Text | Inside the surface, the author | Yi Zhang, Cheng Chen, Xiao Zhou, Editors | Fu Xiaoling
Combing through the Q4 earnings report of the sportswear industry, we found two diametrically opposed common performances.
On the one hand, the shipping industry doesn't seem to be making much money next. For example, Li Ning, Anta, etc. are all lowering their performance expectations for 2022.
According to the ANTA performance exchange meeting: the flow guidance of anTA's main brand is that the conservative growth rate planning behind it is 18-25% (according to the financial report, its 2021 flow growth rate is 38.9%).
According to Li Ning's investor conference call: Remain cautious in 2022, aiming to achieve mid-high to low double-digit growth, with a net interest rate of about ten percent.
But on the other hand, brands are throwing money at a lot of money.
For example, according to Xtep's 2021Q4 financial report: the future investment in innovation and research and development will increase, there is a very strong team, the research of science and technology, the direction of future planning of the product, the focus will still be focused on running.
Earn less but spend a lot, many people directly call "can't understand" - reduce expectations, is it the national tide outlet? But why is it suddenly starting to pour into research and development?
And in reviewing Li Ning's recent performance, we found the "truth trajectory". In the following, this article will analyze in detail from both risk and certainty.
01 National tide consumption tends to be rational, and fashion risk exposure is exposed
It can be seen that from 2018 to 2021, the proportion of its sports fashion category continued to grow, reaching 41% in 2021, becoming the sector with the largest contribution to sales.
However, in terms of performance, it is clear that "holding" the rice bowl of the national tide, but in action, it is necessary to leave the relationship with the national tide.
So, why is Li Ning suddenly so "fine"?
The answer may lie in the change in the attitude of the consumer side towards the national tide:
In the past, as long as it was a domestic product, consumers would pay the bill.
In the following figure, in the national trend, the primary consideration for consumers to buy clothing is "whether it is a domestic product".
But now, purely for love doesn't work. For example, domestic brands love to push, simple and rough printed with the word "China China", the so-called national style clothes, sales are very bleak.
That is to say, consumers' consumption of the national tide is indeed gradually becoming rational. In this way, Li Ning's fashion base shaped on the national tide outlet is exposed to risk exposure.
The reason for this is that the core competitiveness of fashion lies in fast and reverse speed - on the one hand, it is a reaction to the market wind, on the other hand, it is whether the operational efficiency of enterprises can keep up.
As far as fashion trends are concerned, social matters, consumption levels and even changes in international relations can influence fashion trends, and it is difficult for enterprises to accurately step on the point.
For example, when the Korean Wave was popular in China, the brands of Semir and Metersbonwe, which chased the Korean version of clothing, were widely sought after on the consumer side, and the brands knocked on the door of capital and went public around 2010.
However, international relations have become complicated, and a paper "Korean restriction order" has been issued, and Hallyu consumption has been suddenly curbed. Semir and others had to change direction and chase the new trend, but it seemed that they never found the right positioning, and the stock price has been depressed since then.
From this, it can also be seen that fashion products in the process of industry cycle fluctuations, along with the trend of fashion, will soon decay.
As for the operational efficiency of enterprises, it means that when they are in the trend, it does not mean that they can sit back and relax.
In order to undertake the outlet and ensure that the operation quickly harvests dividends, the cost side will be the first to bear the pressure - companies will often increase the operating leverage. Therefore, the accounts payable of the industry are generally greater than the accounts receivable.
However, if it is not cleared in time, when it comes to the seasonal period, the proportion of inventory in revenue increases, and the discount is cleared, and the income side is also under pressure. It's like making a lot of hard money.
As mentioned above, the trend is constantly changing, and once the next wrong wave is caught, it will hit income, let alone the blow to income. In this way, the feedback in the data is that the profit stability of fashion companies is poor.
In addition to the large fluctuations in the sustainability of its own operation, the fashion FMCG category is highly substituted for each other due to its low threshold, and it is also facing the impact of plagiarism and competition.
For example, there is a similar situation in the field of food FMCG, iced black tea, green tea, fresh orange and laotan sauerkraut beef noodles, in fact, are unified innovation and research and development, the first launch of the category. However, Master Kang, who was behind, took full advantage.
In the following figure, the revenue growth rate of Master Kong's instant noodles in 2017-2020 has been significantly higher than that of unification.
Li ning
At present, it is also experiencing such "troubles" - its fashion category is being hit up and down.
On the one hand, white cards pose a threat to sales.
On the other hand, international brands that are gradually returning also seem to want to share a piece of the national tide incremental market.
For example, in January this year, Nike launched the RISE concept store in Beijing, which focuses on the city-limited trend DIY service.
According to official disclosures, the DIY pattern on the product (such as the hoodie) not only has urban elements such as Beijing maps and national stadiums, but also Chinese cartoon patterns such as sugar gourds and shabu-shabu. The intention of using the national tide to please consumers can be seen.
According to the industry survey at the end of March, the three trendy stores in Beijing, Shanghai and Guangzhou have continuously set a new high for Nike's global store sales.
There are giants on the "dimensionality reduction strike", there are white card provocations under the bottom, in the smaller national tide cake, Li Ning can still eat the increment can be imagined.
In summary, fashion FMCG enterprises, due to the volatility of product operations, poor profit stability, stacked alternatives and other risk characteristics, the market is often very cautious valuation. It can be seen that the PE value of FMCG brands such as ZARA, Semir, and Peacebird is generally low.
From this point of view, at present, due to the excessive proportion of fashion categories, Li Ning, who has the same risk exposure, if he continues to vigorously chase the wind and "consolidate" the background of fashion, not only will revenue growth encounter problems, but valuation may also be affected.
It is not difficult to understand why Li Ning tried his best to break off the relationship with the national tide and at the same time lowered his performance growth expectations for this year.
Of course, feeling the pressure, Li Ning has begun to "remedy". On an investor conference call at the end of last year, management said that the pricing level of the product was set too high.
At the end of March this year, a small exchange meeting said: We also need to have strong enough product support, (beng) technology function bonus, can enhance the business of our low-end products.
The simple understanding is that Li Ning wants to maintain the sustainability of revenue by reducing prices in disguise, as well as adding high-functionality technology to low-end products, in his official words: "returning to the low-end market".
This structural adjustment of the income side is indeed feasible. However, it is still not out of the wind chasing thinking, and it cannot resolve the valuation crisis caused by fashion.
So, how exactly can this crisis be lifted?
02 The consumption of transportation services returns to the essence of function, how certain is Li Ning's cashing?
In fact, when consumers tend to be rational and no longer pay for the "national tide" feelings, the demand attributes of everyone's transportation products naturally return to the essence - sports functionality.
The same is true of investment logic. For example, some investors said: "The national tide is just a feature of their brand, a tone." Returning to investment, we still have to look at his category, as well as its own business model and potential. ”
So, is motor function the key to solving the problem? Let's disassemble the core competitiveness of motor functionality.
The core competitiveness of functional brands also has two aspects: first, rigid demand; second, technical capabilities.
As far as rigid demand is concerned, users' consideration of sportswear safety and health will always rank first. As shown below, runners buy running shoes, and the most important thing they care about is comfort and cushioning.
The anti-hit technology is to match the appeal.
For example, in 2017, Nike released the revolutionary innovative carbon plate running shoe Vaporfly, which swept the running world.
Taking the Hakone Ekiden Marathon Relay in Japan as an example, in 2017, Nike's wearing rate was only 17%, and after the launch of vaporfly, Nike's wearing rate continued to rise in this event, reaching 97% in 2021.
Remarks: Hakone Ekiden is a Japanese national event with a 21-year rating of 41.8%, and the participants are all qualified elite players of the Japanese university team, which is representative.
In this way, equipped with core technology to shape brand recognition, you can establish a strong link between the brand and a certain sport. For example, when you think of yoga now, you might immediately think of Lululemon.
Based on such loyalty, on the one hand, the product itself is difficult to be replaced, after all, the cottage factory does not have the corresponding technical level; on the other hand, the company is equipped with core technology, but it can "eat more than one fish", and even cut consumers "leeks".
For example, the boost technology launched by Adidas in 2013 was initially used in star shoes such as ultraboost and coconut. After the technology was decentralized, from running shoes to slippers, the price range from 500-2000 has the corresponding layout of boost technology, from the sales point of view, many are selling well.
Among them, in the ultraboost series, the same model, equipped with the same technology and design, just changed the color, it sold a price difference of 400, which is really firmly grasped by the user.
In summary, just need to consume irrelevant to the trend, equipped with technology products to resist the fight, operating efficiency and economical. This gives functional products the characteristics of going through the tidal cycle over time.
The most famous example of this logic is Nike's AJ series, which has continued to launch since 1982.
As far as AJ is concerned, when it was launched, the Air Sole cushioning technology and concept were introduced into the traditional sports shoe industry, which just catered to the people's pursuit of sports "comfort". As a result, it became a hit.
After the Air Jordan series, it has also been deepening the Air Sole technology - for example, AJ3 expanded the Air Sole technology part to the forefoot and back palm, which greatly improved the foot feeling and bouncing power; the AJ8 built-in tray to further supplement the control and support of the chassis.
The function just needs to be added to the technical iteration, and the vitality of AJ has passed through the cycle and has continued until now, and has a large market discourse.
As shown in the chart below, as of June last year, nike's AJ series still occupied 8 seats in the top 10 list of basketball shoes sold.
Among them, a continuation of AJ1 category AJ1 OG barb cooperation with the star, just put the trademark back, not even equipped with Air Sole technology, the market price was speculated to more than 10 times AJ1, naked cutting leeks, there are actually 65,000 + people to buy.
As a result, Nike's performance has continued to grow steadily. This is transmitted to the capital market, that is, after 1987, Nike's market value soared all the way and continued to reach new highs.
In summary, the functional performance is stable and can indeed increase valuation. This also explains why Xtep mentioned increasing R&D spending this year.
In fact, the layout of domestic transportation and service brands on product strength began in the third quarter of last year.
For example, in September 2021, Xtep released a new five-year strategy to establish a differentiated product matrix covering elite runners, mass runners, and potential runners.
Anta said that it plans to invest 4 billion yuan in research and development expenses in the next five years to open R&D and design centers in China, Japan, South Korea, Italy and the United States.
So, how certain is Li Ning in this piece?
As shown in the chart below, compared with the same industry, Li Ning's R&D investment in revenue in recent years is not high, and from 2019, it has declined for two consecutive years, and the proportion to 2021 is the lowest among several.
Depending on the intensity of investment, the return on output is naturally different. As shown in the figure below, as of July 2021, ANTA's patent number is far ahead, Xtep's patent conversion efficiency is also high, and Li Ning's patent number is at the bottom.
As of February 2022, Li Ning is no longer in the top 10 in the number of patent applications in the global sneaker industry.
Insufficient investment in research and development, patent moat is not enough attention, which undoubtedly makes Li Ning's next core technology continue to launch, casting a shadow.
There is uncertainty in the output of functional products, and in the short term, we still have to rely on fashion products, but the fashion trend has also changed, which may affect Li Ning's valuation logic to a certain extent.
brief summary
Because of the situation that "chasing fashion is cool for a while, but when the tide fades, it is inevitable that there will be naked swimming to show people", the valuation center of fashion brands is generally low.
Originally, this had nothing to do with Li Ning, but in the past two years, the proportion of fashion categories has increased sharply, and the characteristics are inevitably close to fashion. If the national tide continues, the growing performance can still offset this background. However, the consumption of the national tide has become more rational, and the high growth can no longer be maintained.