Once dominant in the sports retail sector, Pou Sheng International and Topsports are now mired in a "store closure" crisis. From a performance data perspective, Pou Sheng International's total revenue for 2024 was approximately 184.54 billion yuan, a year-on-year decrease of 8%. Although the company's profit attributable to owners increased by 0.2% year-on-year, the decline in revenue is still a significant concern. Quarterly performance also showed a downward trend, with a 7.49% decrease in the first quarter, an 8.91% decrease in the mid-year report, and a 9.45% decrease in the third quarter. Meanwhile, Topsports' total revenue for the mid-year of the 2025 fiscal year was 130.55 billion yuan, a year-on-year decrease of 7.9%, with a 34.7% drop in net profit attributable to shareholders compared to the same period in the 2024 fiscal year. The sales gross margin decreased by 3.6%, and inventory levels increased by 6.4%.
In terms of store numbers, Pou Sheng International currently has 3,448 stores in the Greater China region, a net decrease of 75 stores compared to the same period last year. Store traffic has declined by nearly 30% due to retail environment pressures, leading to a significant drop in same-store sales. Despite an increase in in-store conversion rates, the overall situation remains challenging. Topsports' store closure situation is even more severe, with 311, 1,130, and 421 stores closed in the 2022, 2023, and 2024 fiscal years, respectively. By the end of August 2024, an additional 331 stores had been closed in the first half of the year.
The primary reason for this situation is the strategic shift by brand suppliers. Major suppliers like Nike and Adidas are focusing more on their own retail operations, opening large, multi-level flagship stores in core commercial districts of top-tier cities and large factory outlets in outlet malls. They are also aggressively expanding their online sales channels, which has dealt a double blow to Pou Sheng and Topsports. Pou Sheng's purchases from these two giants account for more than 60% of its total, while Topsports' "main brand" segment contributes over 80% of its total revenue. Any shifts in supply from these brands significantly impact their operations.
Changes in consumer behavior have also added to the pressure. The macroeconomic environment is unfavorable, with residents' incomes affected and falling housing prices further dampening consumer spending. The sports consumption market has shifted from growth to competition over existing market share, with consumers' willingness and ability to purchase sports products declining. Consumers are becoming more rational in their purchasing decisions, prioritizing "value for money" and "emotional satisfaction." They are more sensitive to promotions and prices, and the shift from offline to online shopping has led to a sharp decline in foot traffic in physical stores.
Operational costs for stores remain high, with commercial real estate rents, especially in core commercial districts, being particularly expensive. Labor costs, including salaries, benefits, and training, continue to rise, adding to the operational burden. Declining revenue has led to increased inventory levels, raising inventory management costs and potentially leading to devaluation and impairment losses.
Competition in the industry is intensifying. Besides international brands, numerous domestic and emerging brands are entering the market, competing on product design, quality, price, and marketing. This increased competition gives consumers more choices and puts pressure on the brands represented by Pou Sheng and Topsports. Additionally, new sales channels like live-streaming e-commerce and social commerce are growing rapidly, attracting consumers with their convenience, interactivity, and lower prices, thereby challenging traditional sales channels.
Pou Sheng International and Topsports also face significant challenges in their own transformation. Their long-term reliance on traditional wholesale and retail models makes it difficult for them to quickly adapt to market changes and strategic shifts by brand suppliers. They struggle with complex decision-making processes, insufficient resource allocation, and poor execution in developing online channels, expanding new brands, and optimizing store layouts. Their digital transformation efforts are also lacking, with inadequate capabilities in digital marketing, data analysis, and supply chain management. This makes it difficult for them to accurately understand consumer needs, optimize product supply and inventory management, and enhance the consumer shopping experience and loyalty compared to new e-commerce platforms and more digitally advanced competitors.
However, both companies are actively seeking ways to break out of their current predicament. Pou Sheng is aggressively developing its live-streaming business on platforms like Tmall and Douyin, while Topsports is partnering with niche sports brands and outdoor brands such as HOKA, Kailas, and Norda. Although these efforts may not yield immediate results, they represent a proactive approach to addressing their challenges. Notably, some sports equipment companies are reevaluating their relationships with distributors, which could present new opportunities for Pou Sheng International and Topsports.
In contrast, their competitors are faring better. Anta Sports reported a 13.8% year-on-year increase in revenue for the mid-year of 2024. Anta has introduced new store concepts like "ARENA" and "PALACE" to enhance its presence and store efficiency in core commercial districts of first and second-tier cities. It has also expanded its international market layout, with multiple brands catering to different consumer segments. Li-Ning excels in product design, research and development, and brand marketing, positioning itself as both fashionable and professional. It has increased its brand awareness through event and athlete sponsorships and has integrated its online and offline retail channels, focusing on experiential and scenario-based marketing in its store layouts. Decathlon is known for its one-stop sports shopping experience, emphasizing the development of its own brands, and reducing costs through large-scale procurement and efficient supply chain management. It has opened numerous large stores in China, featuring sports-themed displays that make shopping convenient for consumers, and offers professional sports consulting and after-sales services.
Pou Sheng International and Topsports stand at a crossroads of change. Their future is filled with challenges but also opportunities. In this ever-changing market environment, their ability to successfully navigate these challenges and achieve a turnaround in performance and sustainable business growth remains to be seen.
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