Brands quick off the blocks
By 2020, more than half a billion people in China could be playing a sport or exercising regularly, according to one forecast. This is good news to the sportswear industry, which has already seen stellar growth in the past decade.
In Fujian province, a cluster of manufacturing bases is built on the success of some of China's leading sportswear companies. Li Ning, Anta Sports, 361 Degrees, Erke, Xtep and Peak have each carved out a share of the market for themselves.
While the Chinese growth has been compared with the American experience in the 1980s, industry players say the difference is that the Chinese market has not yet reached saturation.
Terry Rhoads, a former Nike executive in China who now runs the Zou Marketing sports consultancy in Shanghai, said: 'China is the closest to emulating what happened in the US in a relatively short period. There is so much appetite in China as the middle class emerges to really embrace a sports lifestyle.
'Right now it's more just people wanting to wear the apparel and footwear. But what's more encouraging is the buying for participation in sports ... If you look back you think 'Wow, what an amazing story', but if you look forwards, there is some amazing growth and opportunities coming.'
The sportswear market in China is now a fraction of that in the US, but it could one day overtake the current leader. China's education and health ministries have been encouraging more people, especially students, to take up sports as a lifelong hobby to beat stress and compensate for a richer diet.
'All this growth to date happened with little sports being played,' Rhoads said. 'As incomes rise and people have more time for sports, of course it's going to impact on the industry.'
In one example of the accelerated growth in China, Nike took 10 years to surpass the US$100 million mark in revenue, in 2002, but by 2008, its takings had topped US$1 billion. Adidas, meanwhile, has forecast that revenue will exceed US$1.5 billion next year. China's Li Ning has also joined the billion-dollar club, while Anta is on around US$800 million. Other domestic players such as Peak, 361, Erke and Xtep are approaching or have already exceeded US$500 million.
The Chinese companies started out in the 1990s making shoes for overseas firms, but decided to go their own way and create their own brands. Their advantage is their understanding of consumers in the smaller cities who have lower disposable incomes and less sophisticated tastes. To attract these customers, they offered goods of reasonable quality at cheaper prices.
Claudia Lo, Anta's vice-president of investor relations, said the company had set out to make a name for itself in smaller cities from its founding in 1994.
'We have always focused on the people who need sportswear and the demand is there in [these] cities,' she said.
'We have believed in that market for a long time. People know and like our products because we have grown our network gradually. We seek a strong balance between brand value, network growth and finance.'
The challenge now for the Chinese brands is to adapt as demand for quality increases, and fashion and tastes change. Clothing brands such as Giordano and Esprit are seeking to elbow their way into the sportswear market, and high-end names like Prada and Armani also want a piece of the action.
'Right now Chinese sportswear brands are working out where they should position themselves,' Rhoads said. 'They need to improve their designs, create brand value and decide if their expertise in apparel is on-field or off-field. On-field is about investing more in research and development and technology, while off-field is more lifestyle and fashion.'
Globally, the sportswear market is worth US$50 billion. Nike's share is around US$19 billion, including US$8 billion from the US market. Rhoads said that in 10 years, three or four Chinese brands could be doing US$2 billion in business a year.