Nike flourishes in China

21 March 2011

BEIJING: Nike, the sportswear giant, is benefitting from taking a "long-term" view in China, where it hopes to double sales by 2015.

The organisation's revenues climbed 13% during the last quarter, when stripping out exchange rates, thanks to rising demand and increasing penetration into lower-tier markets.

Earnings before interest and tax rose by 21% year on year, and the company is optimistic about its future prospects.

"These are increases off of a very large base," Charlie Denson, president of Nike Brand, said on a conference call.

"It demonstrates the potential we've talked about in the Chinese marketplace for the Nike brand."

Denson also praised the US multinational's willingness to utilise the Beijing Olympics, held in 2008, as a spring-board to future success, rather than pursuing a temporary spike in purchase levels.

"It's useful to recall our approach to the Beijing Olympics that we were focused on the long-term brand's position and strength and not just the event itself," he said.

"And now, we're seeing that investment and approach starting to pay off. Our business and brand continue to flourish with the Chinese consumer. We're seeing genuine separation from our competition."

Such is the scale of the opportunity promised by China, Nike anticipated returns should improve dramatically over the next five years.

"We're well positioned on all fronts, brand strength, product innovation and retail experiences, and on track to double that business by FY '15. I remain very bullish on our potential in China," said Denson.

Li Ning, one of Nike's major rivals, has a presence in 8,000 outlets across China, and currently derives around 90% of its sales in China.

The company has already entered the US, and recently signed a 14-year deal - beginning in 2012 - that will see L-Fashion, based in Finland, distribute its goods in nine European nations, including France, Germany and Russia.

"China itself is a highly international market. To some extent, he who wins in China wins the world. The Chinese market is always the most important one," Zhang Zhiyong, chief executive officer of Li-Ning, said.

Zhang revealed last week that Li-Ning holds a 36% market share domestically, and intends to boost advertising and promotional spending from 15.4% of revenues to between 16% and 17% as competition intensifies.

"The retail environment for the sporting goods industry this year is faced with heavy pressure," he said. "Forecasts for growth in the coming year had become more conservative."

Goldman Sachs has argued that Li-Ning is "positioned between global mega-brands and domestic mass market brands", and could be described as lacking a "clear brand value proposition."

Gareth Moore, at research firm Sport & Markt, reported that Li-Ning boasts the same degree of "sponsorship awareness" as Nike and Adidas in its home country.

"However, in more than 20 other countries worldwide, there is no unprompted awareness of Li-Ning as a sport sponsor at all," he said.

Adam Zhang, chief executive of consultancy Key Sport, suggested Li-Ning would need to adopt a similarly long-term perspective to Nike.

"Li-Ning has to overcome the short-term pain if it plans to be a global brand and compete with Nike or Adidas in the global market," he said.

Data sourced from Seeking Alpha/BBC; additional content by Warc staff