Chinese sportswear heavyweights hit their stride on the back of a national health kick

But foreign rivals are also operating flat-out to win and retain the hearts of customers, making for a battle royale in the sector

PUBLISHED : Friday, 16 September, 2016, 12:21pm
UPDATED : Saturday, 17 September, 2016, 2:54am

China’s sportswear industry has hit a rare sweet spot that appears unaffected by the lingering economic downturn.

Most of Hong Kong’s listed domestic sports firms posted double-digit growth in their first-half sales recently, as Chinese consumers strive for a healthier lifestyle, with Beijing’s official blessing.

As the market becomes fitter, analysts now expect the big names such as Anta Sports Products, Li Ning and Xtep International to stand out as potential end-game winners, backed up by their far-reaching sports marketing.

But with foreign rivals Nike, Adidas and Under Armour Inc making an all-out China expansion effort, too, the intensifying battle to win and retain the hearts of customers is only likely to become a lot more costly.

While the bulk of general apparel retailers still grapple with tepid demand, the first half of 2016 saw domestic athletic brands stage a concrete comeback following years of painstaking inventory clearances, led by the home-grown market leader, Anta.

The kit supplier for the Chinese team at the Rio de Janeiro Olympic Games registered a better-than-expected 17 per cent surge in net profit for the first six months of the year to 1.13 billion yuan, with sales leaping by 20 per cent.

Rio also seemed to bring out the best in gymnast-turned-entrepreneur Li Ning and his namesake company, which revealed a reversal in its fortunes to 113 million yuan in net income compared with a loss of 29 million yuan a year earlier. Its revenue jumped 13 per cent year on year in the same period.

Closely trailing its two competitors in delivering robust earnings, is running shoe maker Xtep, renowned for its sponsorships of marathons such as Standard Chartered Hong Kong Marathon. Its net profit for the same period lifted 10.6 per cent from a year earlier.

“The sportswear market in China is in a good position, as Chinese consumers become more active in playing sport and the government issues policies promoting it,” said Jack Chuang, greater china partner with OC&C Strategy Consultants.

The number of marathon runners in China shot up by 67 per cent in 2015 from a year earlier, and marathon events also more than doubled to a record 134 for the same period, according to data from the General Administration of Sports.

The sportswear market in China is in a good position, as Chinese consumers become more active in playing sport and the government issues policies promoting it
Jack Chuang, greater china partner, OC and C Strategy Consultants

Meanwhile, with President Xi Jinping himself a fan of the game, football is tipped to become the next market to reap healthy rewards from Beijing’s favourable policies as well as tremendous public and private sector investments, reckons RHB Securities Robin Yuen.

He projects the country’s sports industry to balloon at a compound annual growth rate of 17 per cent over the next decade.

Beijing laid out a plan in 2014 aiming to fulfil Xi’s ambition to shape China to be a “sports superpower”, vowing to grow the industry more than threefold to 5 trillion yuan by 2025.

Giving it an imminent boost has been a buying spree of European football clubs such as Atletico Madrid by several of China’s richest men, such as Wanda Group’s Wang Jianlin. The Spanish club has already established training centres in a bid to cultivate Chinese football stars of the future.

“And at home, Xtep has already started to invest in youth football academies,” said Yuen.

In April, the Fujian-based footwear maker announced a “Comprehensive Football Strategy” where it would launch its first line of professional football boots and partner with China’s largest football enterprise to set up training camps targeting school students.

But with a traditionally low participation rate due to a lack of quality infrastructure, Beijing has made it clear that its football mission for the coming couple of years is only to “lay a foundation,” with a proposal to build hundreds of football pitches and academies across the country.

A Nielsen survey showed that running still remains the most sought-after sporting activity among Chinese, followed by badminton and basketball, prompting prominent sporting brands both at home and from abroad to carve out a share of their own particular segment.

Kevin Plank, the CEO and billionaire founder of the US’s second largest athletic goods maker Under Armour, recently told the Post that running shoes are likely to be at the forefront of its quest to crack one of the world’s biggest and fastest-growing sports market.

In China, Nike and Adidas trainers are still the most popular, which combined represent more than one third of the athletic gear market, outstripping Anta’s 9.9 per cent share and the 5.3 per cent of Li Ning and Xtep, according to market researcher Euromonitor.

Banking on the country as its top growth engine amid lacklustre European and American markets, Adidas booked a 38 per cent sales growth in greater China to 2.47 billion euros (US$2.78 billion) last year.

Regardless of concern over a sputtering economy, it plans to open 3,000 stores in China by 2020 and aspires to more than double the cities and towns where it operates to more than 2,200.

“Nike and Adidas are growing at a faster speed than the home-grown players... but Anta is smart in that it is now looking into a more professional positioning to meet Chinese consumer demand,” said OC&C’s Chuang, referring to its introduction of Japanese ski apparel name Descente into northeastern China this year.

Anta’s executive director James Zheng describes the Osaka-originated Descente as “premium and specialist catering to diversified needs of Chinese customers”, and as a result the product can charge 30 to 50 per cent more than Nike and Adidas.

While it is still too early to predict Descente’s success given a three-year timeline Anta set for its Descente unit to break even, Anta’s acquisition of Italian-South Korean premium sportswear maker Fila’s China rights in 2009 has started to bear fruit.

First-half sales for Fila jumped over 30 per cent in China, outpacing most of Anta’s other self-operated brands in year on year growth.

Anta chairman Ding Shizhong said more than 25 per cent of its revenue may come from Fila by 2020, up from today’s nearly 20, adding that the company raised its guidance for new Fila store openings this year to 700-750 from 600-700.

As the market heats up, there’s no question Anta will have to pay more for renewal of its partnership contract with the Chinese Olympic Committee, which is due to expire by 2017
Walter Woo, Oriental Patron analyst

“Fila has a much higher gross profit margin than Anta’s traditional branded footwear, and it is beefing up its offerings to sell kids and designers sportswear,” said Oriental Patron analyst Walter Woo.

Last year, Anta unveiled a special Spring and Summer Fila collection in collaboration with Canadian fashion guru Jason Wu – celebrated as a dress designer for Michelle Obama – in its foray into upper-end lifestyle sportswear market rivalling competitors such as Lacoste.

Also scoring stellar double-digit growth in first half sales is Anta’s kids brand, OC&C’s Chuang believes the scrapping of the one-child policy will bolster the prospects of China’s children sportswear market in the years ahead.

However, the recent sportswear mini boom has also fuelled worries among some observers of a potentially overheated market, highlighted by increasing inventories, especially as competition for sports sponsorship toughens.

“As the market heats up, there’s no question Anta will have to pay more for renewal of its partnership contract with the Chinese Olympic Committee, which is due to expire by 2017,” noted Oriental Patron’s Woo.

The Chinese sporting giant gained considerable global recognition in outfitting the country’s teams at London in 2012 and in Rio, thanks to an eight-year pact signed with the COC in 2009.

Today’s rapidly evolving industry landscape is almost certain to get ever harder as newcomers such as Under Armour show growing interest in signing Chinese Olympic athletes and tie-ups with Chinese films, advertising and promotion expenses, .

GF Securities analyst Albert Yip expects heavyweight international players such as Nike and Under Armour to continue standing in the way of Li Ning, which is still on a recovery course following an overhaul, as the Beijing-based player tries to extend its CBA (the Chinese equivalent of NBA) sponsorship in 2017.

An underwhelming dip in August sales of Pou Sheng International – a key retailer of Nike, Adidas and Puma footwear in mainland – triggered a 9 per cent plunge in its shares in Hong Kong on Monday.

“Inventories are on an upward trend again following the last wave of aggressive expansion by sportswear brands in China,” said Tang Xiaotang, founder of Guangdong-based retail market researcher No Agency, citing a boom and bust cycle commonly prevalent in the consumer staple industry.

Tang points to Chinese people’s past enthusiasm for luxury goods and how brands such as Prada are struggling badly today, and suggests even this current “sports frenzy” could fade in a few years, leaving athletic brands once again scrapping for business.

“In the boom years,” he adds, “it always makes sense for them to do whatever they can to grab market share.”