More and more, Chinese companies are realizing that the brand is everything. From Lenovo’s once-storied 2005 purchase of IBM’s PC line to the more recent bid by Sichuan Tengzhong to acquire Hummer, Chinese enterprises have sought to bolster their brands with a little foreign pedigree.
In the hopes of scoring an ace, sportswear manufacturer Anta Sports Products said earlier this month that it would purchase the Fila tennis sportswear franchises in China, Hong Kong and Macau from Belle International Holdings for at least US$52.6 million.
In many ways, it was a move lifted from the playbook of China Dongxiang, which secured the rights to Italian sportswear brand Kappa in a management buyout from domestic sportswear heavyweight Li Ning. Kappa has thrived under Dongxiang’s stewardship, and Anta may be hoping that lightning will strike twice. But some analysts question the wisdom of the Fila acquisition for Anta, which has already made significant gains in establishing itself as a player in the Chinese sportswear market.
“I can understand diversification, but at this stage, [Anta is] doing really well. Does it make sense to start spreading yourself before you’ve really closed the gap on Li Ning, Adidas and Nike?” said Terry Rhoads, managing director of Zou Marketing in Shanghai.
He said that Anta has followed a tried and tested strategy for Chinese sportswear companies of expanding quickly with low-priced products of good quality. As long as you can get your products on shelves in first- to fifth-tier cities, consumers will buy them.
With a total number of 6,129 stores at the end of the first half, Anta has proven the power of its retail network. Anta’s profits for the first half of 2009 surged by 40.1% year-on-year to US$89 million, on the back of revenues of US$412.6 million, up 27.7%, according to the firm’s interim earnings report released last week.
But the survivors of the next phase of growth in China’s sportswear market will be those who can effectively build their brand, and in this respect the Anta still has some ways to go before it reaches the rarefied air of Nike or Adidas, or even domestic competitor Li Ning.
Nonetheless, Jessie Qian, an analyst with Macquarie in Hong Kong, said in a recent report that Anta has gained ground in raising the brand’s profile in the mid-range consumer segment through research and development and sponsorships. Qian has an “Outperform” rating on Anta’s stock.
Analysts rave about Anta’s four-year sponsorship contract with the China Olympic Committee (COC), which makes the company the exclusive sportswear provider to Chinese sporting delegations at 11 competitions including the 2010 Winter Olympics in Vancouver and London’s 2012 Summer Olympics. Financial details of the contract were not disclosed, though local media reports have suggested it could be at least US$73.2 million.
The COC contract had previously belonged to Adidas, and Rhoads described its transfer to Anta as “a strike right to the heart of Adidas.” With such coveted sponsorships in place and an already-robust retail operation, he questions the decision to divert attention to operating a foreign brand that has failed to gain traction in China.
Fila posted a US$4.68 million loss in China last year, compared with an US$805,000 loss in 2007.
But Macquarie’s Qian said that the Fila brand may still have some pop in China. Though the brand was a loss-maker for Belle International, it is still recognized as a popular brand in China. She said that by integrating Fila’s sourcing, manufacturing and distribution with Anta’s platform, Fila could see a turnaround in 18-24 months.
Fila could also help move the company up the value chain.
“The acquisition should help expand Anta’s business scope from the current mass-market segment to the higher end,” Qian said.
However, the Fila acquisition points to a deeper problem with the company’s focus, according to Wang Haitao, an analyst for SYWG Research in Shanghai.
“We can’t make out what Anta wants to sell,” he said. “It sells too many products, from basketball to tennis, and Fila is leisure sportswear. We are a little worried about the prospects of this company.”