Amer Sports Learns Digital Ropes From China's Web-Savvy YouthBy
Amer CEO says China sales may double or triple in coming years
Own retail network, online shops to foster China expansion
Less than 10 years ago, Amer Sports Oyj had no online stores, no retail network of its own and was a no-name in China.
Now, the Finnish owner of brands including Salomon running clothes and Arc’teryx mountaineering gear gets about 4 percent of its sales from Asia’s largest economy. Chief Executive Officer Heikki Takala wants to double, or even triple, China revenue in the coming years. “Very soon” the country will displace Germany as Amer Sports’s second-biggest market after the U.S., he said in an interview.
Amer Sports is recasting itself as an international online retailer and shopkeeper and is using lessons learned from China’s web-savvy youth to replicate a digital strategy it originally devised for the Chinese market. Sales in that country rose to about 100 million euros ($106 million) last year, compared with 13 million euros for the whole of 2009, the year before Takala took the helm. By the end of 2016, Amer Sports had 69 web shops globally.
“The Chinese market is very advanced,” Takala said. “They basically jumped a couple of generations of learning, and went directly into digital.”
He’s betting on a seamless shopping experience whereby consumers used to researching products online can shop wherever they want, be it on their mobile phones, visiting branded stores or their local retailer. The changing distribution model comes at a price for Amer Sports shareholders as the increased cost to build logistics centers and higher inventories weighs on earnings in the short term. The shares have fallen 8.6 percent so far this year.
“The long-term outlook is quite good and the strategy that has been communicated is pretty ambitious,” said Helsinki-based Mika Metsala, an analyst at FIM, a unit of the S-Bank group. Doubling sales “is not a tough goal, given how fast the Chinese market is growing and the pace at which the middle class is expanding,” said Metsala. FIM included Amer Sports among the top five in its Finnish stocks list on Wednesday.
As China’s middle class grows more affluent and government health initiatives encourage participation in sports, spending on athletic gear is poised to surge. Online shopping accounts for more than 10 percent of retail sales in China, according to Bloomberg Intelligence. That compares with 8.1 percent in 2016 for the U.S. About 61 percent of China’s mobile users shop with their phones, Bloomberg’s research shows.
Amer Sports had to learn from scratch how to run a fleet of own stores in China rather than selling to wholesalers.
“You need to go digital first” and “you need to have relevant and up-to-date content all the time,” Takala said. “We directly operate most of our stores in China. In the absence of a well-established wholesale market, we have built a significant own-retail model.”
Chinese consumers with rising disposable income are increasingly shifting from local sneakers to international brands, including Adidas AG, Nike Inc. and Under Armour Inc. Compared with the industry giants, Amer Sports has a long way to go.
Nike’s sales in greater China rose to $1.06 billion in its last fiscal quarter while Adidas had 741 million euros in quarterly revenue there. Under Armour’s international operations had $215.3 million in sales last quarter.
“We are still a small player in China,” Amer’s Takala said. “We can still have footprint-based growth -- we are not yet at the stage where it’s only about driving more demand.”
The sportswear companies are not yet feeling the burn from slower consumer spending that’s hurting many consumer companies, alcohol makers and apparel brands in China. A government clampdown on excessive gift-giving by public employees is also acting as a brake.
Under Takala’s stewardship, Amer Sports has grown sales more than 70 percent to 2.62 billion euros in 2016. Its market capitalization has more than doubled to about 2.7 billion euros. The company aims to grow net sales organically to 3.5 billion euros by 2020 through five “acceleration areas,” Takala said.
It’s targeting a 50 percent increase in apparel and footwear sales to 1.5 billion euros and a rise in U.S. sales to $1.5 billion, compared with 2015 levels. It wants to double revenue from its own store network and online presence to about 400 million euros and double sales from connected devices and services, such as Suunto sports watches and Precor fitness equipment, to about 600 million euros.
It plans to increase the number of new openings to 25 shops a year, compared with about 15 to 20 a year in the past. Last year, Amer Sports’s own retail operation grew 27 percent in terms of sales, Takala said.
“Today we know how to run retail,” he said. “We can confidently run that fleet of stores.”