After a year marked by slumping sales and sharp cost reductions, as well as foreign investments, 361 Degrees International detected signs that the Chinese sporting goods market had pulled through the worst of its downturn towards the end of the year.
The company is particularly hopeful that the new Chinese government will stimulate the market by taking measures to support personal consumption and to build a more balanced society – favoring sports participation.
361 Degrees saw its sales dip by 27.6 percent to 3,583.5 million yuan renmimbi (€418.4m-$576.5m) last year. Footwear and apparel both suffered double-digit declines in sales, in units as well as in average selling prices, as the company strove to avoid build-ups in inventories. A bright spot was the growth of 361 Degrees Kids, which made up more than 10 percent of the group's turnover.
The company acknowledged that discounting diminished, as the leading international sports brands restricted supply. Yet average store traffic remained low, as consumers had more choice and online retailers captured a larger share of the market, albeit mostly serving as a clearance channel.
The company charged lower prices to its distributors but made its production more efficient, so that the gross margin remained nearly flat for the year, down by 0.3 percentage points to 39.5 percent.
Taking into account potential bad debts from distributors, the company took an impairment charge for 50 percent of the accounts receivable of more than 180 days, amounting to RMB 152 million (€17.7m-$24.5m). The rack subsidy program run by the group to support retailers cost RMB 170.4 million (€19.9m-$27.4m), which helped to spruce up 2,053 stores.
As sales slumped, the company trimmed its advertising spend, realigned its staff costs and more strictly watched expenses overall. Excluding the impairment charge, operating costs were reduced by 16 percent. The company's operating profit margin still dropped by 7.7 percentage points to 9.8 percent.
Apart from price and cost reductions, 361 Degrees has tackled the tough market situation by tightening its offering, providing more training for retail staff and handing out direct renovation subsidies. It has also actively encouraged the consolidation of stores to a larger format, so they may display wider ranges on a surface of more than 100 square meters – with merchandising for 361 Degrees as well as the children's wear and another secondary brand, Innofashion.
The group further pointed to investments in a joint venture with One Way, the Finnish brand specialized in Nordic sports, which is meant to benefit 361 Degrees in high-end research for outdoor wear.
The Chinese group has also taken steps to expand abroad, by setting up an Overseas Business Unit comprising senior executives. They have started by exploring Latin America, beginning with Brazil. The company said the bold move would require substantial investments for the next five years.
