Recently, 361 Degrees (01361) signed a multi-year signed shoe contract with two-time NBA regular season MVP Nikola Jokic, which sparked heated discussions in the sports circle. On December 21, Jokic wore a 361° BIG3 Future to the game, which seemed to confirm that he had a good time with 361 Degrees.
However, 361 Degrees has not yet "officially announced" to confirm the above news, and the reaction of the capital market is as cold as the NBA's tradition of "centers don't sell shoes since ancient times". Recently, 361 Degrees' share price once fell to HK$3.18, down nearly 40% from the year's high of HK$5.235.
Is the basketball category a 361-degree "muse"?
According to the observation of Zhitong Financial APP, even if the response of the capital market tends to be flat, 361 degrees is ready to create a high growth curve outside children's clothing.
According to 361 Degrees' 2022 fiscal year, the company's children's business achieved revenue of 1.44 billion yuan (RMB, the same below), a year-on-year increase of 30.3%, accounting for 20.7% of the total revenue; The core brand product business accounted for 77.6% of total revenue, down from 80% in 2021. In the first half of 2023, 361 Degrees Children's Business achieved revenue of 91.1 billion yuan, a year-on-year increase of 33.4%, accounting for 21.1% of the total turnover. In Q3, 2023, the offline flow of 361 degrees of children's clothing will increase by 25-30% year-on-year, and the high growth trend has been loosened.
According to Euromonitor data, the market size of China's children's clothing industry in 2022 will be 237.36 billion yuan, with a CAGR of about 8.4% from 2012 to 2022. Euromonitor expects the children's clothing market to grow at a CAGR of about 8.7% from 2022 to 2027, and the growth rate of the children's clothing market will slow down steadily after 2023. Founder Securities said in the research report that considering that the number of births in the mainland has decreased year by year after 2016, the growth of the children's clothing market in the future is mainly driven by the increase in children's average clothing consumption expenditure.
In this context, 361 degrees has gradually developed a multi-category market in recent years. Taking the basketball category as an example, 361 Degrees has signed NBA stars Aaron Gordon and Spencer Dinwiddie. The domestic players signed by the company include Kelan Baike Makan, Li Yiyang, Lv Xiaoming, etc. At the same time, 361 degrees accelerated the launch of star signature models, including AG series, restraint series products, etc.
With the blessing of the star effect, the unit price of basketball shoes has gradually increased. According to the research report of China Merchants Securities, the price band of the AG series is about 600 yuan, and the price band of the restraint series is about 400 yuan. According to the Ali platform, the market share of 361-degree basketball shoes has increased from 0.5% in 2019 to about 2% in 2022. The unit price of basketball shoes increased from 250 yuan to 410 yuan, a cumulative increase of 64%. Zhitong Financial APP noted that in the first half of 2023, the proportion of 361-degree footwear sales in total revenue increased from 40.5% to 44.1%.
The increase in the unit price of 361-degree basketball shoes confirms that the basketball market is a high-quality track. According to the data of the Chinese Basketball Association, China's basketball population is about 125 million, of which the core basketball population is about 76.1 million, and the basketball population base is the largest in the world. The area of basketball courts will reach 622 million square meters in 2021, and the number of basketball courts will exceed 1 million in 2020, ranking first in China in terms of area and number of courts, and China's basketball industry has room for greater development.
In the basketball market, it is common practice for sports brands to increase their brand potential by signing international stars. For example, Anta's signing of Klay Thompson and Kyrie Irving, Li-Ning's signing of Devin Wade and Jimmy Butler, Xtep's signing of Jeremy Lin, and Peak's signing of Andrew Wiggins are all classics of domestic sportswear brands in terms of star endorsements. 361 Degrees is also expected to further enhance its brand influence with the influence of international first-line stars.
It should be noted that the core of functional clothing is product power, star endorsement is the icing on the cake, and how 361 degrees continues to improve product power still needs to be seen, so it will take time to verify whether the basketball category can truly become the company's "muse".
R&D and channels still need to be upgraded
According to 361 Degrees' 2023 interim results announcement, the company's R&D expenses are 140 million yuan. In comparison, in mid-2023, ANTA's R&D expenses reached RMB680 million, while Li Ning's R&D expenses amounted to RMB291 million.
The unit price of basketball shoes is positively related to product development and innovation to a certain extent. According to the research report of China Merchants Securities, the unit price of Li Ning basketball shoes will reach 520 yuan in 2022 through the dual improvement of product power and design power. After Anta signed with Thompson in 2015, basketball footwear products continued to break the pricing ceiling, and the price band of Thompson's signature product series increased from 599 yuan to 999 yuan. According to the Alibaba platform, the sales proportion of ANTA basketball shoes in the key months (June and November) from 2019 to 2022 continued to increase, with sales accounting for 10%-15% from 2019 to 2020 and 15%-20% from 2021 to 2022.
It can be seen that 361 degrees still has a lot of room for growth compared with major domestic competitors in terms of product development and innovation. Not only that, in order to achieve brand improvement in 361 degrees, it is also worth paying attention to how the company transforms offline channels.
Under the background of more and more "involution" in the sportswear industry, 361 degrees has been deeply cultivating the sinking market for a long time, so as to reduce the head-on competition with domestic and foreign brands. Compared with first-tier sports brands that focus on first- and second-tier cities, 361 Degrees has 5,642 stores as of the first half of 2023, of which about 76.3% of the stores are located in third-tier and lower-tier cities in China, while 4.9% and 18.8% of the stores are located in first- and second-tier cities in China, respectively.
According to Baidu Maps, the proportion of major sports brand stores in all tiers of cities in August 2023, 361 Degrees' stores in first-tier cities, new first-tier cities and second-tier cities are lower than those of competitors such as Nike, Adidas, Anta, and Li Ning.
Although the dislocation competition in the sinking market has allowed 361 degrees to win a place in the increasingly involuted market, it has also put pressure on the company's profitability growth. From 2018 to 2022, the company's gross profit margin was 40.6%, 40.3%, 37.9%, 41.7% and 40.5%, respectively, and in the first half of 2023, the company's gross profit margin was 41.67%.
If 361 Degree wants to achieve the effect of "high-dimensional and high-dimensional" in the competition with "high-level players", I am afraid that it still needs to face great challenges, such as making up for the shortcomings of product development and innovation, improving the ability of brand building and promotion, etc. That's probably far beyond signing a star.