Increasing revenue but not profits, Puma is betting on the Chinese market

Puma handed over a first-quarter report with no increase in revenue. According to Puma's financial report for the first quarter of 2024, sales of 2.102 billion euros were achieved, a year-on-year increase of 0.5%; Net profit was 87.3 million euros, down 23.5% year-on-year. It is worth noting that the Chinese market has become one of the few bright spots in Puma's financial report, which also makes stepping up the layout of the Chinese market one of Puma's core strategies. However, in recent years, the competition in the sports category in the Chinese market has become more and more fierce, how many opportunities are left for Puma?

"Despite continued market volatility, we achieved growth and improved gross margins, and our first-quarter results were fully in line with expectations." This is how Puma CEO Arne Freundt commented on the results for the first quarter of 2024.

According to past financial reports, in the fourth quarter of 2023, Puma's sales fell 4% to 1,982.2 million euros, and net profit decreased by 42.3% to 800,000 euros; For the full year 2023, PUMA's sales increased by 6.6 percent to 8,601.7 million euros, while net income decreased by 13.7 percent to 304.9 million euros.

While believing that the results of the first quarter of 2024 are in line with expectations, PUMA believes that the performance will improve in the second quarter. However, before that, Puma should probably think more about the issue of increasing revenue or not increasing profits.

In the first quarter financial report, Puma did not mention too much about the reasons for the decline in net profit. However, in the full-year 2023 financial report, PUMA mentioned that PUMA's operating results in 2023 fell by 3% to 621.6 million euros due to the increase in operating expenses affecting part of the gross profit margin. According to the financial report data, in 2023, Puma's operating expenses will be 3,403.5 million euros, a year-on-year increase of 3.3%. Regarding the increase in operating expenses, PUMA believes that it is "due to sales-related distribution and other variable costs, the growth of the DTC channel, and the continued promotion of marketing investments".

Ma Gang, an independent retail commentator, believes that Puma has increased its marketing efforts and increased discounts, and finally gained more market share by exchanging price for volume, which has led to a decline in its net profit to a certain extent.

According to Jiang Han, a senior researcher at the Pangu Think Tank Research Institute, the development of competitors such as Nike and Adidas, as well as the competition for market share by emerging brands, are all reasons for the impact on Puma's sales.

In terms of revenue volume, Nike will be 51.2 billion US dollars and Adidas will be 21.4 billion euros in 2023, ranking first and second, and Puma will rank third with 8.6 billion euros. In the past two years of development, Puma's original proud football field is being encroached upon by brands such as Adidas and Nike. Taking the Qatar World Cup that ended in the winter of 2022 as an example, Nike and Adidas received jersey sponsorships for 13 and 7 national teams respectively, while Puma only had six. Although this figure is up from the 2018 World Cup in Russia, Puma-sponsored Senegal, Morocco, Serbia, Switzerland, Ghana and Uruguay are not the favourites, and the corresponding marketing campaign has further weakened.

On performance-related issues, a reporter from Beijing Business Daily interviewed Puma, but did not receive a reply as of press time.

The Chinese market has become a bright presence in Puma's financial report.

According to the financial report data, in the first quarter of 2024, driven by the continuous growth of Greater China, Puma's sales in the Asia-Pacific region were 456.6 million euros, a year-on-year increase of 0.6%. Sales in the EMEA region were flat (approx.) at 855.7 million euros. For the full year of 2023, sales in the Asia-Pacific region increased by 2.8%, making it the only region where PUMA grows. PUMA clearly mentioned in its earnings report that it was "mainly due to strong growth support in Greater China". In 2023, sales in the Chinese market will increase by 19%.

Or based on the outstanding performance, "winning in China" has become one of PUMA's core strategies.

In the past year, PUMA has significantly increased its actions in the Chinese market. In June 2023, PUMA appointed Shirley Li as General Manager of China. It is understood that Li Min once served as the senior vice president of sales of Adidas Greater China, has more than 20 years of industry experience, is a native of China, and is more familiar with the Chinese market. At the same time, PUMA has also hired new commercial directors, marketing directors, digital retail directors, and merchandising directors, among others.

In terms of marketing, PUMA said that it will continue to increase sports marketing in the future and position PUMA as a credible sports brand. For example, signing contracts with national women's basketball player Zhang Ru and other related athletes, sponsoring sports events such as Xiamen Diamond League 2023, and cooperating with celebrities such as Cici Song. "There will be more such signings in 2024." Puma said.

In addition, PUMA is increasing local production. "In 2024, about 40% of the products will be designed locally, and about 80% of the products will be produced in China." Puma said in the financial report.

Shirley Li said: "China is one of PUMA's most important strategic markets, and we are always optimistic about the potential of the Chinese market and will continue to innovate products and services to better meet the needs of Chinese consumers. ”

A series of actions are showing that Puma values the Chinese market, but when market competition changes, especially the rapid development of domestic brands represented by Anta and Li Ning, it is difficult to say how many opportunities Puma has. In Ma Gang's view, Puma's competitiveness in the domestic market has gradually weakened, and the rise of domestic brands has a big challenge to Puma's market share.

It is understood that Puma's revenue in the Chinese market accounts for about 5% of the company's total revenue. Arne Freundt once admitted that such a volume is obviously not enough. The Chinese market accounts for more than 20% of the revenue of Nike and Adidas in the overall performance.

In Jiang Han's view, the current competition in China's sports market is fierce, and Puma is facing a lot of challenges. "Local sports brands such as Li Ning and Anta have made great strides and have gained a certain market share in the basketball and running markets. In addition, international brands such as Nike and Adidas also have strong competitiveness in the Chinese market. In such a competitive environment, PUMA needs to continuously improve its brand image, product quality and marketing capabilities in order to achieve better performance in the Chinese market. ”

According to the cumulative GMV ranking of Tmall's "6·18" sports brands in 2023 (the statistical period is from May 31 to June 3, 2023), Puma's ranking is 10th, and the brands before Puma include Nike, Adidas, Li Ning, Anta, Lululemon, etc. In the 2022 "Double 11" sports brand sales report (statistical time from October 31 to November 11, 2022), Nike, Fila, Anta, Li Ning and Adidas ranked in the top five, and Puma only ranked 11th.

In addition, the basketball and running fields, where PUMA pins its hopes for growth, are already in a stage of fierce competition in the Chinese market. Anta stepped up its deployment in the basketball field by signing Owen and landed in the U.S. market; Xtep and Li Ning continue to innovate and harvest the market in the field of running. In addition to domestic brands, sports giants such as Nike and Adidas have been deployed for many years, which will be a challenge for Puma.

Beijing Business Daily reporter | Guo Xiujuan Zhang Junhua

Edited by Topol