Falling back in the field

Chinese sports companies are not in the habit of checking how many goods are really sold to end consumers. As soon as they sell an amount to wholesalers and distributors, they use the figure as sales.

As it may take some time for distributors to resell the goods, and given the distributors' habit of stocking some goods to cushion the risk of future price hikes, the number of products actually sold to end consumers may be much lower than the sales figures on sports producers' balance sheets.

The disparity made producers over-optimistic about the market potential and resulted in excessive inventories. Unable to sell the inventories and having to maintain a large sales network, their profitability inevitably declined.

Li Ning last year posted its first annual loss since its listing in 2004, amounting to 1.98 billion yuan, mostly because it earmarked massive provisions for excessive inventories.

Others managed to make profits but witnessed steep slumps in them. Anta Sports Products, the largest sportswear manufacturer by revenue in China, saw its 2012 net profit decline 21.5 percent to 1.36 billion yuan.

It is not an exaggeration to say that Chinese sportswear firms are going through their most difficult period.

And if life for the big listed companies is tough, the situation of smaller players can be described as dire. According to a report by the China National Commercial Information Center, about 20 percent of small footwear companies went bankrupt last year, the highest rate in five years.

Again, fewer orders and high inventories are the key problems, the report says.

If running up high inventories amid a slow market is not the end of the world for Chinese sportswear makers, a loss of a future development strategy is.

Liu Wenru, mayor of Jinjiang in Fujian province, which produces 20 percent of the world's sports shoes and 40 percent of the domestic supplies, said recently: "The days when apparel and footwear makers easily made money by boosting their manufacturing capacity are a thing of the past.

"It is time for them to focus on innovation and design as well as to enhance differentiation in marketing to compete with high-end foreign brands."

But it is never easy to transform from a pure manufacturer to a designer, and improving marketing differentiation is exactly what Chinese sportswear firms are not good at.

The authors are analysts at Universal Consultancy in Shanghai, which specializes in research of the fast-moving consumer goods market.

These views do not necessarily reflect those of China Daily.