Interface News Reporter | Qin Siyue
界面新闻编辑 | 任雪松 石一瑛
At an altitude of 3,380 meters north of Shangri-La in Diqing Tibetan Autonomous Prefecture, Yunnan Province, a log-style Tibetan luxury hotel is nestled in a pine forest. Arc'teryx - the professional outdoor brand China's first "Mountain Classroom Store" is opened, and through this elegantly decorated storefront, you can see the Songzanlin Temple not far away, and the snow on the top of the snow-capped mountain in the distance is also clearly visible.
The Canadian professional outdoor brand has been acquired by Chinese sportswear manufacturer Anta since 2019.
Prior to this, Arc'teryx enjoyed a good reputation in the field of professional outdoor products in the world, with the best materials, lightweight, durable, waterproof and breathable extreme performance and minimalist aesthetic design, which brought it a professional reputation and the favor of some high-end consumers.
Top hotels, snow-capped mountains, a paradise for trekking enthusiasts, that's exactly what Archaeopteryx is looking for.
Of course, in the store of Songtsam Hotel, there are also price tags ranging from thousands of yuan to tens of thousands of yuan on those randomly placed Arc'teryx products.
In the Chinese market, Arc'teryx is being shaped into the "Hermes" of extreme outdoor sports brands, and a "bird" is hard to find. On the Internet platform, along with two other fashion brands, Ralph Lauren and lululemon, it is nicknamed the "Three Treasures of the Middle Class" by consumers, and it is one of the brands that middle-aged successful people are keen to consume.
This atmosphere of "hunger marketing" has undoubtedly attracted the attention of many Chinese consumers. Outdoor sports are in the ascendant in China. According to a research report by CITIC Securities, the market size of outdoor sports in China is expected to exceed 100 billion yuan by 2035. In addition, the current outdoor sports penetration rate in China is about 28%, while in mature markets such as the United States and Japan, this data is more than 50%. Correspondingly, it can be seen that China's outdoor sports product market still has huge room for growth.
The middle class and white-collar workers who have been confined to their homes during the epidemic yearn for fresh air and distant scenery. The appearance of Arc'teryx at the Beijing Winter Olympics has also activated the market, and Arc'teryx has become an upward choice for middle-class Chinese consumers to buy outdoor sports equipment.
On January 10, a limited-edition jacket for the Year of the Dragon with an original price of 8,200 yuan was sold in the Chinese market of Arc'teryx and was sold to 12,000 yuan.
As British writer Mark Dongate said in "The Legend of a Fashion House", "We're not buying clothes, we're buying identity." ”
Five years after being acquired by Anta, at the beginning of 2024, Arc'teryx, which is very popular in the Chinese market, will soon be listed on the New York Stock Exchange of the United States.
On January 4, Amalfen Sports submitted an IPO report in the United States. In the global market, the compound annual growth rate of Amalfen after Anta's acquisition reached 20.4% from 2020 to 2022.
In March 2019, ANTA Sports, together with a consortium of investors including FountainBre Capital, Anamered Investments and Tencent, acquired Amalfen for EUR 4.6 billion. In the following three years, the Chinese market accounted for 14.8% of Amalfen's total revenue, up from 8.3% in 2020.
In the 341-page prospectus, Amalfen highlighted the importance of Greater China. In the first three quarters of 2023, Arc'teryx Greater China achieved revenue of US$453 million, contributing nearly eighty percent to the total revenue of Greater China and accounting for more than 40% of Arc'teryx's total global revenue.
Ding Shizhong, the founder of Anta Group, started in Jinjiang, Fujian Province, and from cheap OEM manufacturing to building his own brand, Anta is now the world's third-largest sports brand company by market capitalization, surpassing Nike in sales in China and becoming the No. 1 in the market.
What is even more noteworthy is that Anta has become a rare sample of successful operation after successive acquisitions of a number of international brands by a Chinese company.
The rapid growth of China's outdoor sports products market is an important driving force for ANTA to initiate a number of international mergers and acquisitions.
Not only is more and more middle-class people participating in outdoor sports, but the popularity of the national trend is also rising around 2018. From 2019 to 2021, China's sports shoes and apparel market has entered a period of explosive growth. The "2023 Global Sporting Goods Industry Report" released by McKinsey pointed out that although the sporting goods industry has experienced multiple challenges such as the global economic downturn and supply chain crisis in the past year, the performance of the outdoor sector is particularly outstanding. From 2016 to 2021, there were 161 investment transactions in the outdoor sports sector, including the acquisition of Anta Group's acquisition of Arc'teryx's parent company, Amalfen.
Since 2009, Anta acquired the FILA China franchise and trademark use rights from Belle Group for 332 million yuan, and since then, the Chinese outdoor products company has successively acquired the operation rights of international brands such as Salomon, Descente and Kolon in China, until 2019, when it acquired Amalfen, where Arc'teryx is located.
Amalfen Sports is known as the "Rolls-Royce" of the global sporting goods industry, with a number of professional outdoor brands including Arc'teryx, Salomon, Wilson, Bikefeng and Atomic, covering tennis, outdoor products, hiking shoes, outdoor watches and ski equipment.
As of September 30, 2023, Amalfen Sports has 63 Arc'teryx self-operated retail stores in Greater China, accounting for nearly half of the world's total stores, and Arc'teryx has more than 1.7 million members in Greater China, compared to 14,000 in 2018.
There is no doubt that Arc'teryx has now become the engine of Amalfen Sports' rapid growth in China.
How exactly did Anta shape the myth of Arc'teryx's growth in China's outdoor equipment market? Will it become Anta's next "FILA" and the company's next booster for the company's leap into the global market? Or will it be the wings of Icarus, which will not be able to shoulder Anta's ambitions and responsibilities?
First, the business logic that "birds" are hard to find
As early as the beginning of 2019, Ding Shizhong, the founder of Anta Group, said that the acquisition of Amalfen Sports, the parent company of Arc'teryx, was the most important decision he had made since he started his business.
However, the company's operations in China were not doing as well as they could have done at the time. In the case of Arc'teryx, for example, this high-flying brand is not known to more consumers in China. According to Xu Yang, CEO of the Anta brand, Arc'teryx did not have much brand promotion among Chinese consumers at that time, and the store experience was also a mess.
Of course, for Ding Shizhong, Anta's previous successful M&A operation of FILA and other global brands in China is the real confidence.
After Anta went public in Hong Kong in 2007, Ding Shizhong had greater ambitions to make Anta a brand with international competitiveness. In 2009, Anta acquired the franchise and trademark rights of FILA in China from Belle Group for RMB 332 million, and then repositioned FILA as a high-end sports fashion brand through a series of actions such as more fashionable and youthful endorsements, diversified sponsorships, and participation in the Milan Fashion Week show.
In 2014, FILA began to turn a profit. In 2019, FILA's revenue was 14.7 billion yuan, with a growth rate of 74%. Since then, with the substantial growth of its performance, FILA has gradually become a pillar of ANTA Group's performance. According to the financial report, FILA accounted for nearly half of the group's revenue in 2020 and 2021.
Ding Shizhong knew that in order to build Anta into a larger, global market-oriented company, he needed a partner with extensive experience in foreign companies and relevant professional education background.
Ding Shizhong chose Zheng Jie.
The 54-year-old Zheng Jie, after graduating from the School of Management of Fudan University in Shanghai, has been working for the German sports brand giant Adidas, from a management trainee to the vice president of Adidas Greater China.
In 2016, ANTA Group acquired Japan's high-end sports brand DESCENTE and South Korea's outdoor brand Kolon. After two consecutive major acquisitions, the outside world thought that Anta would suspend the pace of acquisitions. But less than three years later, Anta made another decision to acquire Amalfen.
After Zheng Jie, a large number of experienced sports industry professionals, including Zhu Chenye, the current chief marketing officer of the ANTA brand, and Shi Rui, vice president of FILA Greater China brand, were tapped to Xiamen.
Zheng Jie also helped Ding Shizhong complete the revitalization after the acquisition.
After completing the acquisition of Amalfen, Zheng Jie handed over the Archaeopteryx brand to his old subordinate Xu Yang.
Unlike Zheng Jie, who came from a sales background, Xu Yang is one of the few executives from Anta's 4A advertising agency, having worked for J. Walter Thompson and Jingxin Advertising, and after joining Anta, he also served as the director of the brand management center and the general manager of the basketball division.
Xu Yang, who was the general manager of Arc'teryx Greater China at the time, said that Buffett's wall theory helped him make a choice and judgment, "Arc'teryx has a unique product, consumers who love it, the brand's walls and moats are so strong, and at the same time the execution in the Chinese market is not satisfactory, can you find a better opportunity than it?"
Xu Yang, who is a marketer, believes that mass retail is about making goods, while high-end retail is about being a person, and pays more attention to the experience of consumers.
When Xu Yang took over Arc'teryx, the brand only had two stores in China with a turnover of more than 10 million. At the beginning of his tenure, he made a big deal to finalize the address of the new store in the prime location of Shanghai and other first-tier cities.
The ultimate product is a solid moat for Archaeopteryx. Archaeopteryx advertises its high-end outdoor Alpha products, in addition to emphasizing that it uses the world's thinnest and breathable Gore-Tex Proshell fabric, and even emphasizes the stitches per inch of the jacket, which is 6 to 8 stitches per inch for ordinary outdoor products, and Arc'teryx emphasizes that its high-density stitches reach 14 to 16 stitches per inch, which is of higher quality and more durable.
On Huaihai Road, Shanghai's luxury city, Xuyang has opened the world's largest flagship store of Arc'teryx, the Arc'teryx Alpha Center, which is across the street from the House of Hermès, adjacent to Tiffany, and adjacent to Shanghai's landmark Xintiandi.
The new store has been renovated with a more elaborate design, with only half of the storefront dedicated to merchandising, and the rest to display giant Archaeopteryx fossil sculptures and geometric glass installations. He hopes that the brand experience brought by these designs can indirectly attract traffic to the sales side.
Including outlets, Arc'teryx currently has 114 stores and distribution points in China. From the perspective of site selection, most of the locations of Arc'teryx direct stores are located in the core business districts of super first-tier and first-tier cities in China, or near urban landmarks and scenic spots.
Arc'teryx set up China's first "Mountain Classroom Store" at the Linka Hotel in Songtsam for this reason. Songtsam Hotel is a boutique hotel brand that started in Yunnan and Tibet, and its dozens of hotels are often located in hidden and natural places near the core scenic spots. Land Rover, a brand that focuses on off-road performance, is a strategic partner of Linka Hotel, Songtsam, and Arc'teryx has become another strategic partner in its outdoor gear.
This outdoor experience store at Arc'teryx is located at the beginning of the Shangri-La hike, with a 9-kilometre hiking trail behind the mountain. This means that customers can enjoy timely product availability and an immediate product experience. The huge flow of tourists will not only bring a certain amount of sales flow to Arc'teryx, but also the positioning of the top outdoor brand has also been exposed. In Shangri-La's store, Arc'teryx is also equipped with a resident butler to provide users with walking guide services. For Arc'teryx members, the store also provides outdoor equipment services such as washing and drying outdoor clothing, and renting trekking poles that are not easy to carry over long distances.
The brand's second mountain classroom store is located in Beidahu, Jilin Province, aiming at the needs of senior ski enthusiasts, providing them with a professional coach service team, professional snowboard and ski equipment rental, and continuous mountain classroom skiing skills and knowledge sharing.
Based on the knowledgeable and social attributes of the outdoor sports community, the maintenance of the community is an important part of Arc'teryx's business strategy. The brand community is established based on consumers' perception and emotion of the brand, with the consumer as the absolute center. Arc'teryx understands this, so the primary purpose of these stores is not to sell products, but to serve high-net-worth users.
It is worth mentioning that, unlike most brands, Arc'teryx members' points cannot be redeemed for physical prizes, but for "journeys". In scenic spots such as Beidahu Lake and Siguniang Mountain, Archaeopteryx provides users with a number of hiking routes. Even in the city, the flagship store of Arc'teryx Shanghai Huaihai Middle Road, which is a neighbor of Hermès, will hold regular member experience activities every week.
Xu Yang also did not give up the Arc'teryx outlet channel. Xuyang's plan is to do customer experience in full-price specialty stores, and outlets to do goods.
In response to the outlet channel, which was previously in the hands of dealers, Xu Yang adopted two strategies: allowing dealers to exchange old goods for cash for new goods, and recycling the tail goods out of season, and finally took back the brand's control over the outlet channel.
In terms of store operation, Arc'teryx, like the original FILA, has taken back the management rights of most stores. Industry insiders told Jiemian News that now more than ninety percent of Arc'teryx's stores are directly operated. Although there are still distributors such as Sanfo Outdoor, Arc'teryx's products basically exist in the form of a single counter in large stores.
Despite its desire to take the next step in the Chinese market, Arc'teryx has been very reluctant to invite celebrity endorsements. Since 2020, the brand has only signed three spokespersons in Chinese mainland: Liu Wen, Bai Jingting and Li Xian. For example, in choosing Liu Wen, Anta has obviously thought it through. As a leading figure in China's supermodel, Liu Wen has worked with many luxury brands such as Chanel, Gucci, and Bulgari, representing a group of high-net-worth female consumers.
On the other hand, while Arc'teryx is expanding its reach from a niche outdoor track to a mass level, the brand insists on maintaining a close relationship with outdoor athletes. He Chuan, China's top climbing enthusiast who was broadcast live on Taobao with Arc'teryx, Zhou Peng, the first Asian Golden Ice Axe Award winner in China, and Japan's top bouldering climber, Shiraishi Ajima, were all guests of this brand.
Whether it is the location of new IP stores or the way to maintain users, Arc'teryx revolves around the core of "high-end outdoor" and attaches great importance to the brand's narrative. Archaeopteryx was equally cautious in the selection of partners. Songtsam Hotel Group, Jil Sander, Beams and others come from different sectors, but they all share the same passion for minimalism and the outdoors as Canadian brands.
From stores, spokespersons to member activities, Arc'teryx integrates pieces of the puzzle and makes its image in the hearts of consumers clearer and clearer through community operations.
FILA引擎失速，谁来接棒？
At the beginning of January 2023, Anta made the biggest personnel restructuring after the company's listing, with founder Ding Shizhong stepping down as CEO and remaining as chairman of the board, Lai Shixian, chief financial officer of the group, and Wu Yonghua, CEO of the professional sports brand group, becoming the new co-CEOs, and Zheng Jie no longer serving as the president of the group and becoming the CEO of Amalfen Sports.
After the adjustment of the division of labor among the management, the management areas of several core senior executives are divided into four major areas: ANTA's main brand, FILA brand, other brands and Amalfen. Xu Yang, who was previously in charge of Arc'teryx, returned to ANTA Group as the CEO of ANTA's main brand, while Zheng Jie, the executive director of the group, was in charge of Amalfen, which shows Anta's eagerness to "hope for Jackie Chan" for Amalfen.
Ding Shizhong and Anta's anxiety lies in the fact that the FILA engine, which drives Anta's rapid growth, has stalled.
FILA China has successfully turned losses into profits since 2014 and has since entered a period of rapid growth. In 2020, FILA's annual revenue reached RMB17.45 billion, and its annual revenue even surpassed Anta's main brand for a time.
However, entering 2022, the momentum of FILA's rapid growth began to stagnate, and FILA contributed 21.52 billion yuan to Anta Group's revenue of 53.651 billion yuan in 2022, a year-on-year decrease of 1.37% compared with 2021. This is the first decline in the brand since ANTA's acquisition of FILA. At the same time, FILA's gross profit margin also declined from 72.3% in the first half of 2021 to 68.6% in 2022.
In this regard, Anta Group once responded to Jiemian News: "From the perspective of the global market, there are almost no brands with a scale of more than US$3 billion that can continue to maintain rapid growth. After the rapid progress of FILA in the past 5-6 years, the pursuit of growth rate in the future will give way to the importance and control of the quality of growth. ”
At the same time, it is worth noting that although Anta's main brand has maintained growth, the growth rate has also slowed down. In the fourth quarter of 2022, the retail value of ANTA's main brand products decreased by approximately 7%-8% compared to the same period in 2021. Its annual revenue in 2022 increased by 15.5% year-on-year, compared to a staggering 52.5% in 2021.
In 2023, the performance of ANTA's main brand and FILA has recovered slightly. In the first half of 2023, ANTA's main brand revenue reached RMB14.17 billion, representing a year-on-year increase of 6.1%; FILA brand revenue in the first half of the year was RMB12.23 billion, a year-on-year increase of 13.5%. The two brands still accounted for nearly 90% of the group's total revenue in the first half of the year.
FILA's growth is slowing down, and it is clear that Ding Shizhong and Anta need to find a new growth fulcrum.
From the perspective of the adjustment of Anta's senior personnel structure, Xu Yang, who was previously in charge of Arc'teryx, returned to Anta Group as the CEO of the Anta brand, which shows that Anta hopes to use Xu's experience in Arc'teryx to improve the operational efficiency of Anta's main brand.
Zheng Jie is in charge of Amalfen and Arc'teryx-related brands, which is more related to whether Anta's future profit engine can be smoothly switched.
Can Arc'teryx and Amalfen take over FILA and become ANTA's next growth engine?
Judging from the growth data, Amalfen is undoubtedly in a rapid growth. In the past year, the company's performance has grown at an annual rate of 67.6%, and the prospectus shows that after the acquisition, the revenue growth rate of Amalfen Sports is accelerating: from 2020 to 2022, the company's revenue compound annual growth rate is 20.4%, and the gross profit margin has increased from 47.0% to 49.7% in the same period.
However, the financial data disclosed in the prospectus shows that Amalfen is still in a loss-making state, with net losses of $237 million, $126 million, and $253 million from 2020 to 2022, respectively, with a total loss of $616 million in three years.
According to the announcement of the acquisition of Amalfen in 2019, Anta spent 5.6 billion euros (about 44.021 billion yuan) to complete the acquisition. Anta's revenue in 2019 was only 33.928 billion yuan, and its profit was 5.34 billion yuan.
This is the largest international merger and acquisition in China's sportswear sector, which means that ANTA Group needs to be heavily leveraged. Anta must use its high-speed growth performance to resolve the losses in the early stage of the transaction.
Cui Che, a sports industry analyst, believes that the acquisition of Amalfen is a snake swallowing an elephant, and Anta Group's promotion of Amalfen's IPO financing is to recover its vitality, "Anta Sports is under pressure from shareholders. After all, it's been five years since the acquisition, and you can strategically take a long-term view, but shareholders are realistic and want to see the immediate benefits. ”
The acquisition of Amalfen has undoubtedly also increased Anta's asset-liability ratio, which was basically below 30% before 2018, and in 2022 after the acquisition of Amalfen, the group's asset-liability ratio is still around 45%.
Luo Ying, a consultant of a consulting agency in the consumer field, told Jiemian News that around 2021, Anta Group had asked a number of leading consulting institutions about strategic adjustment plans. Luo Ying pointed out that in the end, the consulting company that reached an agreement with Anta attached great importance to the project with Anta and sent its top leader in China to follow up on the project.
Their questions can be summarized into four main themes, the first is the design of the organizational structure, that is, based on the multi-brand business model, how to transform the company, and the second is how to divide the business segments. The third is how to establish a more effective central control model within the group. Finally, it is how to establish an international management model. Luo Ying told Interface News.
Luo Ying believes that these problems are closely related to Amalfen.
"In ANTA's latest three-year plan, there are business segments, namely professional sports, fashion sports and outdoor sports, and the last outdoor is Amalfen's strength. Second, Anta hopes to ensure that the group controls its subsidiaries, while allowing each brand to give full play to its different advantages, which is also aimed at the management of Amalfen. As for internationalization, the direction is also quite clear. Luo Ying said.
From the perspective of the company's scale, Anta Group's annual revenue in 2022 will be 53.651 billion yuan, exceeding Nike's revenue in Greater China, but Nike's global revenue of nearly 50 billion US dollars in the same period is still beyond the reach of the current Anta Group. Even Adidas, whose performance has declined in recent years, will reach 22.511 billion euros globally in 2022, which is still three times the volume of Anta.
In terms of a single brand, in the Chinese market, Nike is the only brand with an annual revenue of more than 30 billion yuan, while Li Ning, Anta, FILA and Adidas have a revenue of more than 20 billion yuan.
This is also the reason why domestic sports brands rarely mentioned "internationalization" and focused more on the domestic market.
Although Amalfen's performance in 2023 has a high growth rate of nearly 70%, there is still a big gap between its volume and Anta's main brand and FILA, which means that such a high growth rate is still difficult to bring a substantial increase to the group's overall revenue.
In the Chinese market, Anta and Amalfen are also facing fierce market competition. Archaeopteryx has led the market for jackets and outdoor equipment, but The North Face has maintained a strong competitiveness in the mid-to-high-end customer market and Camel in the low-end customer group.
Mr. Ding's longtime rival in China, Li Ning, is also making a secret effort, and just last month, he used his family capital to buy a 100 percent stake in the Nordic outdoor brand Haglöfs AB from the Japanese sneaker and apparel company ASICS Corporation for $100 million.
ANTA's internationalization process is unstoppable. On January 11, at a public event, Xu Yang, CEO of Anta, announced that he plans to officially enter the U.S. market on March 6, 2024, and will hold a series of promotional activities in multiple cities, including New York, Los Angeles and other places.
A good sign for Ding Shizhong and Anta is that Amalfen, which was acquired in 2019, has contributed more than 100 million yuan in profits to Anta since last year, and the company's various growth indicators are enough to be encouraging. Now, a new management matrix has taken shape for ANTA. This company must prove with its actions and performance whether Amalfen's Arc'teryx can become ANTA's next high-speed growth engine, the next "FILA".
(At the request of the interviewee, Cui Che and Luo Ying are pseudonyms in the article)