Foreign sportswear brands up the ante

Updated: 2013-03-15 07:55

By Wang Zhuoqiong and Tang Zhihao (China Daily)

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Foreign sportswear brands up the ante

A Nike factory outlet store in Shanghai. The US sportswear maker plans to open about 40 to 50 such stores to sell discount products in China. Shao Xian / For China Daily

Wrestling with high inventory, companies expand their presence and reduce their prices

Plans by the US sportswear maker Nike Inc to open 40 to 50 factory outlets in China to clear its high inventory are a sign that the days when Chinese sportswear brands could compete against their international rivals on price have gone.

At a Nike factory outlet store in downtown Beijing, a men's sports sweater is selling for 199 yuan ($34), down 300 yuan on the original price. A pair of sports shoes cost about 300 yuan, the kind of price more often found among domestic brands.

Zhao Nan, manager of the store, which is often crowded on weekends, said it offers discounts of 30-80 percent on products made no earlier than two years ago.

Li Pan, 28, a customer, says he enjoys buying at discount stores, but some items are unavailable in all sizes. "The quality is good, but the prices are lower."

National Business Daily has reported that Nike will open more factory outlets to sell discount products in China. The shops will cut prices 60-70 percent and open in second and third-tier cities.

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

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

Nike's global revenue fell 11 percent last year, but with inventory worth $3.3 billion, up 9 percent on 2011. Adidas Group says its sales in the country rose 15 percent last year, with group inventories up 1 percent.

Adidas, like many of its rivals, recognizes 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, says: "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 domestic brands.

Zhang Qing, CEO of Beijing Key Solution Sports Consulting Co, says: "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 says.

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

Liu Xiang, a spokesman for Peak Sport Products Co Ltd, says falling prices from top overseas brands are affecting its product prices. Its annual report for last year, published on March 11, said its revenue fell nearly 40 percent to 2.8 billion yuan and its net profit fell nearly 60 percent to 310 million yuan. Under such pressure, the company has closed 1,323 stores, leaving it with 6,483.

The growth of the Chinese sportswear market, which for 10 years had been rapid, has slowed, resulting in oversupply and high inventory.

Ma Jilong, vice-president of the China Sporting Goods Federation, told media that the sportswear manufacturing market had grown about 10 percent last year - compared with 15 percent in 2011, 20 percent in 2010 and 30 percent in 2008, the year in which the Olympics were held in Beijing.

Shrinking demand for sportswear products has also reflected competition from international fast-fashion chains, which have also eyed the lucrative apparel market in China. Brands such as H&M, Gap, Uniqlo and Zara have opened new stores in first-tier cities and quickly spread to lower-tier ones, putting further pressure on sportswear brands. Zhang says urban dwellers are easily attracted to fast-fashion brands from sportswear products because exercise is still not really a part of mainstream culture.

"The Chinese sportswear industry is still in a kind of winter, and is not likely to see a turning point until the latter part of next year," Zhang says. But he estimates the market at 150 billion yuan and has a lot of potential for further growth "when sports become a mainstream lifestyle for Chinese people".

Local Chinese sportswear companies have been taking steps to reduce the high inventory. Hong Kong-listed Li Ning Co Ltd said on Dec 17 that it would invest up to 1.8 billion yuan in helping its distributors clear stock. Li Ning had opened 271 factory stores by last June and will continue increasing the number of its discount stores.

Another Hong Kong-listed Chinese sportswear maker, Xtep International Holdings, said its distributors have reduced orders for the first half of this year.

A 40 percent fall in net profit recorded by 361 Degrees International Ltd last year is being attributed to oversupply. As a result, it will take steps including giving large discounts, canceling some orders and paring back its retail expansion.

Last June, Peak's revenue fell 28.5 percent to 1.61 billion yuan on the previous six months.

It said that in addition to reducing supply and market stockpiles, the key to beating competition is brand differentiation. The group will continue to focus on basketball-related products in second and third-tier markets in China and expand overseas by opening stores in 100 countries in five years, Liu says.

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(China Daily 03/15/2013 page17)