Is The Acquisition Of Anta And Li Ning, The Domestic Sports Brands, Sustainable Growth?

Li Ning and Anta, the twin stars of China's sportswear, will the acquisition be the main theme of their future business road?

On June 15, extraordinary China, the largest shareholder of Li Ning Co., Ltd., held a special shareholders' meeting to consider and approve the acquisition of Clarks, a British shoe brand, at a price of 100 million pounds (about 840 million yuan).

Of course, this is not the first large-scale acquisition of Li Ning. In recent years, Li Ning has made frequent acquisitions. In early 2022, Li Ning completed the acquisition of Amedeo Testoni, a century old Italian luxury brand. In July 2020, Li Ning acquired leisure clothing brand fort.

And with the track competitor Anta, the road of merger and acquisition has been in progress. Anta has already covered basketball and outdoor sports segments by acquiring strong brands such as Archaeopteryx and desant.

What is more surprising to the market is that Anta quickly occupied the middle and high-end market by acquiring the Greater China business of Italian brand FILA, and achieved very excellent results. According to Anta's financial report in 2021, Anta's total revenue is 49.33 billion yuan, of which FILA brand contributes 21.822 billion yuan, accounting for 44.24%.

It is not difficult to see that FILA, which focuses on medium and high-end brands, has become the biggest "contributor" of Anta Group's performance.

Each Gemini has its own merits

It is obvious that only from the perspective of macro and multi-dimensional analysis, can we measure the performance of Li An Ning from the perspective of macro and multi-dimensional service.

On the one hand, in terms of secondary market performance, Li Ning was once oppressed by Anta in terms of market value.

So far, Anta sports (2020. HK) and Li Ning (2331. HK) share prices are not ideal, both have been in a downward trend, but in terms of market value, Li Ning is still lower than Anta.

According to the data, Anta Sports fell by 55% compared with the high share price of HK $190.32/share in 2021. At present, the stock price is hovering around HK $85 / share, with a total market value of RMB 234.050 billion. However, Li Ning's share price has fallen from the high of HK $107.67/share in 2021 to about HK $60 / share, down nearly 44%, with a total market value of 168.689 billion yuan.

On the other hand, there is a gap between Li Ning and Anta in terms of revenue and net profit, but in terms of net growth, Li Ning is far more than Anta.

According to the latest 2021 annual reports of Anta and Li Ning, their revenue is 49.33 billion yuan and 22.572 billion yuan respectively. The year-on-year increase was 56.1% for Li Ning, higher than 38.9% for Anta. In terms of net profit, Anta was 7.72 billion yuan and Li Ning was 4.011 billion yuan, far lower than Anta. However, in terms of net profit growth, Li Ning's growth rate of 136% was much higher than that of Anta's 49.55%, with an astonishing growth rate.

It is not difficult to find out the core of the obvious difference between the two in the market, or it is related to the differential development path of the two.

First of all, Anta heavy warehouse sports events, the brand image can be deepened.

According to statistics, Anta has deeply participated in the 2010 Vancouver Winter Olympics, 2012 London Olympic Games, 2014 Sochi Winter Olympics, 2016 Rio Olympic Games, 2018 Pingchang Winter Olympics, 2020 Tokyo Olympic Games and 2022 Beijing Winter Olympics.

Especially in this year's Beijing Winter Olympic Games, Anta is the eye-catching. From the athletes in Anta down jacket to Gu Ailing in Anta prize coat, Anta brand has been put on hot search again and again, which has become the focus of public discussion.

Anta, riding the "east wind" of the event, has reaped the double harvest of sales volume and stock price. Data shows that during this year's Winter Olympic Games, Anta's sales of a number of down jackets have soared, and even have been out of stock for many times, while a number of sports shoes exceeded 100000 + sales in less than two weeks in February.

In the capital market, Anta's share price continued to rise and was recognized by the market. From the end of 2021 to the beginning of 2022, in the context of the global capital market downturn, Anta bucked the trend and rose in anticipation of the Winter Olympics, and its share price rose by nearly 30% from the low price in January.

Therefore, Anta's reputation, performance and market value rely on sports events, which undoubtedly provides a good solution for other sports brands in the industry: on the one hand, sports events can quickly promote popularity and sales; on the other hand, more importantly, it is a key link for sports brand, professional events and professional athletes to shape the core value of the brand.

Secondly, Li Ning transformed to chaopai to cater for generation Z.

Different from Anta's strategy of heavy warehouse sports events, Li Ning is more inclined to cater to generation Z. in addition, Li Ning's brand historical influence has laid a solid foundation for its development of z-generation market.

Li Ning's new slogan of "cool China" was launched in October 2017. Then in February 2018, "China Li Ning" New York Fashion Week ignited the trend of generation Z purchase.

People in the industry believe that Li Ning's transformation can be seen as a self-help, and this self-help is undoubtedly a success. In 2018 and 2019, Li Ning achieved more than 40% growth. Then, in the Xinjiang cotton incident in March 2021, Li Ning benefited greatly. Its sales both online and offline increased significantly, and then achieved 800% revenue growth in May and June.

In fact, it is not difficult to find that the successful transformation of Li Ning is due to the influence of sports star Li Ning. From the beginning of facing the market, the brand of Li Ning has carried the feelings of Chinese people for sports brands, and this sentiment has rapidly transformed into purchasing power.

How can Anta and Li Ning behave by relying on the "hematopoietic machine"?

As we all know, Anta's acquisition of FILA has indeed brought it considerable performance. According to the financial report in 2021, the gross profit of FILA will reach 15.394 billion, accounting for 50.63% of Anta's total brand. In terms of gross profit rate, FILA has reached 70.5% in 2021, 1.2 percentage points higher than that in the same period last year.

Therefore, from the gross profit rate of 70.5% of FILA, we can see that FILA is much more profitable than Anta's main brand. Anta has obviously relied heavily on FILA, the "hematopoietic" machine.

Back to Li Ning's acquisition of Clarks, it can be said that there are similarities and differences.

So, if you want to copy Anta model and rely on Clarks to continue "hematopoiesis", can Li Ning also work?

In our view, the prospect is promising, but it will take time to settle down.

On the one hand, Clarks brand awareness can not be underestimated, which will greatly enrich Li Ning's high-end product matrix.

With the development of consumption upgrading to the depth, high-end footwear products have achieved high growth for the subdivision categories of natural and high-end consumers' pursuit of fashion and high-end quality. The latest data shows that during 618, the turnover amount of luxury shoes and boots of Jingdong new department store increased by 93% year on year.

According to public information, Clarks is an old shoe manufacturer with a history of 200 years in the UK. Clarks is one of the largest brands of men's shoes, women's shoes and children's shoes in Britain. The shoes of this brand have been famous for their comfort and high-end, and have a certain international reputation. As of January 29, 2022, Clarks has 594 stores in the world, and its products are sold to more than 100 countries and regions. At its peak, Clarks sold more than 54 million pairs of shoes a year, equivalent to 103 pairs of shoes sold per minute.

At present, Li Ning company only has sports shoes products, which is completely blank in the field of leather shoes. This acquisition just provides Li Ning with an opportunity to develop high-end leather shoes market, which can not only supplement the product categories of Li Ning's entire business map, but also realize the development in leather shoes. Moreover, with the unique brand recognition advantages accumulated for a long time at home and abroad, Li Ning has laid a solid foundation for the segmentation market of high-end leather shoes.

On the other hand, Li Ning needs to spend more time on product development.

To be sure, Li Ning's holding Clarks will not be easy. It will still face the problems of long-term brand development cycle and long-term R & D investment.

In 2009, Anta purchased FILA's Greater China business from belle. After a long period of brand development and R & D investment, Anta finally disclosed the performance of FILA in the financial statements for the first time in 2019. The long time span is a big challenge for any enterprise.

It is not difficult to foresee that Li Ning will also follow Anta's "old road", and it is not easy to develop products, which requires a lot of R & D investment to achieve results. However, according to the financial report, the proportion of Li Ning's R & D expenditure to revenue in 2021 is declining, from 2.2% in 2020 to 1.8%.

Therefore, if Li Ning wants to realize the second curve growth like Anta relying on FILA, it is bound to need to work hard on R & D again, which is the top priority.

epilogue

According to the data of the China Business Industry Research Institute, it is expected that China's footwear and clothing industry will continue to grow higher than the global average in 2022, and the market size will reach 3200 billion yuan.

But although the prospect is good, the road is not smooth.

We might as well be more patient and look forward to the further development of the two national flag bearers.