Belle International is reaping benefits from the clean-up in the Chinese sports apparel and footwear market in recent years, with a comparable sales increase of 12.4 percent for its sportswear and apparel stores for the three months until the end of May – against a comparable sales decline of 7.8 percent for its footwear business, which is more exposed to the weakness of foot traffic in Chinese department stores.
This performance for Belle's sportswear stores comes after an ample sales increase for the full fiscal year until the end of February, when the group's sportswear and apparel sales jumped by 17.2 percent to 16,971.1 million yuan renminbi (€2,407.2-$2,733.6), with a comparable sales increase of more than 10 percent. This was driven by high-single digit volume growth, while the average selling price advanced at a low single-digit rate. The group ended the fiscal year with 6,429 sportswear and apparel stores, amounting to an increase of 8.5 percent. Nearly 83 percent of these stores are Nike and Adidas stores.
Amid a glut of unsold inventories in the Chinese market in the previous years, Belle has been focusing on a smaller number of profitable brands and tightening its own inventories – to such an extent that it actually had to take measures to deal with tight inventories by increasing orders of sportswear products. Belle remarked that the inventory situation in the entire market was improving, while the distributors have undergone significant consolidation and consumer demand for athletic products is on the rise.
The group's sales in Nike and Adidas stores soared by 15.9 percent to RMB 12,838.9 million (€1,820.5m-$2,068.3m) for the year, compared with a rise of 8.9 percent to RMB 1,467.6 million (€208.1m-$236.4m) for smaller brands such as Puma and Mizuno. The company nearly trebled its sales of fashion apparel, which still reached just RMB 175.6 million (€24.9m-$28.3m).
The gross profit margin for the sportswear and apparel stores reached 42.6 percent, which was an increase of 2.8 percentage points. The group said this was due to less discounting as the entire market appeared more buoyant and markdowns normalized. The product mix improved significantly, with a much larger share of sales coming from current ranges. Suppliers helped by providing more subsidies, meaning a reduced purchasing cost.
Belle's sales in footwear stores inched up by 3.2 percent to RMB 23,037.0 million (€3,266.5m-$3,712.2m), as store openings made up for a comparable sales decline of 4 percent.
The group said that 876 stores were added during the year, ending with 14,128 stores. Belle estimated that the contraction in comparable sales was slightly worse for footwear departments across more than 2,000 department stores surveyed by the group. The gross profit margin for Belle's footwear business dipped by 0.3 percentage points to 68.5 percent.
The entire group's sales advanced by 8.7 percent to RMB 40,008.1 million (€5,672.9m-$6,447.0m) for the year. The gross profit margin crept up by 0.1 percentage point to 57.5 percent. Belle's operating profit advanced by 9.3 percent to RMB 6,193.7 million (€877.6m-$997.8m) and it ended the fiscal year with profit of RMB 4,750.8 million (€673.2m-$765.3m), up by 8.5 percent.
Belle pointed to structural issues such as traffic in department stores, weakening economic expansion and rising wages. It mentioned research indicating that 100 large-scale Chinese retailers, most of them department stores, had lifted their product sales by just 0.4 percent in 2014, and 75 of them had suffered a sales decline.
At the same time, Belle emphasized measures taken by the government to spur Chinese consumption, to support Chinese brands and the development of stationary retailing. The group predicted that it could support a relatively steady profit margin for its sportswear and apparel business.
On the other hand, Belle said upon publication of its annual results that there was a risk of slight margin erosion in its footwear business, should comparable sales continue to decline – which has apparently been the case at least for the first quarter of the fiscal year.
