Chinese sports brands seem to have found a comfortable niche in a growing domestic market. It is giving no signs of slowing down for them or for the international brands, which are positioned in a higher segment. Some of the Chinese companies' gains are coming from higher average prices.
The year 2019 is shaping up well for the Li-Ning Company, as its revenues and profits soared in the first half. The Chinese sports company's sales jumped by 32.7 percent from the year-ago period to 6,255 million yuan renminbi (€1.4bn-$1.6bn). The group ended the six-month period with an attributable net profit of RMB 795 million (€99.9m-$116.5m), nearly three times higher than the profit of RMB 267.7 million posted for the year-ago period.
Footwear revenues rose by 33.4 percent to RMB 4,601 million (€610.9m-$685.1m), while apparel sales went up by 33.0 percent to RMB 5,316 million (€705.8m-$791.5m). In basketball, the Wade franchise did well, lifted by a marketing campaign featuring C.J. McCollum and another spot featuring “one last dance” products for the retiring Dwyane Wade. The Chinese brand also focused on running, training, badminton and sports casual. Equipment and accessories improved by 23.0 percent to RMB 594 million (€78.9m-$88.4m).
The small international business recorded strong growth, with sales in the U.S. and Europe increasing by 32.5 percent to RMB 97.5 million (€12.3m-$13.6m).
Comparable store sales for the Li-Ning brand were up by a mid-teen digit rate, while e-commerce up by a mid-30 digit rate. The Li-Ning brand's online sales grew to represent 23 percent of its total sales in China, compared with 22 percent in the first six months of 2018, on the back of continuous investments in this part of the business. While retail sales went up by 12.0 percent, wholesale revenues surged by 45.1 percent, driven by improved delivery discounts and the expanded platform.
Aside from its investments in digital operations, the group continued to open new and larger flagship stores with stand-out displays and designs at key locations, while closing down under-performing stores and improving its network of factory outlets. The company had 6,422 Li-Ning branded stores at the end of June, 78 more than at the end of 2018. However, the number of directly operated stores shrank by 127 to 1,379.
Meanwhile, the number of LN Young stores reached a total of 872 locations in 31 provinces, 79 more than at the beginning of this year. This sub-brand covers the market of the age group from 3 to 14.
The gross margin went up by 1.0 percentage point to 49.7 percent, due to the increasing share taken by digital sales, a higher proportion of new products sold in the wholesale channel, and improved discounts at directly operated stores. The Ebitda margin jumped by 10.4 percentage points to 21.6 percent.
The brand is looking to open more multi-category big stores with high productivity in the shopping mall channel, continue to spend on renovations to improve low-efficiency stores, and close money-losing stores.