PE-owned Belle to spin-out Chinese sports retail business

Topsports International Holdings plans to raise HK$9.39 billion ($1.2 billion) through the sale of 930.2 million shares at HK$10.10 apiece, according to a prospectus. This would give the business a market capitalization of around HK$62.6 billion, with Belle retaining an 85% stake. The management team owns 46.36% of Belle, while Hillhouse and CDH hold 44.48% and 9.16%, respectively.

The private equity investors led a HK$53.1 billion ($6.8 billion) privatization of the retailer in mid-2017, which also saw a generational transition in the leadership of the business.

The deal was in part motivated by a recognition that Belle needed additional resources and expertise to remain competitive. Both segments of the business – footwear and sportswear and apparel – had struggled due to the growth of e-commerce in China reducing foot traffic in shopping malls. The company had posted 13 consecutive quarters of negative same-store sales growth.

At the time, Belle managed 20,716 retail outlets in mainland China, as well as more than 100 in Hong Kong and Macau. The total included 7,200 sportswear and apparel outlets. For the year ended February 2016, the sports division generated RMB19.7 billion ($2.77 billion) in revenue – 48.3% of Belle’s overall total – up from RMB16.9 billion the previous year. This was offsetting declines in footwear sales.

Topsports now has a network of 8,372 directly-operated stores, of which 55 are multi-brand and the rest mono-brand. It claims to be the largest sportswear retailer in China with a 15.9% market share. Approximately 90% of the company’s sales revenue comes from Nike and Adidas products. It also stocks brands such as Puma, Reebok, The North Face, Timberland, and Skechers.

Numerous efforts have been made to broaden consumer engagement. These include a membership program – now with 22 million members – that offers discounts, a points-for-purchases system, and access to limited edition products. Topsports also has social media platforms and store-based consumer communities, while e-sports was introduced in 2017.

In addition, the prospectus outlines digital transformation initiatives, some of which have been deployed in other Hillhouse retail investments. Sales staff are equipped with mobile devices that provide real-time store data; smart store systems monitor activity, generating information that can offer consumer insights; and merchandise management has been moved into the cloud.

Revenue came to RMB32.6 billion for the year ended February 2019, up from RMB26.5 billion the previous year. Over the same period, net profit rose from RMB1.44 billion to RMB2.19 billion. The bulk of the proceeds of the offering will be used to repay RMB5.36 billion in debt.

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• Topics
• Greater China
• Consumer
• IPO
• China
• Hillhouse Capital Management
• CDH Investments Management