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A crossroad for Chinese sports brands: what have they done to expand their business?

Thursday, 14 Sep 2017 17:03   |   By Nong Ruowen

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Unlike many countries' sports industry in which sports events act as the core character, China's sports industry is still relying on sporting goods manufacturing and sales which brings intensive competition to sports brands in China. 

To find a way to secure their position in the market, many brands have tried to expand or diversify their business by switching from sporting goods manufacturing and selling. One approach to this business expansion or switch is to acquire or merger with a company in other industries or sectors. 

Chinese sporting goods manufacturer K-bird, as well as TOREAD, one of the leading providers of outdoor products, are two practitioners of this approach. They have taken different approaches to their acquisition cases but both have not seen a positive result so far. 

K-bird

Founded in 1987 and based in Jinjiang, Fujian Province, K-bird is a sporting goods provider in China. The first decade of the 21st century was a fruitful period for K-bird, during which they partnered with some Chinese national sports associations and became one of the most famous and popular sports brand in China.

However, when it comes to the current decade, more and more foreign brands have entered China, which has made competition in China's sporting goods market much more intensive than before. To address this issue, some local brands have conducted aggressive marketing campaigns and secured their positions in the market. All of these facts made it tougher for K-bird to compete with other brands and forced them to seek a transformation in their business practices.

Their approach was to enter more areas apart from sporting goods manufacturing. In March 2017, K-bird announced that they would buy in full, 100% shares of Will’s Fitness by paying cash for the initial 25% and issuing new shares for the remaining 75% with the value of the latter being estimated at approximately RMB2.7 billion (US$413m). 

However, this deal was never closed because the two sides failed to reach an agreement on the price and payment approach. Insiders said one of the reasons for pulling out of the deal was the low net profit and high asset-liability ratio of Will's Fitness' stakeholders which made the acquisition not a good choice for K-bird.

Apart from this deal, K-bird has also tried to set up a fund for the sports industry and invest in sports retailers but it did not make any difference to K-bird’s business. According to K-bird’s interim 2017 report  released on August 29, K-bird generated RMB 1.57 billion in the first half of 2017 with a net profit of RMB 129 million, while their revenue in the sporting goods business made up 94.84% of their total revenue.  

TOREAD 

Founded in 1999, TOREAD Holdings Group Co., Ltd. is one of the leading outdoor product companies offering outdoor products including clothing, shoes, and equipment. The company went public on the Shenzhen Stock Exchange in 2009 was named on Forbes Asia's 200 Best Under A Billion in 2014 List.

TOREAD saw a dramatic expansion during the 2009 to 2013 period by opening new physical retail stores until the e-commerce industry emerged hitting the traditional business which forced TOREAD to come up with other strategies to deal with this challenge. Unlike K-bird, TOREAD’s solution was to expand their business in another outdoor-related industry – outdoor activities and tourism.

Under this strategy, in 2013, TOREAD invested in the Singaporean tourism service platform Asiatravel, China's first ever outdoor-activity website Lvye.com, as well as Tripolars a tourism agency in China specializing in Arctic and Antarctic tourism. The following year, TOREAD bought 74% shares in Easytour, a distributor of tourism agencies for a price of RMB 230 million.

Following these acquisitions and investments, TOREAD redesigned their business structure in 2015, including outdoor products, tourism services and other sports related businesses. What is surprising is that this transformation did not seem to work as in 2015, TOREAD suffered its first ever decrease in net profit since the company was established.

Regarding this drop in revenue, TOREAD's founder Sheng Faqiang believed that it was due to three major reasons. Firstly, returns from their acquisitions did not meet their expectation. Secondly, they did not perform that well in outdoor products, their core business and finally, the overall slowdown in China’s economy was also an important cause. 

Now, TOREAD's goals have returned to their roots with a return to their core business, outdoor products. They have taken a step back from their tourism and other sports business. 

"First things first," stated Sheng. 

This might be the most important thought a sports brand should have in dealing with this challenging market, when sports brands need to expand their business or seek a transformation. However, no strategy will work unless they know what their "first things" exactly are. 

Proofread by Raymond Fitzpatrick

Tags: sports companies,sports industry

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