The 2022 Beijing Winter Olympics has successfully concluded, and its popularity seems to continue.
From the opening ceremony, the Winter Olympics are like a large-scale “grass-planting machine.” The costumes worn by athletes during their entrance ceremonies are frequently searched for. The Chinese delegation’s Anta down jackets, the Canadian delegation’s Lululemon red down jackets, the German delegation’s Adidas down jackets, etc. were so dazzling that netizens nicknamed it the “Down Jacket International Expo.” According to the Spring Festival consumption trends released by JD.com, from February 4th to 5th, the transaction volume of Anta’s down jackets increased by 203% year-on-year, and the transaction volume of Anta’s DESCENTE down jackets increased by 196% year-on-year.
During the 16 days of official competition, netizens harvested a new wave of idols – “Frog Princess” Gu Ailing, “Snowboard Player” Su Yiming, “Ice Prince” Yuzuru Hanyu… cheering for the players’ breakthroughs every day, And heartbroken by the loss.
“Winter Olympics fever” not only ignited the sporting goods industry, but also brought “Winter Olympics concept stocks” in the secondary market into spring ahead of schedule. Compared with the closing price the day before the Spring Festival, “Winter Olympics concept stocks” increased by 4.9% as of last Friday’s closing price, which was higher than the Shanghai Composite Index’s increase of 1.05%.
How long can this “Winter Olympics fever” last? As consumers and investors, can we still continue to “buy, buy, buy”? The editor will take you to follow the hot spots calmly.
In the “Industry Analysis: Investment Decision-making Framework” jointly released by ACCA and CFA, it is recommended that the analysis of traditional retail and its sub-industries can be mainly carried out around seven parts (Figure 1). This article will select three aspects to elaborate on:
1. Requirements analysis
The logical framework of investment analysis can start from understanding the business characteristics of the target company. For example, needs analysis. In traditional company analysis, we can analyze revenue through dimensions such as year-on-year revenue, month-on-month revenue changes, single-store revenue changes, division by region, division by product line, unit price per customer, and average sales price.
Then the analysis of needs is even more important. This report proposes that demand analysis should mainly consider the following two points:
(1) Degree of indispensability, that is, does the company sell necessities, non-necessities, or both?
With the impact of the epidemic in recent years, more and more people have begun to pay attention to healthy living, and sports have been integrated into daily life. Even the People’s Daily proposed in the early years to make sports a “rigid necessity” in life, and the indispensability of sporting goods is increasing. . During the epidemic, the sporting goods industry accelerated its recovery.
According to McKinsey’s latest 2022 sporting goods research report (Figure 2), driven by China and the United States, the global sportswear market will almost completely return to pre-epidemic sales in 2021. Compared with 2020, China and the United States will The size of the clothing market expanded by 23% and 15% respectively. It is expected that the global sportswear market will grow at an annual rate of 8% to 10% from 2022 to 2025, jumping from a scale of nearly 300 billion euros in 2021 to 400 billion euros in 2025.
(2) Commodity price elasticity, that is, the degree of response of demand to commodity price changes, determines whether unit price adjustments will affect customer demand. In addition, it must be clear which of the company’s product categories are more sensitive to price changes. For sporting goods and apparel companies with their own brands, the established brand value is expected to lead to higher profit margins.
As soon as the Beijing Winter Olympics concluded, an organization launched the “2022 Beijing Winter Olympics Sports Brand Value List.” After 16 competition days, a total of 65 brands finally entered the list. DESCENTE overtook FILA on the final day and became the top winner of this sports brand list. The list counts the brands of competition and award-winning uniforms worn by medal-winning sports teams and athletes, and then ranks them based on the number of medals under the brand’s name. Sports brands benefit from the star effect or circle effect, consumers are less sensitive to prices, and the price elasticity gap between different brands is greatly different.
For example, when it comes to yoga supplies, most people’s first reaction will be Lululemon, a Canadian sports brand that specializes in designing yoga apparel. A pair of yoga pants can easily cost thousands of dollars, but it still has a large number of female consumers.
This is due to the brand advantage Lululemon has established in the yoga market segment. Since its inception, the company has focused on niche circles, with fitness coaches or yoga teachers personally delivering the goods, establishing loyal consumers, strengthening the connection between consumers, products and communities, and gradually building Lululemon into a Identity, a sign of healthy lifestyle.
2. Product and market segmentation
Investors also need to pay attention to whether the target company has effectively planned and implemented product and market strategies.
In my country’s sporting goods industry, Li Ning and Anta, as the leaders of local sports brands, have developed rapidly in recent years, which is also inseparable from their successful products and market strategies.
The Anta brand, which grew up in third- and fourth-tier cities, has successfully obtained a “growth curve” through “buy, buy, buy” acquisitions in the past ten years in order to further participate in global brand competition. In 2009, Anta acquired the Italian brand FILA, focusing on high-end lines. 2020 annual report showsAccording to the report, in 2020, the operating profits of FILA and Anta brands were 4.49 billion yuan and 4.45 billion yuan respectively, which can be said to be evenly matched.
In addition to FILA, Anta has also acquired well-known brands in market segments such as DESCENTE, AmerSports, KOLON SPORT, Sprandi, and Kingkow. Taking advantage of the Winter Olympics, Anta’s brand acquisition strategy once again helped it increase its brand awareness. In addition to the Anta brand as an official partner, its brand DESCENTE sponsored the Japanese team, and FILA sponsored the Dutch delegation.
On the other hand, investors should also consider the risks that may arise from a brand acquisition strategy. Many companies make overseas acquisitions but ultimately fail in operation. The main reason is that they ignore the integration of the six major aspects of “strategy, positioning, culture, efficiency, development, and talent.” Therefore, in the long term, investors also need to focus on integration and performance improvement after overseas acquisitions.
Although Li Ning Group has also acquired brands such as Lotto, Double Happiness, and Aigao in recent years, in recent years we can see Li Ning making more efforts in market segments. Enrich product experience by creating a differentiated brand matrix.
Starting in 2015, Li-Ning launched a series of high-end products to enter the sports fashion market, laying the foundation for the launch of “China Li-Ning” in 2017. “China Li-Ning” became an instant hit at New York Fashion Week in 2018, and was positioned as the “national fashion leader”, fully occupying the minds of young consumers. That year, the total sales volume of the “China Li-Ning” clothing series exceeded 5.5 million pieces, and the sell-out rate of new products exceeded 70%. Driven by the “China Li-Ning” series, Li-Ning’s retail revenue in the sports fashion category increased by 42% year-on-year in 2018, leading all Li-Ning categories.
Li Ning did not stop there and continued to use its sub-brand strategy to expand its customer base. In early November 2021, it launched a new independent high-end sports fashion sub-brand “Li Ning 1990”. Further clarifying product differentiation and using “a sports brand approach to create a lifestyle” also seems to reveal that the company’s new brand was born to expand a larger market.
But what we also need to pay attention to is that the fashion brand and sports brand market has become a “red ocean”, and the market of Generation Z has become a “must battleground for military strategists.” Can Li Ning really gain a foothold in its new track? Does it still need to maintain its brand innovation capabilities, attract more outstanding creative and management talents, and stabilize rising cost pressures? These require continued attention from investors in the future.
3. Environment, Social and Corporate Governance (ESG)
Environmental, social and governance (ESG) factors will occupy an increasingly important position in future industry analysis frameworks. Because only when an enterprise manages its own business well and is responsible to a wider range of social stakeholders can the enterprise have healthy and sustainable growth potential and achieve an everlasting business.
Compared with other fields, the retail industry faces mass consumers and is therefore more susceptible to ESG risks. This report recommends focusing on “employees and production links” when analyzing retail companies.
From the perspective of employees, investors need to pay attention to whether the company has implemented relevant policies to protect workers’ rights? Are suppliers treated fairly?
For example, some foreign fast-selling brands have been exploited by “black-hearted labor” behind the media in the past. The phenomena of labor oppression, labor violence and child labor have been repeatedly discovered in their overseas factories, setting off a huge public opinion storm and consumption. If investors resist, major risks will arise.
From the perspective of the production process, investors need to pay attention to the energy use, use of sustainable materials, waste disposal issues in the company’s production process, and the recyclability of product packaging?
Allbirds, which uses New Zealand wool as its main material, can be worn without socks. It has occupied a unique advantage in the market since its launch. Focusing on sustainable materials is a major feature of Allbirds. In addition to New Zealand wool, it also uses South African eucalyptus, Brazilian sugar cane, and castor seed oil. …even recycled plastic bottles and cardboard are used. The company estimates that the carbon footprint of a standard pair of sneakers is reduced by about 30%, which is in line with the current trend of global environmental pollution. Although the company has not yet made a profit since its establishment, its valuation reached US$2.2 billion when it went public at the end of 2021. It seems that the concept of environmental protection has not only won the favor of consumers, but also won the hearts of capital.
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