China Consumer

Sporting chance

Will investors in London buy into Lin Huoyan’s apparel firm?

Sporting chance

Another sportswear firm is to list

London’s Alternative Investment Market (Aim) does not seem like the most obvious place for a Chinese sportswear company to raise money. But Naibu, the Chinese sportswear company, is doing just that. The company has picked Aim for its initial public offering, says The Sunday Times, a British newspaper.

Naibu is the first Chinese sportswear company to list on the junior board and says it expects to raise up to £50 million ($79.3 million) in an IPO planned for April. The company says the move will help fund its expansion at home and also help to raise its international profile.

Founded by Lin Huoyan in Fujian province, the sportswear maker says it is as tenacious as its name implies (nai means persistence and endurance, while bu means pace and method).

According to company sources, Naibu’s products target teenagers and are available in 3,000 retail outlets in 21 provinces across the country.

That translates to a 1.4% market share in the Chinese sportswear market, says the Guardian.

Based on WiC’s soundings, Naibu is far from a household name and will have to show plenty of persistence in the increasingly competitive sportswear industry.

Investors on London’s Aim should also be aware that Chinese sportswear firms have been struggling with slowing orders, rising expenses and inventory problems.

Take Li Ning, China’s flagship sports brand. As documented by WiC and other media, the company has run into trouble in its high growth sprint to take on Nike and Adidas in the local market (see WiC93).

Since last year Li Ning has been trying to shift excess inventory through steep discounting. But lowering prices has made it difficult to differentiate itself from more downmarket domestic rivals like Anta and Peak Sports.

In the first half of last year, Li Ning’s revenue fell 4.8% and its profits slumped 50%. In January, private-equity giant TPG and Singaporean sovereign-wealth fund Government of Singapore Investment Corp offered financial assistance by purchasing $119 million in convertible bonds.

Li Ning’s problems reflect broader difficulties within the sportswear sector. “The high-growth era of the sports apparel business has finally come to an end. Consumers, especially in major cities, are turning to casual wear and this is where money can be made, not sportswear,” says Tan Heng Hong, research analyst at Access Asia.

That hasn’t deterred another Fujian company from trying its luck, albeit as a retailer rather than a sportswear maker. Fujian New Huadu Supercentre, an operator of supermarkets and department stores, announced last week that it had signed a franchise agreement with Intersport, the Swiss sporting goods retailer. The Chinese group plans to open the first series of Intersport stores from mid-2013 across 10 provinces.

According to National Business Daily, New Huadu will manage the day-to-day operations at the Chinese franchise, while Intersport, one of the leading global distributors for Adidas and Nike, will be responsible for merchandising and negotiation with the sportswear labels. New Huadu told the newspaper that it expects to open as many as 100 stores by the end of 2018.

Cracking the retail market is not going to be an easy task, either. More recently, Gome Sports, a sporting goods chain backed by GomeElectrical Appliances, China’s second largest retailer, closed its sporting goods stores after just one year of operation (see WiC136).

“Competition in the sportswear industry as a whole is cutthroat. Before you enter the market you really need to think about survival,” Ma Gang, an industry observer, warns.

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