Friday, March 29, 2024
 
Columnist
Martin Hennecke
 
361 DEGREES
HKEx Stock Code : 01361 
 
Corporate Profile
The principal activities of the Group are manufacturing and trading of sporting goods, including footwear, apparel and accessories in the PRC.

Business Review - For the year ended December 31, 2012

Sales and distribution network

The Group and its distributors worked together to cope with the challenges posted by oversupply on the sportswear market, and continued with its exclusive distributorship business model, which brought such benefits as economies of scale, more cost-effective marketing and promotional campaigns and better inventory control.

The measures taken included controlling the inventory at the sales channel and enhancing the sales and marketing effort at the retail outlets. Specifically, the Group and its distributors agreed on cancelling some of the orders placed at the trade fairs for goods not yet produced. Every players in the industry took a prudent approach to placing and receiving the orders for sportswear. This was reflected by the year-onyear declines of 23% in the orders placed at the 2013 Spring/Summer trade fair.

The Group also assisted the retailers in raising their store efficiency by providing them with training and rack subsidies of approximately RMB203.0 million to improve the presentation of goods and renovate the shopping environment. For instance, pop-up displays featuring a monthly theme of different sports and related sports stars were put up in the retail stores to showcase the latest products. The move was aimed at raising awareness of the brand and boosting sales.

In the financial year under review, the number of exclusive distributors was 31. The distributors themselves oversaw 3,336 dealers, who in turn owned and managed a total of 8,082 retail outlets for adults' sportswear as at 31 December 2012, representing a net increase of 217 from 7,865 a year earlier.
About 72% of the stores was located in the third tier and smaller cities where the Group had established brand influence. The majority of the stores remained in northern China (3,090 stores) and eastern China (2,081 stores). Of the total number of retail point of sales, 5,555 were standalone stores as at the end of December 2012, accounting for approximately 68.7% of the total retail sales outlets for adults' sportswear. The average size of a typical store increased to approximately 100.7 square metres (sq.m.).

As at 31 December 2012, there were four 361° Towns operated by authorized retailers in Zhengzhou, Jinan, Wuhan and Harbin. These megastores, averaging 1,100 sq.m. in size, are designed to bolster the brand image of 361° . They complemented the Group's wide distribution network by both strengthening brand-building and unifying brand image.

In view of the sportswear market glut which followed some years of the industry's rapid and volumedriven growth, the management of the Group deemed it appropriate to be prudent with the expansion of the points of sales for its adults' sportswear business, and decided not to set any target for the number of new stores to be added in 2013. Instead, the Group will focus on product development and marketing to reinforce its market position.

Amid market consolidation, the Group's same-store sales growth was decelerating throughout the first three quarters of 2012 (6.9%, 5.1% and 4.1%, respectively) and rebounded slightly to 4.3% in the fourth quarter. When compared with the same-store sales growth in 2011, that of 2012 was considerably smaller.

The channel inventories at the retail level were ranging between 4.1 to 4.3 times in 2012. By the end of the fourth quarter of 2012, the inventory level at the sales channel was 4.05 times the average monthly sales in that quarter, showing an improvement when compared with the 4.1 times at the end of third quarter of 2012 and the 4.2 times at end of the fourth quarter of 2011.

The average selling price of the adults' sports apparel decreased to RMB79.4 per item in 2012 from RMB94.7 in 2011 (six months ended 31 December 2011: RMB117.8), while the average selling price of the adults' footwear rose to RMB106.3 per item in 2012 from RMB102.6 in 2011 (six months ended 31 December 2011: RMB116.9).

361° Kids

The Group's 361° Kids product line was a bright spot in its performance for the year under review. The fledgling business of children's outfit, footwear and accessories grew rapidly as a proportion of the Group's turnover and in terms of sales value as it began to achieve better economies of scale and its products gained traction in the domestic market. Its revenue surged by 97.7% to RMB370.1 million, accounting for 7.5% of the Group's turnover (year ended 31 December 2011: RMB187.1 million and six months ended 31 December 2011: RMB72.8 million). The growth was stimulated by the Group's success in obtaining the licensing rights to use the American comic icons of Batman and Spider Man respectively from Warner Bros. Consumer Products Inc. and Marvel Characters Inc. to design, produce and sell children's wear and accessories. In July, 2012, the Group struck another deal with Warner Bros. Consumer Products Inc to obtain a franchise to use the icon of Superman of the upcoming American superhero film Man of Steel in its kids' wear. The launch of the products with the comic icons into the market was an instant success, enhancing awareness of the 361° Kids brand. The average selling price of a kids' product rose to RMB57.3 in 2012 from RMB54.0 and RMB45.6 for the six months ended 31 December 2011 and the year ended 31 December 2011, respectively.

The 361° Kids points of sales totaled 1,590 as at 31 December 2012, representing a net addition of 433 points of sales from 31 December 2011. Of the 1,590 points of sales, 553 were counters at the department stores or hypermarket, while 735 were standalone stores, and 302 were booths at the adults' sportswear stores.

Operated separately from the Group's adults' sportswear business, 361° Kids does its design, procurement and out-sourcing independently. The kids' wear business will continue with its plan of opening about 150 new 361° Kids points of sales in 2013 as it is set on tapping China's huge, burgeoning kids' wear market for business growth. This line of business will develop into a growth driver.

ePOS gained traction among the retail outlets

As at 31 December 2012, 5116 stores, or 63.3% of the Group's total 8,082 retail outlets adopted an electronic point-of-sale system (“ePOS”), which is directly linked to the central servers of the Group's headquarters in Xiamen. The online and real-time ePOS enhanced the Group's ability to monitor sales, identify customer preferences, manage inventories and thus respond more promptly to market changes.

Brand promotion and marketing

The Group maintained its effort in building brand and marketing in order to differentiate itself from its peers and consolidate its foothold in the market. Such move was especially important when industry players could not rely on sales volume for growth amid the market glut.

With the 361° positioned as a mass market brand targeting sports fans aged between 18 and 30, the Group developed a Chinese marketing slogan “多一度熱愛”, which literally meant “One Extra Degree of Passion” for pursuing excellence. Our focus on excelling in quality and design of sportswear also echoed the athletes' passion for pursuing excellence in sports. By aligning the goals of the Group, the athletes and the sports fans, the Group has built a brand to foster customer loyalty.

Aiming at enhancing the recognition of the 361° brand and the Group took a three-pronged strategy in promoting its brand and marketing. The strategy comprised major sports event sponsorship, strategic partnerships with a major state media and appointing celebrity athletes as spokespersons of the Group's products.

During the year under review, the Group stepped up its effort in sponsoring major sports events. A notable sports event which it sponsored was the 3rd Asian Beach Games held in June 2012. About 1,600 athletes from 45 countries and regions around Asia participated in the Asian Beach Games. As a cosponsor of the event, 361° provided the event's uniforms for the Chinese delegations, workers, volunteers and technicians to achieve maximum exposure for the brand. The “beach series” sportswear was offered for sale in the stores at Shandong Province where the Game was held and was also available for sale on popular online platforms such as Taobao and TMall. In 2011, the Group successfully secured the exclusive rights to be the official sports apparel sponsor for the Second Youth Olympic Games in Nanjing to be held in 2014.

In the year under review, the Group formed strategic partnership with China's national sports TV channel CCTV-5, which had broad coverage over a broad range of sports and exclusive rights to broadcast certain major sports events over nationwide television networks in the country. In 2012, CCTV-5 broadcasted the London Olympics, in which China's athletes performed with flying colours, making China to rank second in the Olympic medal tally. The nationwide broadcast coverage of China's national sports teams also allowed 361° brand extensive media coverage.

For the year under review, the Group also appointed some famous sports stars as the spokespersons for its products. For instance, it hired London Olympics gold medalist of 400m and 1,500m freestyle swimming Sun Yang, U.S. NBA basketball star Kevin Love (Minnesota Timberwolves NBA All-Star), Stephon Marbury (a two-time NBA All-Star, now a point guard with the Beijing Ducks, the 2011/12 winner of the Chinese Basketball Association championships and voted Most Valuable Player) a few Jamaican hurdlers and runners, as the Group's spokespersons to promote the sports in which they excelled and to enhance the awareness of the 361° brand. Apart from the athletic spokesmen, the Group also recently signed Jikejunji(吉克.逸), the second runner-up in the 2012 highly successful “Voice of China” talent show as the spokesman for the lifestyle brand – Shine. All these celebrities helped the Group project an image of a professional sportswear company.

Business Outlook - For the year ended December 31, 2012

The year 2012 turned out to be the most difficult time for the sportswear industry since 361 Degree's establishment in 2002 as the sales channels suffered from a market glut and thus high inventory. It is expected that these unfavourable market conditions will last well into 2013.

The Group judges that the sportswear industry's development will not be driven by sales volume in the foreseeable future, following the rapid expansion in the past several years. Instead, a sportswear company will have to win market share with a distinctive brand image, innovative designs, good quality and high performance of the products, and a new product line.

Despite the temporary market glut, China's on-going urbanization, rising public awareness about health, the government's policy to encourage people to live a healthy life with more frequent physical exercise, the country's Twelfth Five-year Plan to boost domestic consumer spending, and increasing disposable income will foster the sportswear industry in the long term. The Group believes that competitive advantages such as a strong brand, effective marketing and product innovation will able to tide an industry player over until the market improves. The survivors of the difficult market will become stronger.

To get geared up for the opportunities and challenges in the future, the Group will continue with its effort in sponsoring major sports events, promoting its brand through partnership with the national sports TV channel CCTV-5, developing new products or improving existing models with its research and development partners in Guangzhou and Beijing, and fostering the development of its promising product line of 361° Kids. 361° Kids will work to develop into a growth-driver in the future.

It will also work closely with its distributors and retailers to boost sales. Specific measures will include helping the stores improve the presentation of goods and the shopping environment and raising their efficiency with the ePOS.

In 2013, the Group will continue with its passion for excellence as its brand 361 Degrees suggests, and work for better returns to its shareholders.

Source: 361 Degrees (01361) Annual Results Announcement
Chairman Ding Huihuang Issued Capital (shares) 2,068M
Par Value HKD 0.1 Market Capitalisation (HKD) 3,928M
 
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