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chinadaily.com.cn
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China Daily Website

China's sportswear brands nurse Olympics hangover

Updated: 2012-07-02 11:28
( Agencies)

HONG KONG - China's Olympic hero Li Ning wasn't just walking on air when his country hosted the 2008 Games. Suspended by wires, he ran a mid-air lap around the Bird's Nest stadium in Beijing, Olympic torch in hand, to light the cauldron at the opening ceremony.

His eponymous sportswear company was flying high too. Li Ning and the four other largest local brands opened a combined total of about 11,000 stores across China between 2008 and 2011 - an average of 10 per day.

But just weeks before the London Olympics, Li Ning and its big competitors are retrenching, stuck with heavy inventories and slowing demand in a $19 billion industry still led by foreign titans Nike and Adidas.

Some analysts think China's 20 or so local sportswear brands will eventually be whittled down to five or six, with Li Ning and ANTA Sports Products likely to be among the survivors.

The consolidation has already begun. Footwear distributor Belle International Holdings Ltd agreed in March to buy rival Big Step Ltd for up to 920 million yuan ($145 million).

"Chinese sports brands are in a stage of re-inventing themselves," said Umang Pabaru, a director of Commercial Excellence & Business Development of marketing group Nielsen.

A cooling Chinese economy adds some urgency to that reinvention. China's 2012 economic growth may be the slowest since 1990.

Even those seen as eventual winners in China's sportswear market are pulling back on expansion.

Li said his company would spend this year and next trying to clear out inventory and "streamline" the retail store network, slowing the pace of new openings and closing inefficient stores. His company warned on June 12 that profits would be weaker than expected because of soft sales and high marketing costs.

Ding Shuipo, chairman of Xtep International Holdings said his firm was taking a similarly cautious approach.

"Our focus in 2012 is not to open more stores but improve the efficiency of our existing stores," he said.

The sportswear market is expected to grow by 15 to 20 percent a year over the next three to five years, slower than the 25 to 30 percent rate it recorded after the Beijing Olympics, according to Shanghai-based China Market Research.

Nike garnered 10.5 percent of mainland sportswear sales in 2011 while Adidas took 7.9 percent, according to Beijing-based market researcher ResearchinChina. Li Ning was not far behind with 7.2 percent, followed by ANTA at 7.1 percent. Xtep trailed with just 4.4 percent.

Buy 200, get 200 free

In Shenzhen, China, across the river from Hong Kong, the sportswear industry's difficulties were on full display. Salesmen shouted out deeply discounted prices, hoping to lure passers-by into stores.

One 361 Degrees store displayed a banner proclaiming, "buy 200, get 200 free".

With the London Olympics only weeks away, the stores in the busy Lao Jie shopping district were short on new merchandise.

"We are selling last year's stocks," said a salesman at a Peak Sport Products Co Ltd store, when asked about the availability of London Olympics gear.

Peak, like Li Ning and ANTA, is also planning to shut some of its stores this year.

Even Nike is feeling the chill. Orders of Nike branded shoes and clothing scheduled for delivery from June through November rose just 5 percent in China, down from a 24 percent increase a year earlier, the company said on Thursday.

The top five local sportswear brands had 39,116 stores in China at the end of 2011, up from 28,202 in 2008. Nike's goods are sold in more than 7,000 outlets, including franchisees and other stores that carry the brand, while Adidas is sold in about 6,700 outlets.

Eating smaller fish

The next phase of growth will probably come from China's smaller cities because the big metropolises are already saturated. That may hasten the industry consolidation, said Li Hongxian, an analyst with Beijing-based S&P Consulting.

"Entry of premium brands in lower tiers cities is set to speed up the elimination process," said Li, who expects the number of local brands to dwindle to five or six eventually.

The big, publicly traded players such as Li Ning and ANTA have a better shot at survival because they can more easily tap financial markets to secure funding for acquisitions.

Ding, the Xtep chairman, said it may be a few years before mergers and acquisitions activity intensifies. Local brands are still financially sound and the foreign players are only beginning to break into smaller cities.

"With big fish eating smaller ones, it is a must to happen for the long-term development of the industry," he said.

In the meantime, business looks tough despite the buzz building around the London Olympics.

Li, the legendary Chinese Olympian, was part of the torch relay for the London Games. This time, however, his feet were firmly on the ground.

 
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