Introduction: The impact of the epidemic on the global consumer market continues, and international sports brand giants Adidas and Nike are almost unable to hold on.
When you walk into a shopping mall recently, many people will find that many clothing brands have begun to carry out vigorous discount activities, including many well-known clothing brands such as Nike, Adidas, and Anta.
The reason why clothing brands have launched vigorous discount activities is the sales dilemma faced by shoe and clothing companies during the epidemic. Now that we have entered May, the sales window for winter and spring clothing is about to close. How to deal with the inventory accumulated by clothing companies in the past few months will undoubtedly become one of the problems faced by many shoe and clothing brands.
2020 is originally a “big year for sports”.
However, affected by the COVID-19 epidemic, the “Sports Year” with high hopes has changed.
In early March, the NBA announced the suspension of all remaining games in the 2019-2020 season, and the league entered a state of suspension;
On March 24, the Tokyo Olympics was finally pressed on the “postponement button.” Postponed to 2021;
On April 23, UEFA also announced that it would postpone the European Cup to 2021, but retain the name “European Cup 2020”;
… …
According to incomplete statistics, since the beginning of the year, more than 40 large-scale sports events have had to be postponed or canceled due to the impact of the epidemic.
In this context, sports brands are also having a hard time.
Adidas, Nike and other sports brands have discounts
The reporter visited many shopping malls in Beijing and found that many clothing brands have begun to offer “50% off on some products, buy one get one free, and all products 40% off” and other promotional activities, many of the merchants initiating these activities include well-known shoe and clothing brands such as Adidas, Anta, and Nike.
In fact, behind the recent promotion of discounts by clothing brands is the huge operating pressure the industry is facing under the epidemic.
On April 24, American clothing giant GAP said that in response to the crisis, the company had suspended wages to more than 80,000 company employees starting in April and allowed employees to take unpaid leave.
When the reporter visited Gap, he found that there are currently few people in the store, and words saying 50% off and 30% off on products can be seen everywhere.
▲A variety of products are on sale at half price in a certain Gap store
Under Armor recently stated that its sportswear and sneakers are currently on sale is facing “continued demand challenges” and said it expects sales to decline by a single-digit percentage in fiscal 2020. In addition, Under Armor expects the COVID-19 pandemic to reduce its first-quarter sales by approximately $50 million to $60 million.
On April 27, Adidas released its first quarter results for fiscal year 2020, which showed that due to the impact of the epidemic and excluding exchange rate factors, Adidas’ sales in the first quarter of 2020 fell by 19% to 4.75 billion euros; operating profit A year-on-year drop of 93% to 65 million euros; net profit dropped 96% to 26 million euros.
Adidas also warned that its sales will be hit even harder in the second quarter, with a year-on-year drop of more than 40% expected and operating profits likely to be negative.
Currently, more than 70% of the company’s stores worldwide have been closed. Due to the large-scale store closures, Adidas is also facing greater inventory pressure.
The financial report showed that store closing measures inevitably led to lower than expected product sales, which led to a 32% increase in inventory to 4.334 billion euros. Excluding exchange rate factors, inventories expanded by 36%. Credit Suisse estimates it could take Adidas up to a year to clear out the inventory.
In order to make up for the losses caused by closing offline stores, Adidas, like other brands, has shifted its focus to online.
From the Women’s Day shopping season on March 8 to the present, Adidas has launched a crazy discount campaign.
Image source/Adidas official website
However, online sales are still difficult to make up for the losses caused by the closure of a large number of stores. For the company as a whole The impact on performance is still huge. Adidas admitted that it is temporarily unable to evaluate its full-year performance in 2020 based on the impact of the COVID-19 epidemic.
Other media reported that Adidas’ long-standing competitor Nike (NIKE) has also been closing stores due to the spread of the epidemic and is facing supply chain and other problems. Nike Group’s sales in the fourth quarter as of the end of May this year will drop by approximately 34%, with a loss of approximately US$3.5 billion.
According to research firm Woozle research, Nike may lose more than $5.5 billion in revenue in the next three to six months.
Image source/Tu Chong Creative
Affected by the epidemic, clothing companies have seriously accumulated inventory
Not only It is a foreign company. The performance of many domestic listed apparel companies in the first quarter of 2020 also declined sharply due to the impact of the epidemic. Many of them mentioned the inventory problems they faced.
Heilan House’s 2020 first quarter report shows that net profit during the reporting period fell 75.59% year-on-year. In its 2019 annual report, Heilan Home warned that the COVID-19 epidemic would have a greater impact on offline retail and would have an adverse impact on the company’s sales performance.
One of the risks is the risk of the company’s inventory.
�Reports show that as of the end of 2019, Heilan House’s inventory value was 9.044 billion yuan. Heilan House stated that 48.29% of these inventories were goods with non-returnable clauses. If the market environment changes or competition intensifies, it may cause Risk of difficulty in realizing cash or price drop.
In addition, the 2020 first quarter report disclosed by Septwolves showed that the company had a net loss of 42.0526 million yuan during the reporting period, of which asset impairment losses reached 60.2635 million yuan, because “affected by the epidemic, the company’s inventory digestion was slow, corresponding to The inventory depreciation accrual is larger.”
Famous economist Song Qinghui pointed out that the Spring Festival should be the biggest peak season for offline consumption in the whole year, which is conducive to increasing the profit level of textile and apparel companies. However, due to the outbreak of pneumonia caused by the new coronavirus, the epidemic has had a huge impact on textile and apparel companies, directly leading to a rapid decline in terminal consumption and serious inventory accumulation.
The inventory “problem” of clothing companies
How to deal with inventory backlog has always been one of the problems that clothing companies need to face. Generally speaking, for those products that are difficult to sell, clothing companies will often sell them at a reduced price or return them to the manufacturer.
However, whether it is a price reduction promotion or ultimately returned to the manufacturer, it means that the value of the original product has dropped. For listed clothing companies, in order to prevent book losses caused by inventory backlog every year, the company will regularly conduct impairment tests on inventory goods, and accordingly accrue inventory depreciation reserves to cover the impairment losses of inventory goods.
However, the provision for inventory impairment will also affect the company’s performance. According to incomplete statistics, among the listed apparel companies that have released their 2019 annual reports, 10 have made provisions for inventory price declines, with a total amount of 950 million yuan.
The amount of inventory depreciation provisions made by some listed clothing companies in 2019
The most typical case of affecting performance due to inventory backlog is Mo Too Li Ning.
After 2008, under the influence of the “Olympic fever”, domestic sports shoes and apparel companies such as Li Ning expanded rapidly. However, the rapid expansion led to various problems such as dealer inventory backlog and declining store efficiency.
In order to solve the problem of inventory backlog, Li Ning implemented a series of reform measures including cleaning up inventory and rationalizing the sales network, and accrued a large amount of inventory bad debts, which directly caused the company’s net profit to decline from 2012 to 2014. There have been continuous losses in the past three years.
More importantly, due to the accumulation of inventory, Li Ning’s offline franchisees continue to use price cuts, discounts and other promotional methods to clear inventory, which directly leads to damage to Li Ning’s brand image, which has since been reshaped. Brand image has always been the focus of Li Ning’s efforts.
Will the inventory crisis of 8 years ago happen again?
Many people in the industry are worried that under the influence of the epidemic, the clothing industry may reappear the inventory backlog that occurred in 2012 for domestic brands represented by Li Ning.
From the perspective of many securities firms, although most analysts still believe that the epidemic will bring inventory pressure to clothing companies, overall, the follow-up and recovery time of this inventory problem will be longer than that of previous domestic products. Shoes and clothing brands are even shorter when their inventory is in crisis.
Li Jie, a textile and apparel industry analyst at Everbright Securities, pointed out that although the domestic epidemic prevention and control has initially shown results, the foreign epidemic is still intensifying, so we maintain a cautious attitude towards overseas demand and textile and apparel exports. At the same time, pessimistic expectations about macroeconomic growth may lead to a contraction in market consumption willingness, especially consumption in optional categories. Therefore, the short-term epidemic’s suppressive effect on clothing retail will continue.
Huang Shuyan, a textile and apparel industry analyst at Great Wall Securities, said that as domestic prevention and control efforts are eased, branded apparel consumption is expected to pick up in the second quarter. However, considering that most listed apparel companies allow product exchanges between the first and third quarters and reduce production volume in the third quarter to reduce the pressure on dealers and their own inventories, it is expected that the negative impact on the report will last until the third quarter. quarter.
Guosheng Securities pointed out that under the influence of the epidemic, the terminal flow of the clothing industry has declined, and objectively there is indeed inventory pressure. However, from a comparative perspective, the causes of this inventory problem and the corporate retail management model have changed. The current inventory problem is better than the inventory crisis from 2008 to 2012. </p
