Sportswear brands in China feeling the heat; the days when Chinese sportswear brands could compete against international peers through price advantages have gone. Overseas sportswear brands like Nike drawing up ambitious plans to enter smaller markets

Sportswear brands in China feeling the heat

Overseas sportswear brands like Nike drawing up ambitious plans to enter smaller markets. -China Daily/ANN
Wang Zhuoqiong and Tang Zhihao

Sun, Mar 10, 2013
China Daily/Asia News Network

Nike’s advertisement is seen at a chain store in Yichang, Hubei province, Oct 27, 2012. The US sportswear maker plans to open 40 to 50 factory outlets to clear its high inventory in China.

BEIJING – US sportswear maker Nike Inc’s plans to open 40 to 50 factory outlets to clear its high inventory in China is a sign that the days when Chinese sportswear brands could compete against international peers through price advantages have gone.

At a Nike factory outlet store in downtown Beijing, a men’s sports sweater is selling for 199 yuan (S$40), down 300 yuan from its original price. A pair of sports shoes cost around 300 yuan, a price range found more often among domestic brands.

Zhao Nan, manager of the store, which is often crowded on weekends, said it offers discounts of 30 per cent to 80 per cent on products manufactured no earlier than two years ago.

Li Pan, a 28-year-old customer shopping in the store, said he enjoys buying at discount stores, but some of the items are not available in all sizes. “It is good quality but a better price,” he said.

The National Business Daily reported on Monday that Nike will open more factory outlets to sell discount products in China. The shops will offer discounts ranging from 60 per cent to 70 per cent, and open in second- and third-tier cities.

Nike’s public relations office in Beijing did not comment on the report.

Overseas sportswear brands like Nike, confronted with high inventories in China, are drawing up ambitious plans to enter smaller markets, targeting customers with a low-price strategy.

Nike saw an 11 per cent year-on-year drop in revenue, but with inventory of US$3.3 billion (S$4.1 billion), up 9 per cent from the same period of 2011.

Adidas Group’s sales in China increased 15 per cent year-on-year, according to its 2012 full-year results, with group inventories up 1 per cent.

Along with many other competitors, Adidas recognised that expansion in lower-tier cities will have a significant impact on its overall performance in China.

Colin Currie, managing director of Adidas Group, Greater China, said: “This year, we will continue to grow our store base, and we will continue to focus on lower-tier cities. We believe two thirds of the growth of our industry will be in lower-tier cities.”

Analysts say the move by international sportswear brands to cut their prices to the medium range will put pressure on leading domestic brands.

Zhang Qing, CEO of Beijing Key Solution Sports Consulting Co, said:”With similar prices, Chinese consumers are more willing to choose international brands, considered to be of better quality.”

The price tactic will gradually put pressure on second- and third-tier domestic sportswear manufacturers, Zhang said.

Through factory stores, Nike will be able to reduce its inventory and enter second- and third-tier markets through competitive pricing, Zhang said. But he also said local brands should not panic, as the number of expected new factory outlets from Nike is not large.

Liu Xiang, public relations executive at Peak Sport Products Co Ltd, said falling prices from top overseas brands is affecting its product prices.

After 10 years of rapid growth, the Chinese sportswear market has been growing slower than manufacturers’ expectations, resulting in oversupply.

Hong Kong-listed Li Ning Co Ltd said on Dec 17 that it will invest up to 1.8 billion yuan to help its distributors clear stock.

Another Hong Kong-listed Chinese sportswear maker, Xtep International Holdings, said its distributors had reduced orders for the first half of 2013 to control their inventories.

Net profit of 361 Degrees International Ltd fell by about 40 per cent in 2012 due to oversupply. As a result, the company will introduce measures including large discounts, cancellation of some orders and a reduction in retail expansion.

In June 2012, Peak’s revenue was down 28.5 per cent to 1.61 billion yuan from six months ago. It said that in addition to reducing supply and market stockpiles, the key to beating competition is brand differentiation.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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