The takeover of Eider by K2, one of the major local brands of outdoor clothing, is seen as a sign of consolidation in a major market for outdoor products – estimated to be the second-biggest in the world a few years ago – that has continued to decline this year. Many foreign outdoor brands, led by those from Japanese, have reported worsening market conditions in the country.
Dong Chil Kwon, head of Treksta and a former chairman of the local outdoor industry association, predicts that the Korean outdoor market will drop by about 5 percent this year. Blake Krueger, president and chief executive of Wolverine Worldwide, mentioned the recent bankruptcy of two unnamed South Korean distributors due to the depressed market situation.
Besides a major slowdown in general consumption, resulting from a drop in the country’s former robust economic growth to annual rate of less than two percent, Japanese sports and outdoor brands like Descente, Montbell and Asics have been faced this year with a widespread boycott of Japanese products by consumers. Sales of Japanese cars have fallen by more than 50 percent lately.
The relations between the Korean and Japanese governments have deteriorated sharply. The problem between Korea and Japan is an historic one linked to Japan’s imperialist past. The Japanese government has refused to offer official apologies and monetary compensations for the wrongs done to Korean women by the Japanese Army during World War II.
Tensions recently escalated to a point where the Korean government decided to stop a bilateral agreement on security intelligence-sharing, despite the threat from neighboring North Korea. Japan retaliated in July with tighter controls on exports to Korea of display panels and high-tech chemicals that are indispensable for the manufacture of many electronic products. The general population is backing the government’s stance: A recent poll showed that about half of them would support a North Korean attack on Japan.
The situation was reflected in the latest income statement issued by Descente. It said that sharply lower sales in the Korean market, combined with the depreciation of the Korean won, would cut its total sales for the financial year ending next March to around 130.8 billion yen (€1.2bn-$1.2bn). This compares with a previous forecast of ¥144.0 billion and a turnover of ¥142.4 billion in the previous financial year.
The company’s sales in Korea, which account for about half of the group’s total revenues, fell by 30 percent in the second quarter ended on Sept. 30. This contributed to a drop in total sales of 1.3 percent to ¥65.9 billion (€550.1m-$606.6m) in the first half, in spite of increases of 3 percent in Europe to ¥1,403 million (€11.7m-$12.9m) and 37 percent in the U.S. to ¥415 million (€3.5m-$3.8m).
Descente, which also owns Inov-8 in the U.K., slashed its forecast for this year’s net income by 82 percent to only ¥700 million (€5.8m-$6.4m), including a loss of ¥1.51 billion (€12.6m-$13.9m) in the second half. This would compare with net earnings of ¥5.3 billion in the past year.