China’s new hobbies create a spending mirage

Amer Sports

19/11/2024 11:00

(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 of September
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-largest economy are forecast to fall by a fifth or more
this year, according to a recent Bain & Company report.
    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 growth to 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 than Louis
Vuitton handbags. Some might not buy anything at all: a recent
rage for nocturnal cycling involves students spending the
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 came prior to Amers' stock-market
listing, were not available.
    The company's revenue could 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.     

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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
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 (Editing by Robyn Mak and Aditya Srivastav)
 ((For previous columns by the author, Reuters customers can
click on  HAMLIN/ katrina.hamlin@thomsonreuters.com; Reuters
Messaging: katrina.hamlin.thomsonreuters.com@reuters.net))