China’s new hobbies create a spending mirage
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Katrina Hamlin
HONG KONG, Nov 19 (Reuters Breakingviews) -China’s new hobbies will be bad news for most retailers. A fad for biking, hiking, and other physical endeavours has helped companies like $10 billion Amer Sports AS.N tempt shoppers, and the maker of trail shoes and skis is growing sales despite a sluggish economy. But a yen for adventure won’t necessarily be a boon for other brands.
Amer, known for its Arc’teryx, Salomon and Wilson brands, will report results for the three months to the end ofSeptember on Tuesday. Quarterly revenue from Greater China is forecast to top $280 million and account for around a fifth of the total, according to the average of analysts' forecast collected by Visible Alpha. That puts the region's sales growth on track to hit 40% this year - outpacing other markets. Since Amer's New York listing in January, its shares have sprinted ahead 50% and now trade on 28 times earnings for the next 12 months, a premium to pure-play consumer stocks like LVMH LVMH.PA and Chinese liquor giant Kweichow Moutai 600519.SS, which both trade on 20 times.
Other outdoorsy bets are also enjoying a good run. Sales of Lululemon LULU.O athletic apparel, Shimano 7309.T bike gear and Deckers Outdoor’s DECK.N Hoka sneakers are all climbing. Events such as marathons and even ultra marathons are increasingly common, and popular: only 15% of applicants for the Beijing Marathon nabbed a spot last year. The market for sports clothing and footwear could expand at a compound annual growth rate of 9% between 2022 and 2027, per Euromonitor research cited in Amer’s prospectus. To compare, luxury sales in the world's second-largesteconomy areforecast to fall by a fifth or more this year, according to a recent Bain & Companyreport.
However, overall consumer goods and services aren’t generally keeping up with niche outdoor brands. True, retail sales grew 4.8% year-on-year in October, the fastest pace since February. But government stimulus and incentives flattered the figures by temporarily boosting purchases of big-ticket items like cars and electronics, according to Tommy Wu, an economist at Commerzbank. E-commerce giants Alibaba 9988.HK and JD.com 9618.HK reported tepid earnings last week. Returning retail sales growthto pre-pandemic norms around 10% will be a slog.
One reason is that many shoppers now value experiences more than material acquisitions against a gloomy economic outlook. This trend also explains recent phenomena such as so-called “special forces travel” – eschewing once-popular shopping destinations like Paris or Hong Kong for domestic tourist hotspots on a minimal budget – and the rise of camping and road trips. If that’s the trend, China’s big spenders could be more inclined to splurge on hostels and hiking poles thanLouis Vuitton handbags. Some might not buy anything at all: a recent rage for nocturnal cycling involvesstudents spendingthe equivalent of a few dollars each to borrow bikes.
Investors can find consumer bright spots, but the retail sector isn’t out of the woods.
Follow @KatrinaHamlin on X
CONTEXT NEWS
Amer Sports, known for its Arc’teryx, Salomon and Wilson sports equipment brands, is expected to report revenue of $1.3 billion in the three months to the end of September, according to the average forecast from analysts polled by LSEG. Last year's third-quarter results, which cameprior to Amers' stock-marketlisting, were not available.
The company's revenuecould reach $5 billion for the full year, up from $4.4 billion in 2023, per LSEG.
The company is scheduled to report quarterly earnings on Nov. 19.
Graphic: China's retail growth remains below pre-pandemic highs https://reut.rs/3OjFzMU
Graphic: China sales are driving Amer Sports' growth https://reut.rs/3ObLBPU
Editing by Robyn Mak and Aditya Srivastav
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
