The athleisure trend appears to be talking hold in China, as the country's leading footwear and sportswear retailer reported a decline in footwear sales but a sharp increase in the turnover of its sportswear and apparel stores. Belle International attributed the combination to a shift in Chinese consumer behavior, with tastes converging toward global trends.
The Chinese retail group's sportswear and apparel division raised its sales by 16.2 percent to 19,716.0 million yuan renminbi (€2,683.1m-$2,996.9m) for the full year until the end of February, with more stores as well as a high single-digit rise in comparable store sales.
Belle International had 7,111 sports stores at the end of the year, which was an increase of 10.6 percent. The comparable store sales rise was derived almost equally from increased volumes and higher average selling prices.
Belle said that its sportswear business has been on the rise due to robust demand and because it's relatively diversified. This means that the expansion of the sports stores is less reliant than the footwear business on the situation with Chinese department stores.
Belle reached sales of RMB 16,945.3 million (€2,306.1m-$2,575.8m) with first-tier brands such as Nike and Adidas, up by 13.9 percent for the year. However, Belle emphasized that it has been supporting the expansion of second-tier sportswear brands such as Puma and Converse. They made up 4.8 percent of the division's turnover for the year, up from 4.0 percent, after a sales rise of 22.3 percent to RMB 1,954.2 million (€266.0m-$297.1m). Other sportswear and apparel businesses brought in sales of RMB 816.5 million (€111.2m-$124.1m), up by 66.2 percent. The group was running 5,716 stores for first-tier sports brands and 1,246 stores for second-tier brands at the end of February, as well as 149 apparel stores.
The gross margin of the sportswear division was up by 1.9 percentage point to 44.5 percent for the year. The increase was attributed to a combination of strong demand and tight inventories, which led to fewer markdowns.
The performance of Belle's sportswear business thus contrasted with its footwear stores. They suffered a sales decline of 8.5 percent to RMB 21,074 million (€2,870m-$3,205m) for the year, which was chiefly blamed on lackluster demand causing a comparable store sales drop of more than 10 percent. Belle said this was consistent with the market and mostly due to a reduction of nearly 10 percent in volumes, while average selling prices declined slightly.
The Chinese group reduced the number of its footwear stores to 13,762 at the end of the fiscal year, amounting to a net reduction of 366 stores. The gross margin for the footwear division dipped by 1.2 percentage point to 67.3 percent, due to weaker demand in the second half of the fiscal year. Belle explained that the winter arrived late, causing lackluster demand for high-margin winter products at the start of the season, and more demand in the second part of the winter, when discounting was already underway.
The entire Belle group saw its turnover rise slightly to RMB 40,569.2 million (€5,527m-$6,173m), up by 2.0 percent. Its gross profit margin contracted by 1.2 percentage point to 56.3 percent and it ended the year with profit of RMB 2,945.1 million (€401.3m-$448.1m), down by 38.0 percent. It included an impairment charge of RMB 1,356.4 million (€1,356m-$1,514m) on goodwill and other intangible assets in the footwear business, due to the deteriorating performance of that division.
Belle wants to continue building up its retail platform and to diversify its offering, in order to serve an increasingly fragmented consumer base. Among other moves, it has signed a strategic partnership with Replay, a smart denim brand from Italy, which it intends to patiently build up in China.
The Chinese retailer went out of its way in the discussion of the annual figures to explain the changes in the Chinese market. Belle acknowledges that the retail landscape is in flux, with the rise of online retailing as well as pressure on department stores, and it points to “a lot of noise and distraction.”
The company wants to take advantage of a predicted trend toward more high-end and differentiated product offerings in department stores, while continuing to invest in its omni-channel strategy.
Belle points out that it has previously overcome a slump in the sportswear market, on the back of investments in efficiency, product differentiation and innovation. It predicts long-term expansion for this market, which is currently supported by favorable fashion trends but should benefit more sustainably from the rise of sports participation, which is driving Chinese demand for athletic gear.
