Why is the moat of a sports brand so deep

2022-06-04 0 By

Article | li fang edit | Yang Xuran new outbreak has continued into the third year, a large number of once successful companies get into trouble or even bankruptcy.The retail department store industry is one of the most affected.Debenhams, a 230-year-old British retail giant, J.C.Penney, a 118-year-old US department store chain, and Galeria Karstadt Kaufhof, Germany’s largest department store group, have all declared bankruptcy.Airlines have also seen a number of high-profile bankruptcies and restructurings.They include Latam Airlines, the largest airline in South America, Columbia Airlines, the second largest airline in the world, RavnAir Group, the largest airline in Alaska, and so on.Apparel brands also hit hard by bankruptcy reorganizations because of their store portfolios, including J.Crew, Ascena Retail Group, Arcadia and Victoria’s Secret.At the same time, however, sportswear brands have hardly been affected by the epidemic, and few competitors have emerged. The epidemic is still a two-tier and multi-tier industry, and the epidemic has almost no impact on strong companies, and not only the international industry, but also the domestic industry structure is also stable.Euromonitor data shows that CR5 of China’s sportswear industry reached 70.70% in 2020, much higher than the 10.4% level of the apparel industry as a whole.Due to the higher technology content of athletic shoes, consumer demand tends to be more concentrated and stickier, and the market concentration of athletic shoes is even more than that of sports wear. The CR5 of athletic shoes increased from 64.2% in 2016 to 73.4% in 2020.As of 2020, Nike (25.6 percent) and Adidas (17.4 percent) accounted for 43 percent of the market and dominated the mid-to-high-end market.In addition to domestic Li Ning, Anta two enterprises “Longwangshu”, leaving other small brand air is getting thinner and thinner.Why are sportswear brands so concentrated and entrenched?We see that this can not only be summed up with a light “brand barriers”, there are more profound industrial roots behind it.Quality supply chain resources are relatively scarce in the sportswear industry and are usually controlled by big brands.By observing the stock prices of top sports shoes and clothing brands, we can find that they are basically continuous and long-term rises, and are basically performance-driven, without serious bubbles.So, why does the sports brand field grow so many?Juchao attributes this to three main factors: high barriers, high concentration and high profit margins.And these three reasons influence each other and reinforce each other.Part of the reason for the high barriers is that quality supply chain resources are scarce resources in the sportswear industry and are usually controlled by big brands.It is often assumed that top sports brands are marketing gurus, and outsourcing production seems less important.But in fact, high-quality supply chain resources are not as unlimited as imagined. Whoever can control the existing high-quality production capacity has a better chance to occupy a strong position in the market.No matter how good the brand concept or design innovation is, it is inseparable from the production link. High-quality and economic suppliers/contractors are the strong backing for the long-term success of sports brands.In the face of the occupation of OEM resources by the leading enterprises, the other three or four echelons or new brands have fallen behind from the beginning of the production and manufacturing links.The leading enterprises will form a long-term cooperative relationship with the core supplier system/OEM. On the one hand, the big suppliers/OEM have no time to accept and do not need orders from other brands, so they are able to operate at full capacity and obtain high profits.On the other hand, some partnerships are exclusive, where the production lines and workshops of the big suppliers/contractors are customized for certain big brands.On the other hand, in the supply chain relationship, whether the brand side is strong and has pricing power will ultimately directly affect the performance of the product.For example, in 2005, Lululemon decided to expand its product category beyond yoga pants. In order to ensure product supply, lululemon chose to invest in a garment factory to ensure the stability of its production supply.But by 2011, Lululemon had ended strategic investments in clothing factories and reduced its suppliers.Since then, it has been caught in a tight supply chain relationship for a long time.To a certain extent, it restricts the rapid expansion of its innovative categories.As with Lululemon, you can imagine how other smaller brands are treated in the supply chain.Further, as a sneaker service provider/OEM industry in the supply chain system, it also has high barriers, high concentration and high profit margins, including obvious barriers to scale, RESEARCH and development, quality control, production and delivery.Some factories also have strong technical strength and collaborative ability of new product development, which can not only quickly respond to orders from leading brands, but also provide innovation support at the production level.For example, when Nike launched Flyknit Racer in 2012, Shenzhou bought expensive new equipment for Nike and built a new factory and design studio, making it difficult for small factories to invest the same amount of money.After perfect coordination, suppliers/OEM also share growth with the brand side and become stronger in market capitalization, revenue scale, net interest rate and other dimensions, even surpassing some Party A.For example, China’s largest garment OEM Shenzhou International, the market value of up to 200 billion Hong Kong dollars or so once exceeded Li Ning, in operating income, profit margin and other important indicators are not true Li Ning.In the first half of 2021, Li Ning revenue of 10.197 billion yuan, Shenzhou International revenue of 11.369 billion yuan.From 2017 to the first half of 2021, Shenzhou International’s average net interest rate reached more than 22%, 9 percentage points higher than Li Ning’s average net interest rate in the same period.ODM OEM factories like Shenzhou International are never simple sewing factories, but are responsible for gathering all kinds of fabric factories, printing factories, yarn factories, dyeing and weaving factories, sewing factories, auxiliary materials factories, clothing factories and other industrial chain resources, through the procurement of the best quality raw materials after the production of samples, and then through large-scale production, cost reduction.It is not easy to bring these industrial resources together and maximize their benefits.In the field of sneaker wear, the technology of OEM is generally underestimated.In addition to tying in with powerful outsourcing providers, some headsports brands are moving up the supply chain.For example, in 2018, Li Ning built its own sports goods manufacturing base in Guangxi for the first time, responsible for the research and development and manufacturing of raw materials, sports shoes and clothing, and the production capacity of Li Ning accounted for about 30% of its overall volume.Once, a contract manufacturer revealed to Juchao that they had done a market research on raw materials of products: for the high quality sportswear of big brands bought on the market, it was almost impossible to find manufacturers of the same quality fabric, because many big brands actually controlled the uniqueness of products by controlling raw materials.Therefore, for new sports brands, they need to face the powerful moat of the supply chain system of sports shoes and clothing industry as soon as they are born, and then compete in channels, marketing and other aspects.02 Market segmentation is not a safe haven to grab food since mature markets are difficult to win, small and medium-sized brands win the breakthrough is usually in the market segmentation, but the situation of sports apparel is a little special.Peter F. Drucker, the father of modern management, wrote in his book The Spectator that he once observed outstanding entrepreneurs and found that they all had one common characteristic: they were full of curiosity about the world, and could always find the uniqueness of each person, place and thing through insight and grasp.In essence, what Drucker was talking about was the business intuition of an entrepreneur, particularly the business intuition to find uniquely differentiated markets.In the face of strong head rivals, the most feasible way for new brands to survive is to find differentiated market segments.In essence, it is to find a segment of the field, to build a unique, differentiated segment kingdom.Typical examples include Under Armour, which focuses on professional sports, Lululemon, the first brand of yoga, and Bienthoven, the first brand of golf apparel in China.Bienthoven, which has been positioned as a “light luxury sports fashion”, has seen its shares perform well.In fact, its offline store revenue accounted for more than 90% of its total revenue, but it was able to buck the trend and generate revenue under the impact of the epidemic.In the first half of 2021, Bienthoven reported revenue of 1.022 billion yuan, up 33.1 percent from 766 million yuan in the same period last year.Since its establishment in 2003, Bienlefen’s revenue and net profit have been rising steadily, which is closely related to strong brand customer stickiness and high re-purchase rate.70% of the company’s revenue comes from mid – to high-end customers with high stickiness and low price sensitivity.In the past decade, gross margin has maintained over 60% and continued to rise.In 2020, the gross profit margin and net profit margin were 69.12% and 24.74% respectively, and the return on equity after deduction was 21.10%.Due to the uniqueness of the sports field, many segments of sports apparel have very high requirements for fabrics, and it is difficult for ordinary sports brands to obtain international leading quality (functional) fabric resources.Bienlefen long-term with itochu, Gore and other international high-quality fabric suppliers to maintain a stable cooperative relationship — sufficient and stable supply of high-quality functional fabric, is a strong guarantee for bienlefen dare to positioning itself as a golf brand.The same goes for under Armour, the sports technology specialty brand that focuses on “differentiation.”In 1996, Under Armour founder Kevin Planck developed a new material to keep athletes fresh and light during strenuous exercise. After 19 years of development, Under Armour listed on the New York Stock Exchange with its fast drying products.Until now, under Armour has been known as the representative of an innovative sports brand that “overturns imagination” and “technology + professional”.Founder Kevin Planck has also said that differentiated products are central to Under Armour’s success with customers.It can be seen that in the competition of sports industry, differentiation based on sports category is what new brands and small brands can rely on most.Whether competitive or popular, there is a vast variety of sports.People’s demand for segmented sports apparel is based on their love for segmented sports categories.In the face of the high barriers of sneaker clothing brands at home and abroad, the “small and beautiful” hanging category field is suitable for a unique way.Rather than trying to compete with Adidas and Nike for established markets, brands like Under Armour and Lululemon are expanding into unmet niches.Therefore, the new product will be quickly recognized by consumers after it is launched on the market.However, the market capacity of segmented sports is limited, and often only one brand can be accommodated.So we’re left with Under Armour and Lululemon dominating the dry-wear and yoga pants market, with few second strong brands.However, strong brands can enter the segmented sports field relatively smoothly by virtue of brand advantages and channel advantages. For example, the yoga pants products of Nike, Adidas and Anta are also recognized by consumers. Nike also has a professional golf business line.This is not good news for startups and small brands that focus on niche vertical categories: their competitors include brands like Lululemon that are strong on the niche track, as well as the business lines of big brands in the sport.Eventually the market tends to abandon most of the small brands, leaving only a niche brand.Even the successful survival of hanging brands, but also at any time to face the fate of large brands to be acquired.For example, the brands acquired by Anta include Wilson, a strong player in tennis, and DESCENTE, a high-end ski brand.On the whole, most subdivision sports tracks are limited in scale and lack the soil for big brands to form.Even if some enterprises can survive smoothly, they are often grabbed by big brands using their own advantages, or even directly acquired.The advantages of specialization and scale have already revolutionized the process of industrial production.After the seemingly simple “sewing work” of shoes and clothing is divided into numerous procedures, the barrier becomes untouchable.Different from snack food, daily chemical, catering, FMCG beverage and other industries, the competition story of fast brand change, new brand overtaking on the curve, behind the wave is completely different. In the field of sports brands, the top brands are precipited for more than 10 years, decades or even hundreds of years.This is true even for the niche leading brands such as Lululemon, Under Armour and Fila that have begun to draw attention in recent years — few of them are truly “brand new”.Although analysts and consultants are emphasizing the importance of differentiation and branding, not all companies can do it.As mentioned above, this involves everything from supply chains to racetracks to high marketing costs, and only a strong company can take all.Sports shoes clothing industry itself has developed into a fairly mature market, especially “large and complete” category of the market cake has been carved up.The entry barrier of each link of the whole industrial chain has been higher, among which the technical barrier of sports shoes is higher — its cutting design, production and processing chain is more complicated and fine, so far it is still the world of a few brand merchants, and the market pattern of OEM is also very stable.In the face of new market opportunities, not only new forces will focus on the cake in each segment of the track, but also the sports brands are constantly expanding their boundaries and possibilities.For example, Anta increased the power of scientific and technological research and development, launched short track speed skating suit, racing suit, knitted ski suit and other scientific and technological sports apparel products, LI NING incubated a new high-end sports fashion independent brand “Li-Ning 1990” at the end of last year, the main benchmark is Anta FILA.The biggest names in sports know that they can make their products better and sell farther than other brands because of their supply chain and distribution advantages.Laying down the segments that customers need can help companies achieve sustained growth and eliminate potential competitors.In his famous book, “A Study of the Nature and Causes of National Wealth,” Adam Smith describes his visit to a needle factory.Adam Smith was impressed by the specialised division of Labour he saw among workers, and the economies of scale it entailed: the first pulled the wire, the second straightened it, the third cut it, the fourth sharpened it, and the fifth polished the tip to fit the round head.Detailed division of labor and advantages of scale have revolutionized the process of industrial production.After the seemingly simple “sewing work” of shoes and clothing is divided into numerous procedures, the barrier becomes untouchable.Sneaker clothing this mature market has “economies of scale” to the extreme, and evolved into a strong competitiveness of the head enterprises.It is foreseeable that the sports market in the future is still vast and highly competitive, but it is unknown how much space will be left for new brands.