reduce cost, layout intelligent manufacturing to improve reaction speed

At present, the domestic shoes and clothing manufacturing bases of Li Ning Co. Ltd. and Anta are still in China, so compared with Nike and Adidas in Southeast Asia, the domestic shoes and clothing leaders are still weak in the organization and management of the global supply chain and capacity expansion. The manufacturing cycle of the product is also between 6-9 months, which is slower than that of overseas brands. Therefore, for domestic leaders, if the domestic management capacity can be exported to overseas manufacturing quarters in the future, such as Southeast Asia, it can not only effectively reduce costs, but also alleviate the recruitment problem of Chinese mainland. At the same time, domestic factories try intelligent manufacturing to reduce product delivery time and improve the response speed of the supply chain.