Broker's View

Chinese sports brands bet big on a podium finish in Rio

But spending millions promoting your name at a major sporting event is no guarantee of success, warn analysts

PUBLISHED : Thursday, 04 August, 2016, 5:59pm
UPDATED : Thursday, 04 August, 2016, 10:15pm

China’s top sportswear brands have been pulling out all the stops to fully-exploit this summer’s Rio Olympic Games.

But market watchers remain divided on whether their endeavours — in some cases costing millions of dollars — will be enough to boost what have become flagging sales, at home and abroad.

361 Degrees International, one of the country’s biggest sportswear manufacturers, will certainly have the largest physical presence in Brazil, after more than doubling the number of places its goods are sold in the country over the past year, to nearly 900.

The firm is also an official sponsor of the main games, and the accompanying Paralympics, and the deal means it is supplying official clothing to all the Rio 2016 volunteers, technicians and people who participate in the Olympic torch relay.

However, analysts doubt whether this huge investment in sales and marketing will deliver the goods.

Hong Xue yu, a researcher at GuoTai JunAn International, said: “It’s possible that sales of 361 Degrees in Brazil may not increase as quickly as it expects after the expansion of its sale points, because the economy there is weak, and their own local brands are also very competitive.”

“The massive expansion of 361 Degrees in Brazil is certainly aggressive and a risk to investors.”

Anta Sports Products, another big name in domestic sports branding, has also chosen to be an official partner, in its case, of the China Olympic Committee.

While Peak Sport Products, another top Chinese line, has sponsored apparel and footwear for athletes taking part in the games from more than 10 countries.

“There is no doubt sales of sportswear climb during Olympic year because sponsorship of the quadrennial event provides a good platform for companies to strengthen their brand images,” added Hong from GuoTai JunAn.

“The brands that medal-winning athletes wear, for instance, always become popular after the games.”

But Chen Meng, an analyst with China Securities, warns in a new report on the sports apparel industry that the impact of sports celebrity endorsements on brands is shrinking, and it is much less likely than it was, that sales are guaranteed to surge, based on promotional spending at high-profile sports events.

“Sportswear sales have become less and less sensitive to these types of global events,” Chen said.

Others analysts suggest, too, that the games themselves have to be a success to make a sponsorship successful, and that’s far from certain in the case of Rio.

Analysts say that Chinese brands have started to enjoy a degree of international recognition, and there is no bigger stage than the Olympics to build on that.

But they point out that even the biggest domestic producers are still finding it hard to compete against some of the more long-established western brands.

Even at home, they say, sales of top western goods continue to outpace their locally-produced rivals.

The most-recent Chinese revenues for the world’s largest maker of sporting goods, Nike, for instance, were $3.79 billion, a 117 per cent increase from six years earlier.

Adidas, too, has watched its China sales grow 103 per cent from 2009 to 2015. Last year its greater China revenue raced ahead 38 per cent to US$2.79 billion, and now account for about 15 per cent of its global income.

Sportswear sales have become less and less sensitive to these types of global events
Chen Meng, an analyst with China Securities

In comparison, however, the domestic revenue of Li Ning — the sports apparel firm founded by the former Chinese Olympic gymnast of the same name — has declined 9 per cent in dollar terms in the previous six years.

“Chinese consumers previously considered Nike and Adidas as a kind of luxury,” said Hong.

“Now they are able and willing to pay for global brands rather than domestic ones, as their spending power has increased.”

David Li, a young Shenzhen-based entrepreneur, says his first choices are always global brands such as Nike, Adidas and New Balance.

“It is cost-efficient for me to spend 1,000 yuan to buy a good pair of sports shoes,” he said.

“But to tell you the truth, I prefer global shoes even though the prices are the same. Buying a good pair of sports shoes feels like a bit of luxury without the glitz.”

And Li is typical of Chinese consumers when it comes to sportswear.

According to the analysts, with prices now on a par, Chinese are still looking for overseas branding, especially younger more health-conscious buyers, who also consider quality foreign goods are less likely to be counterfeit.

The ongoing promotion of mass sport in China has meant a huge boost to the sportswear industry, as has the massive rise in the number of people living in cities.

“The mass market has the fastest growth in the consumer sector, but to increase their share of that, Chinese sports products have to be functional, and of high quality,” said Hong.

He adds that while the emergence of “intelligent products”, such as wearable sports devices, have great potential and have helped attract more sports customers, their creativity is yet to be turned into hard sales.