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361 closes 96 stores in fourth quarter

By Li Woke | China Daily | Updated: 2013-02-07 14:41

361 Degrees International Ltd, the high-profile Chinese sportswear company, closed 96 retail branches during the fourth quarter of last year, as conditions in the retail sector toughened.

In a trading update, the Hong Kong-listed, Fujian-based company said it also opened around 12 new stores during the period ended Dec 31 and that same store sales grew by 4.3 percent.

Last month, 361 warned that its profits for 2012 are likely to decrease by around 40 percent compared to 2011, as high inventory levels and retail discounting pressures had weighed on performance leading to a drop in sales, pressure on gross profit margins and higher selling expenses.

"The store closures are an industry-wide problem rather than a company-specific issue," said Ma Gang, a leading independent industry analyst.

Ma added that Chinese sportswear companies had seen a surge in sales right after the 2008 Beijing Olympics, which resulted in rapid store expansion, but that conditions have become significantly tougher across the sector.

Chinese sports wear giants, such as Li Ning and Anta, for instance, hit annual sales growth of more than 50 percent during that time. But since 2011, sales and profits have dropped, mainly because of rising inventories, Ma said.

HSBC Holdings Plc recently estimated Li Ning had excess inventory worth about 1.65 billion yuan ($259 million) that could take 11 months to clear, and that Anta's was worth about 3.12 billion yuan, which was expected to take about 10 months to clear.

Last year, Li Ning issued a profit warning and replaced its chief executive officer of 20 years with its founder taking control.

Another Chinese sportswear brand, Peak Sport Products Co, has also warned of lower profits.

361 has just signed former NBA player Stephon Marbury, who currently plays for the Beijing Ducks, as its spokesman in an effort to revive its fortunes, and sponsored China Central Television's sports channel.

But as domestic sportswear companies have struggled, foreign rivals have been expanding in China.

The US giant Nike Inc announced that it aims to double its revenue in China over the next few years, and Germany's adidas AG said late last year that it plans to open at least 500 new stores within the next year.

Nike holds a 10.5 percent share of the Chinese sportswear market, ahead of adidas with 7.9 percent, Li Ning with 7.2 percent and Anta at 7.1 percent, according to ResearchinChina, a leading independent provider of business intelligence.

"International sporting brands have and will continue to have dominant positions in Chinese first- and second-tier cities," Ma said.

"But Chinese companies will continue to suffer for at least the next year as China continues to have too many brands and too many stores."

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