BEIJING: Nike and adidas appear set to profit at the expense of local brands in the Chinese sportswear market, at least partly because of their strengths in the marketing and retail arenas.
Official industry figures showed Chinese firms in this sector saw inventory levels rise 36% last year, to 58%. George Raffini, managing partner of Headland Capital Partners, argued this was a worrying shift.
"We like investing in Chinese consumer-focused companies but, even among businesses in this attractive sector, there are no guarantees as declines in the fortunes of some Chinese sportswear brands is reflected in their continued buildup of inventory," he told the Wall Street Journal.
Li Ning, one of the leading indigenous manufacturers in this sector, recently removed its CEO and announced that TPG, the private equity group, would take charge of restructuring its operations. Elsewhere, Peak Sport and China Dongxiang Group have also reported that profits will fall this year.
According to ResearchinChina, the insights group, Nike took 10.5% of sportswear sales on the Chinese mainland last year, ahead of adidas on 7.9%, Li Ning on 7.2%, Anta on 7.1% and Xtep on 4.4%.
More broadly, overseas corporations like Nike and adidas are expected to take 28% of sports apparel and shoe sales in 2013, Barclays has estimated. Euromonitor pegged this total at 24% in 2010.
Eugene Mak, an analyst at Core Pacific-Yamaichi, suggested that foreign firms tended to place a stronger emphasis on the fundamental areas of marketing and generating shoppers insights.
"Because they do less on research or advertising, Chinese sports brands have lost touch with what consumers want," he said. "Foreign brands are more popular with China's growing middle classes who can afford pricier and trendier products."
Overall, the top five Chinese players had 39,116 stores in the country by the close of 2011. Nike sells products in some 7,000 stores, and adidas in some 6,700.
However, it is the overseas organisations which seem to have made greater strides when it comes to fostering links with retailers, and, where appropriate, creating better experiences in their own stores.
"Sports brands in China are generally slow to understand demand from end-consumers because of these multiple layers of distribution," Alfred Ying, an analyst at Piper Jaffray Asia, said.
"Consumers now see [Chinese brands] as discount brands. They won't buy the products if they're not discounted and then when there are discounts, will wait for deeper discounts before they buy."
Data sourced from Wall Street Journal/Retuers; additional content by Warc staff