Do or die: Chinese sports chain wrestles with ecommerce

Hong Kong-listed sportswear retailer Pou Sheng plans to go private so it can make the investment and take the risks needed to catch up with China’s ecommerce boom.

Taiwanese conglomerate Pou Chen plans to take private Chinese sports shoes retailer Pou Sheng International for $1.4 billion, to help it cope with the inexorable shift towards ecommerce in mainland China.

Pou Chen will pay shareholders in the second-largest sportswear operator in China HK$2.03 a share in cash, valuing Pou Sheng at HK$10.9 billion ($1.4 billion), according to a stock exchange filing on Sunday.

The sporting goods industry is wrestling with the rapid growth of e- commerce platforms, the integration and collaboration of online and offline operators as well as the change in consumers’ expectations for shopping experience.

Sportwear shops are transforming faster than the average retailer.

The retail market in China in 2013 was worth $1.58 trillion, and ecommerce made up 6.5% of sales; in 2017 those figures had grown to $2.2 trillion and 20.4% of sales were made online, according to the latest figures from market research firm Euromonitor.

The sportswear and apparel segment was worth $20 billion in 2013 and ecommerce was 10.6% of the market but by 2017 the market had hit $31.4 billion with ecommerce at 25.6%, said Euromonitor.

There is also increased market competition, such as more aggressive and frequent promotions among sportswear brand customers and aggressive experimenting with new store formats.

All of this costs money and involves taking risks.

Pou Sheng, a spin off from Yue Yuen, has been exploring and investing heavily in a variety of initiatives to future-proof itself against shifting market dynamics. Delisting will give the firm a bit more breathing space and enable Pou Sheng to access more advantageous financing and internal treasury systems from Pou Chen.

To be sure, the firm has had other challenges. It fired its chief financial officer over alleged improper accounting practices last year.

Pou Chen is not alone in suffering the effects of ecommerce in Hong Kong. Last year, Belle International, China’s biggest women’s footwear retailer, agreed to delist from the Hong Kong stock exchange while Alibaba took Intime Retail private.

Elsewhere, Walmart had been struggling to build scale in its China business, but after allowing shoppers to buy its products on Chinese ecommerce firm’s platform in 2016 it generated billions of dollars of revenue over a short time period.

The price of HK$2.03 per share represents a premium of 31.82% over the closing price of HK$1.54 per Pou Sheng Share as quoted on Friday and 70.68% over the average closing price of HK$1.19 for the last 30 trading days. In a way, it is offering shareholders certainty of money now, rather than risk the company is destroyed by changing consumer shopping habits.  

The plan also involves Hong Kong-listed Yue Yuen, largest branded athletic and casual footwear manufacturer in the world, selling its 62.41% stake in Pou Sheng to Pou Chen for HK$6.8 billion, a move it hopes will help it shake off the conglomerate discount applied to its shares.

Yue Yuen intends to distribute virtually all the net proceeds of the disposal to its shareholders by way of a one-off special dividend. 

Citigroup is the exclusive financial adviser to Pou Chen.

¬ Haymarket Media Limited. All rights reserved.
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