Three-quarter profit plummeted 85% Hummer "downsizing" response

The continuing downturn in the European market and the intensified challenges in the Chinese market have caused Puma, the world’s third-largest sporting goods company, to undercut its profits.

The Hummer Group issued a statement a few days ago that due to some special factors, the Group's profit in the third quarter of 2012 fell by 85.1% year-on-year to 12.2 million euros (about 15.3 million US dollars), and operating profit shrank from EUR 118.6 million to 19.6 million EUR.

Hummer chooses to do subtraction

Despite the poor performance this quarter, the Daily Economic News reporter noticed that Hummer's performance in 2011 was remarkable.

According to public information, global sales of Hummer surged 11% year-on-year in 2011, surpassing the 3 billion euro mark for the first time, and company profits rose by 14% year-on-year to 230 million euros. Among them, the sales of several types of products such as shoes, knitwear and souvenirs are on the rise.

At the time, Hummer revealed that in 2012 the company was ready to make full use of the Olympic Games and European Cup football opportunities to further expand its sales. In 2015, it achieved sales of 4 billion euros.

For this year's performance, Franz Koch, CEO of the Hummer Group, once said, “We are already taking measures to ensure the stability and growth of revenue. At present, we are adjusting our business model to reduce operational complexity, improve efficiency, and reduce costs.”

It is worth noting that at the important stage of the group's rectification, Jochen Zeitz, who had spent 22 years in the Puma brand and helped the brand to create sales of 3 billion euros last year, announced last month that he would resign from the chairmanship of the brand's board of directors. And the heavy-handedness of Puma's reforms fell on the shoulders of the newly appointed chairman of the group, Jean Francisco Palus.

For the specific rectification program, Hummer said it will start optimizing the retailer system, shut down 80 unprofitable stores in the mature market, and selectively increase the number of shops with profit potential in the emerging markets.

It is understood that by December 2013, it is expected that the number of global stores of Hummer will be reduced from the current 590 to 540. At the same time, the company is also cutting production lines that affect profitability, and plans to reduce it by about 30 percent by the end of 2015.

In this regard, China Investment Advisor Zhu Qingji, a light industry researcher, told the Daily Economic News reporter that this series of reforms of Puma is a wise move toward the market. On the one hand, shutting down some of the poorly profitable stores in mature markets can save costs and minimize corporate losses. On the other hand, appropriately increasing the number of profitable stores in emerging markets can bring new sources of profits.

Sporting goods industry dilemma

In fact, companies that don't have a good report card are not only Hummers.

In the past two years, Nike, Li Ning, Peak and other well-known sports brands at home and abroad have been trapped by many unfavorable factors such as the severe global economic situation, rising costs, and increased inventory, and have continued to report bad news of decline in performance.

In mid-June this year, Li Ning Sporting Goods Co., Ltd., the former leader of the sporting goods industry in the mainland, issued an early warning of performance warnings that the amount of orders for the whole year had fallen by a large margin. It is expected that the profit for the first half of the year and the whole year will fall sharply.

Subsequently, Peak Sports also issued a profit warning, saying that as of the end of June this year, six months and the end of the year, the comprehensive net profit will be significantly reduced year-on-year, mainly due to the industry's extensive inventory adjustments and weak economic conditions this year. The demand for supplies has a negative effect.

Not only has domestic sportswear companies experienced unprecedented operating pressure, but also the days of international brands have not been as bad.

Nike, the world’s largest sports product manufacturer, recently released its first fiscal quarter financial report for fiscal 2013. In the quarter ended August 31st, its profit fell 12% year-on-year to US$567 million due to increased operating overhead costs. It is noteworthy that Nike's orders from China fell by 5% in the first quarter, compared with the 27% growth in the same period last year, the drop was very significant.

In this regard, China Investment Consulting Fellow Zhu Qingxi said that Nike and Adidas are the two sports brands most enthusiastic about domestic consumers. Adidas maintained its growth in the sluggish sportswear environment, and Nike experienced a slight decline. Anta, Li Ning and other domestic-funded sports brands are positioned in the low-end market, the market space is relatively large, is currently affected by high inventory, the situation is not optimistic.

“Because there has been no significant turning point in China’s macroeconomic environment, the level of consumer purchasing power has not yet been significantly increased. Currently, the Chinese sports goods market is still hovering at the bottom, and the growth rate is very slow. Destocking has become the top priority of the current sports goods market. Sporting goods brands have already taken relevant measures to deal with them, but the effect is not outstanding,” explains Zhu Qingyi.