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Hongxing Erke's performance against the market fell too quickly to cause disaster

If we say that in the past 10 years, it is a time when domestic sports apparel brands have set the line, and a large enough market will allow brands with different positioning to find their own space. Today, 10 years later, it is also a domestic brand, and there is already an “echelon”. Just like Nike and Adidas occupy the first echelon of foreign brands, Reebok and Puma occupy the second echelon, Diadora is gradually marginalized. There are eye-catching performance in China, rapid expansion, and unhappy people. In 2009, the turnover of Li Ning, Anta, Peak, Xtep and other sports brand companies all achieved an increase of more than 20%, but Hongxing Erke failed to share this “honor”. In addition to the flat performance in 2009, in the first quarter of this year, Hongxing's revenue decreased by 13.5% year-on-year, and gross profit decreased by 31.9% year-on-year. The house leaked on a nightly rain. This year, Hongxing Erke also had problems with sampling inspections in Harbin, Shenzhen, and other places. Brands and performance were tested at the same time.

If we say that in the past 10 years, it is a time when domestic sports apparel brands have set the line, and a large enough market will allow brands with different positioning to find their own space. Today, 10 years later, it is also a domestic brand, and there is already an “echelon”. Just like Nike and Adidas occupy the first echelon of foreign brands, Reebok and Puma occupy the second echelon, Diadora is gradually marginalized. There are eye-catching performance in China, rapid expansion, and unhappy people. In 2009, the turnover of Li Ning, Anta, Peak, Xtep and other sports brand companies all achieved an increase of more than 20%, but Hongxing Erke failed to share this “honor”. In addition to the flat performance in 2009, in the first quarter of this year, Hongxing's revenue decreased by 13.5% year-on-year, and gross profit decreased by 31.9% year-on-year. The house leaked on a nightly rain. This year, Hongxing Erke also had problems with sampling inspections in Harbin, Shenzhen, and other places. Brands and performance were tested at the same time.

The market continued to rise, Hongxing Erke performance down

Hongxing's 2009 performance report showed that its sales were 1.99 billion yuan, down 30.8% from 2.889 billion last year. It fell, and it fell sharply, which is quite different from other domestic sportswear listed companies.

Li Ning (02331.hk) sales revenue in 2009 was RMB 8.387 billion, an increase of 25.4% year-on-year; net profit was 31% higher than last year's RMB 721 million to RMB 945 million. Anta Sports (02020.hk) financial results show that net profit in 2009 increased by 39.8% year-on-year, as high as 1,205,100 million yuan, exceeding the analysts' average expected net profit of 1.13 billion yuan nearly 10%.

If Li Ning and Anta after many years of accumulation, with respect to Hongxing Erke is a good achievement is also a matter of reason, then Peak Sports (01968.hk) who just landed in Hong Kong stocks last year is more able to explain the problem. According to the 2009 Peak News report, the annual sales amounted to RMB 3.095 billion, an increase of 51.6% year-on-year; net profit increased by 67.1% to RMB 628 million.

“Compared to 2009, the market environment has improved this year. The country’s relevant policy of stimulating consumption has brought certain opportunities to the sports goods market. This year is also a 'sports year', and the appeals of major sports events such as the Olympic Winter Games and Asian Games. The effect will also create more opportunities for the development of sporting goods companies." This is Zhang Tao, vice president of ANTA Sports, judging the domestic sporting goods market this year. However, Hongxing Erke's performance in the first quarter of this year did not reflect the supporting role of these "effects."

Hongxing Erke's financial report for the first quarter of 2010 showed that as of March 31 this year, the company's revenue was 491 million yuan, a year-on-year decline of 13.5%; gross profit was 155 million yuan, a year-on-year decrease of 31.9%.

Frequent quality problems, brand faces torture

In addition to the sluggish performance, the Hongxing Erke brand is not very flat. In February of this year, the Harbin Municipal Administration for Industry and Commerce conducted quality sampling and monitoring of garments and knitwear distributed in major shopping malls and clothing stores in the city of Harbin, focusing on safety indicators such as formaldehyde content, pH value, signs, and instructions for use, and fiber content. The physical and chemical index items such as color fastness, marble burst strength, and water wash size change rate were examined. Among the famous sports brands, Hongxing Erke is the only unqualified brand to be named.

In April of this year, Hongxing Erke was also mentioned in the results of the spot checks of autumn and winter apparel in the city's circulation market in the 4th quarter of last year by the Shenzhen Municipal Bureau of Market Supervision. Its round neck sweater was tested to be unqualified.

Fortunately, Hongxing Erke performed well in his focus on the tennis supplies market. At the end of last year, the "Best Tennis Shoes Brand Survey" jointly initiated by People's Daily.com Sports Channel and Qianlong Tennis Shoes Channel was selected by 29,000 netizens. The domestic brand ranking before Hongxing Erke was Li Ning. However, Hongxing Erke is only ranked ninth, there are seven foreign brands ahead.

“Whether it is Anta, Peak or Erke, they have all set their sights on the domestic first-line market.” Liao Jierong, an independent analyst of the apparel industry, said that consumers in the first-line market have much higher demands on the brand and are more critical of quality.

The late rhythm of expansion is too fast?

According to Liao Chih-kwan, Hongxing Erke's development model and brand positioning have no problem. The problem of declining performance is mainly at the pace of expansion. According to Hong Xingerke's public information, Hongxing's retail outlets were about 4003 at the end of 2009, compared with 3,824 at the end of 2008, which only added 179, which is far slower than other domestic major sportswear brands. This year, Hongxing's shop speed has not improved significantly. In the first quarter, it only opened 27 new stores, which is less than 1/6 of the new stores in 2009.

In the apparel industry, the size and speed of opening a store depends on the amount of funds, and the decline in the performance of Hongxing Erke naturally affects the investment in the store. In the financial report, Hongke's official explanation for the decline in performance was the weakening demand in the domestic market. In addition, the oversupply of dealers led Hongxing Erke to reduce the price of dealers' goods, so that dealers could digest stocks.

An informed source close to Hongxing Erke revealed to reporters that after the successful IPO of Hongxing Erke in the previous years, the store's expansion speed was rapid, and brand promotion also attracted a lot of money, not even cost. Caused the shop opened now to have to "see the food to eat."