Peak Sport Products was one of the Chinese companies that suffered the most spectacular declines in income last year. Its sales were down by 37.5 percent to 2,902.9 million yuan renminbi (€357.7m-$466.5m) and its net profit altogether collapsed, down by 60.1 percent to RMB310.6 million (€30.2m-$49.8m), as Peak adjusted its distribution and inventories to reach more sustainable growth in the coming years.
Peak Sport proactively worked towards a cleanup of its inventory in the Chinese market. Inventory levels were reduced by 26.9 percent in the second half of last year, while the number of its franchised stores was cut by 1,323 stores in the course of the year, down to a total of 6,483 doors around the country, while boosting their average size. The strategy is to have some larger stores and to work with regional distributors who have more directly-operated stores of their own, in order to reduce the supply chain and to be more reactive.
The gross profit margin contracted by 2.9 percentage points to 36.5 percent because of higher production costs as well as higher subsidies to support retailers.
At the same time, the company has been heavily investing in marketing, sponsoring seven teams at the London Olympics and heightening its commitment to basketball through contracts with 15 NBA players, three NBA teams and nine national basketball teams. Peak's exposure in basketball was ramped up earlier this year when it signed Tony Parker from the San Antonio Spurs. This year, the company wants to deploy more marketing investments in running, tennis and football, among other sports.
Separately, Peak also intends to invest RMB150 million (€18.5m-$24.1m) to expand its own production facilities. This should give it more bargaining power when dealing with external suppliers and help it to respond to market changes more rapidly.