Breaking Free from Revenue Constraints in the Apparel and Footwear Industry

As marketing management philosophies continue to evolve, leading players in China’s apparel and footwear industry are actively rethinking their business models and management frameworks — breaking free from legacy distribution structures to turn losses into profits and, in some cases, stage remarkable comebacks. While Li-Ning is often cited as the textbook example, today’s focus is on Anta Sports, a brand whose transformation story is equally worth studying.

The Anta of today is not the Anta of yesterday.

On August 25, Anta Sports Group released its H1 2020 financial results. Key operating metrics showed total revenue declining a modest 1% to RMB 14.7 billion; profit attributable to shareholders (excluding losses from joint ventures) came in at RMB 2.377 billion, down 20.1%. Overall gross margin reached 56.8%, up 0.7 percentage points year-over-year — a new historic high.

Following FILA’s operating profit surpassing the Anta flagship brand for the first time in 2019, H1 2020 marked another milestone: FILA’s revenue overtook Anta’s own brand for the first time. According to the group’s announcement, Anta brand revenue was RMB 6.777 billion, down 10.7% year-over-year, while FILA brand revenue reached RMB 7.152 billion, up 9.4% — the first time FILA has generated more revenue than the group’s namesake brand.

Beyond the two flagship labels, other brands led by DESCENTE grew 8.3%. Buoyed by the pandemic-driven shift to online shopping, Anta’s e-commerce business saw H1 GMV surge over 50% year-over-year, with FILA, DESCENTE, and KOLON SPORT each recording more than 100% growth in online revenue.

Alongside its financial report, Anta also unveiled a store transformation plan: a strategic pivot from a “wholesale distribution retail model” to a “direct-to-consumer (DTC) retail model.” In the first phase, Anta will terminate distributor partnerships across 11 provinces and cities — Changchun, Changsha, Chengdu, Chongqing, Guangdong, Kunming, Nanjing, Shanghai, Wuhan, Xi’an, and Zhejiang — and convert those locations to brand-operated stores.

According to Anta, approximately 3,500 distributor-operated stores are involved in this first phase, representing roughly 35% of all Anta brand stores (as of June 30, 2020, Anta operated 10,197 brand stores in total). Going forward, around 60% of these stores will be converted to direct operation by Anta, while the remaining 40% will continue under qualified franchisee agreements.

How Did Anta Sell Products Before?

Before exploring why and how Anta is making this shift to DTC, it helps to understand how its distribution model actually worked.

Anta’s distribution system comprised two main tiers: regional distributors and the franchisees beneath them. Through an annual distributor conference and quarterly ordering sessions, distributors could purchase Anta products at wholesale prices and handle exclusive distribution within their territories. Once distributors placed orders, they would typically guide their downstream franchisees on what to stock.

This system dates back to 1999, when Anta introduced its “ordering license” program — a credentialing system that issued franchise qualifications to dealers, effectively raising the bar for who could carry the Anta brand. While it created a gated entry point, it also transferred meaningful inventory risk to the distributor.

The fundamental weakness of this traditional wholesale model, however, was the information gap it created between upstream manufacturers and end consumers. On one side, factories faced overcapacity; on the other, consumers’ expectations were rising. Caught in the middle, distributors buckled under inventory pressure and were often forced to liquidate stock at a loss — or shutter stores entirely. This dynamic was precisely what triggered China’s industry-wide footwear and apparel inventory crisis in 2012.

To address that crisis, Anta implemented two major reforms:

First, it shifted from a pre-order model to an allocation model. Previously, Anta held four ordering conferences per year; this was expanded to six. Under the old system, Anta’s obligation ended when it shipped goods to distributors — but experience proved that distributors were ill-equipped to bear inventory risk on their own. Under the new allocation model, Anta distributes inventory based on actual sell-through data, sharing the risk more equitably with its channel partners.

Second, it rolled out ERP systems across all stores, enabling real-time visibility into which styles were selling well or underperforming at each location — allowing for timely restocking and product rotation. Stores with persistently poor performance were also quickly closed.

These two reforms allowed Anta to navigate the inventory crisis ahead of its peers. But Anta’s distributor relationships have always been a topic of debate. The group’s largest national distributors are considered the inner circle of Anta Group’s chairman — loyalists who followed Ding Shizhong from the company’s earliest days, giving rise to the widely discussed “Fujian-style family management” culture.

The distributor network also became a focal point in Muddy Waters’ short-selling report on Anta last year. Muddy Waters alleged that “Anta secretly controls 27 distributors, at least 25 of which are first-tier distributors accounting for approximately 70% of Anta’s total sales. These first-tier distributors are de facto subsidiaries of Anta, but the company fraudulently inflates its profit margins by pushing costs off its balance sheet through the distribution structure.” Anta denied these allegations, yet the close ties between its major distributors and the group remain an undisputed reality.

Furthermore, despite the ERP rollout, the limitations of a distribution-led model — namely the inability to achieve orderly, real-time information flow across the channel — persisted, and became especially apparent during the pandemic. The 10.7% year-over-year decline in Anta brand H1 revenue speaks for itself. In contrast, FILA — already operating on a DTC model — grew against the trend during the same period, ultimately surpassing the Anta brand in revenue for the first time.

Anta has emphasized omnichannel management since last year, which requires full integration of online and offline operations — meaning all stores and digital channels must be interconnected. Currently, Anta’s entire online business is self-operated, but offline operations are entirely in the hands of distributors, creating a significant structural barrier to genuine omnichannel execution.

The relationship between Anta and its distributors is fundamentally a buyer-seller transaction. There is no way for distributors to synchronize real-time inventory with the company’s overall stock pool. Because direct sales already exist alongside the distribution network, true O2O integration between Anta and its distributors is structurally impossible — the settlement mechanics alone are prohibitively complex. This is Anta’s biggest challenge right now, and it is the core reason the company is pursuing DTC.

What Does the DTC Transition Actually Look Like?

Based on the announcement, Anta will first reclaim distributor-operated stores across the 11 provinces and cities listed above. Approximately 60% will be transitioned to direct operation by the Anta Group, while the remaining 40% will be managed by franchisees operating under Anta’s standards.

The selection of these 11 regions for the first phase was based on the relative contribution of those markets to Anta brand performance, the historical and recent sales results of Anta stores in those areas, the strategic value of individual markets, and the outcome of negotiations with the relevant distributors.

Notably, the regions excluded from this first wave — including core strongholds like Fujian — tend to be where Anta’s most entrenched and loyal distributors operate. “The fact that Fujian wasn’t included in the first batch suggests Anta is still making efforts to protect the interests of its longest-standing partners,” observers noted.

As for the employees of the acquired distributor stores: those in stores with relatively healthy operations will largely continue working under the franchise model as before, and their employment will be retained. Employees in stores converting to direct management will also be largely retained during the transition period to ensure a smooth handover. Regional distributor principals can either take on roles in other parts of Anta’s business or seek opportunities elsewhere.

Under the plan, the primary assets being acquired across the approximately 3,600 stores are in-store fixtures and equipment. As part of the transaction, Anta will allow distributors to return unsold Anta-branded inventory, though return prices are not expected to exceed the distributors’ original purchase cost. Anta estimates the total acquisition cost will be approximately RMB 2 billion, of which 80–90% is expected to relate to product return settlements.

In terms of downside risk, the costs associated with store buybacks and operating a larger fleet of directly managed stores could weigh on Anta’s near-term financial performance. Moreover, the wave of store closures seen when Li-Ning and Guirenniao previously converted to direct operations may well be repeated in Anta’s case — an inevitable pressure point in any such transition.

The upside, however, is equally clear. DTC simplifies the channel structure, eliminates intermediary layers, and reduces distribution costs — savings that can ultimately be passed on to consumers. China Li-Ning saw a notable performance recovery after its pivot to direct retail, with gross margins climbing to 46.23%, 47.06%, and 48.07% over the three most recent fiscal years — rapidly closing the gap with Anta.

Looking overseas, Lululemon — which operates on a fully DTC model with fewer than 500 stores globally — generated USD 4 billion in revenue in fiscal year 2019. In 2017, Lululemon’s directly operated stores achieved annual sales of USD 17,000 per square meter (approximately RMB 120,000), a figure that Nike could not match at even one-third of that level. Since its IPO in 2007, Lululemon’s market capitalization has surged 17-fold, making it the third most valuable sportswear brand in the world — within striking distance of Adidas.

The Bigger Picture

Traditional retail has cycled through eras defined first by product supremacy, then by channel supremacy. Early Chinese e-commerce rode the wave of demographic dividends, vast untapped markets, and brand scarcity — an era of pure traffic dominance. None of those tailwinds apply in today’s Chinese market.

Chasing social media impressions without driving measurable outcomes, or engineering one-time acquisition spikes without sustaining conversion, cannot generate the high-quality customer data and durable data assets that brand owners need for long-term, sustainable marketing programs. Apparel and footwear brands that have recognized this challenge are actively migrating away from traditional distribution, franchising, and consignment models toward direct-to-consumer approaches. The core of the DTC model is consumer data ownership and lower management costs. This is precisely where Knight comes in — offering brand owners a full-suite omnichannel marketing solution spanning consumer data capture, behavioral insights, social media operations, loyalty programs, and growth enablement. By closing the loop within a single integrated marketing system, Knight delivers an intelligent, digitally-driven management platform that empowers brands to thrive in the new retail era.