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Brand Flexibility: Pou Sheng is currently looking to boost retailing and distribution channel cooperation with Reebok. Photo: Company

POU SHENG International (Holdings) Ltd (HK: 3813) has more than a foot in the door of the world’s largest sports shoes market.

As part of the Yue Yuen Industrial (Holdings) Ltd group of businesses, Pou Sheng is now one of the top sportswear retailers in the PRC, operating some 9,000 retail outlets.

In a recent meeting, the company told NextInsight, Aries Consulting and a group of Greater China fund managers that its portfolio includes a range of domestic brands as well as global heavyweights such as Nike, Reebok, Adidas, Converse and Puma, and is also planning to add more brands to its retailing universe.

Pou Sheng started operations in 1992 as an integral part of Yue Yuen Industrial (Holdings) Ltd (HK: 551), the world's largest footwear manufacturer. Pou Sheng began with brand licensee business for distributing Converse products in the PRC and later expanded into the sportswear retail business.

After years of exploration and expansion, Pou Sheng International is now a leading sportswear retailer and distributor in mainland China. Tapping the upsurge in sports ignited by the Beijing Olympic Games, Pou Sheng and its regional joint ventures together operates a total of over 9,000 retail outlets in the PRC, and is one of the largest sportswear retailers in the country based on the number of directly operated outlets.

Mainland on My Mind

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Greater China fund managers meeting recently with Pou Sheng management. Photo: Andrew Vanburen

Pou Sheng, along with its regional joint ventures, has a presence in most of China’s major cities across 26 provinces, autonomous regions and municipalities, and is one of the top three sportswear retailers in the PRC, introducing the most stylish sportswear to consumers.

Its extensive retail network also covers Hong Kong and Taiwan.

“We do licensed retailing for the big multinational players. We do street-level stores, located on so-called ‘pedestrian streets’ in dense shopping districts and also in department stores,” the company said.

Pou Sheng's brand portfolio is a who’s who of global sportswear names: Nike, Adidas, China’s own Li Ning, Kappa, Reebok, PUMA, Converse, and casual footwear and apparel brands Hush Puppies, Nautica, Wolverine and offering customers a wide range of outfits for their workouts as well as fashion with a rich sporty touch.

“Of these, a big part of our revenue comes from sales of Converse, Nike and Adidas brands. We also definitely saw a positive impact from the ‘Olympic Effect’ of 2008,” he said, referring to Beijing’s highly successful hosting of the Summer Games that year.

Last year was fraught with difficulties for many retailers, regardless of their reliance on external demand. And Pou Sheng was no exception.

“Under the global fluctuating conditions over the year, most industries were impacted. Pou Sheng exerted itself among the severe competition and recorded a turnover of 1.14 bln usd in FY2009, representing a growth of 19.1%.

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Looking Ahead: Some of Hong Kong-listed Pou Sheng's YY retail sportswear outlets in mainland China have a decidedly futuristic feel. 

“However, the general consumption sentiment changed rapidly under the varying environment, and consequently excess stocks were piled up. The company implemented specific measures to focus on marketing and liquidating stocks, as well as modifying relationship with several joint venture partners in respect of our operational soundness. As a result, our operating performance was less than optimal,” the company said.

After the non-operating and one-off expenses and provision for impairment losses in total amount 23.4 mln usd in aggregate, the group recorded a net loss of 6.3 mln usd in FY2009.

“After effective writeoffs last year, we are now able to breathe easier and look forward with confidence,” the company said.

The company said that this year it plans to adopt more proactive policies, innovate new operating models and further expand its retail business so as to ensure a solid and strengthened business basis and to capture new development opportunities under current economic conditions.

“Enhancing our retail operational efficiency will be our primary management objective in 2010.”

Apart from retail business, Pou Sheng also operates a brand licensee business to act as the exclusive brand licensee for Converse, Wolverine and Hush Puppies, which Pou Sheng is given flexibility in pricing of products, supply chain management, product design, marketing and development, and promotion.

“People sometimes don’t realize that we are a sportswear retailer, and not just athletic footwear. In fact, in 2009, a big part of our revenue came from sales of sports apparel.”

The company also recognized the cost-savings inherent in the franchise business model, but that it wanted to maintain quality control over its operations and brand image.

   
Pou Sheng FY2009 FY2008 % change
Revenue (usd) 1.14 bln 960 mln +19.1%
Net profit (loss) (6.30 mln) 70.0 mln --
EPS (basic) (0.1 cents) 2.9 cents --
   

“Our franchising business has reached an appropriate level,” the company said.

Pou Sheng enjoyed a cordial but businesslike relationship with the various brands under its retail umbrella.

“We also need to maintain clarity and a level of independence”

Pou Sheng realized that established brands like Nike, Adidas and Reebok had well-entrenched retail channels in China that should be used whenever feasible to prevent overlap or unwanted competition with current clients.

Pou Sheng is currently looking to boost retailing and distribution channel cooperation with Reebok.

“If we want to stay a major retailer in China, we need to boost our utilization of established brand distribution channels.”

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Shoot the Moon: Pou Sheng got off on the right foot back in 1992 distributing the iconic Converse products. Pou Sheng now has a market cap of 568 mln usd. Photo: Company

Pou Sheng also possesses real time and in-house manufacturing and IT capabilities.

At Pou Sheng's Taicang factory in the eastern Chinese province of Jiangsu, the company manufactures for renowned brands solely for sale to its OEM/ODM customers.

The Hong Kong-listed firm also has a self-developed "ERP" system that seamlessly connects to other in-house developed "POS", "MIS" and "CRM" systems, forming an integrated network together and efficiently provide management with sales, inventory and other critical management reporting data.

In fact, coordinating this system was critical to maintaining its strong market position in a very fragmented by fast growing China sportswear market.

“One of our challenges is to coordinate our software and logistics needs with all of our stores across the country. If we can’t do this effectively and efficiently, then our competitors will beat us to the customer,” the company said.

Being the largest sportswear retailer in the PRC, Pou Sheng partners with worldwide leading brands to provide sportswear to customers from all classes and of all ages.

The company said it is led by seasoned management and possesses strong in-house IT as well as manufacturing capabilities.

Pou Sheng also enjoys full support from Yue Yuen, its controlling shareholder.

That being said, Pou Sheng will continue to explore the retail market in the PRC independently.

“We are going to strengthen our position in the PRC by extending our retail network as well as seeking favorable investment opportunities, and further develop the retailing brand name of YY Sports by providing high standard customer service, promotions and advertisements. Pou Sheng is dedicated to making YY Sports the consumers' prime choice for sportswear in the PRC.”

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