Shoppers visit a Nike sportswear store in Shanghai
Phil Knight, co-founder of Nike, first travelled to China in 1980. The country was starting to recover from the turmoil of the Cultural Revolution and beginning to experiment with a new economic model. Within a few years, Knight had already shifted much of the firm’s production to mainland China from Taiwan and South Korea. Moreover, he saw China as more than just another workshop; he saw the sales opportunity too. “There are two billion feet out there,” former Nike executives recall him saying, according to TIME magazine. “Go get them!”
Knight’s vision has come true. Today, China is the global brand’s fastest growing market. It is selling more sneakers (or trainers) and other sports gear than in any market outside the US. China’s contribution has become even more apparent during the pandemic as the only market generating growth.
For the three months ended in May 2020, the Oregon-based company made over 27% of its revenue from the Greater China region, where sales grew 1% on the year to $1.6 billion on a currency-neutral basis. In contrast, both North America recorded a 46% plunge in sales; EMEA (Europe, Middle East and Africa) fell 44%; while Asia Pacific and Latin America booked a 39% decline.
Even during the previous quarter, when China was in the thick of containing the virus, sales fell only 4%. Offsetting the impact of social distancing rules (which forced roughly three quarters of Nike’s outlets to shut or operate on reduced hours) was a 36% pick-up in online purchases and an 80% surge in usage of its personal training apps designed for home workouts. For the full year, the US brand grew its revenues by 11% to $6.7 billion in China.
The results have some observers wondering whether China has become too important to Nike, which, on the flipside, could make it vulnerable as Sino-US relations continue to fray. Last year it was caught up in the controversy when an NBA general manager tweeted about Hong Kong’s political situation, with Nike chided for not taking sides as a long-term sponsor of the professional basketball league (see WiC470). In March it was under pressure to review its supply chain in China following high-profile allegations that its local suppliers were using the country’s Uighur minority as forced labour.
Losing its cachet among Chinese consumers at a time of rising nationalism could dampen sales, especially when domestic brands have been gaining popularity in recent years. An emerging challenger is Anta Sports, which derived 51% of its income from its eponymous label and 44% from sales of FILA branded goods in the country.
On the back of a series of acquisitions (see WiC426) and a marketing ramp-up, the Fujian-based company has been growing at a rate double the industry average over the last two years. For 2019, its revenue soared 41% to a record Rmb33.9 billion ($4.85 billion), lifting operating profit by 53% to Rmb8.7 billion.
Anta believes it could overtake Western counterparts like Nike and Adidas to become China’s top sportswear brand by 2025. Such confidence was boosted when its first international limited-edition basketball shoe, the KT3-Rocco, drew a queue of nearly 1,000 customers in San Francisco at its launch two years ago. The frenzy was thanks to its sponsorship of Klay Thompson, a star player with the Golden State Warriors basketball team, as well its employment of a team of locally-hired designers.
Also in the competitive fray are Li Ning (see WiC471) and 361 Degrees (see WiC422). Nielsen, a US market research firm, found in a survey last year that 62% of Chinese consumers it interviewed preferred domestic to foreign brands.
In fact, these market dynamics have already squeezed a lot of foreign brands out of China. The exodus is particularly acute in the apparel industry, as evidenced by the pullouts of Topshop, New Look, Forever 21 and Marks & Spencer since 2018 (see WiC395). The latest on the list is Superdry, the British brand best known for printing Japanese characters on its casual wear.
Since entering China in 2016, Superdry had opened 66 outlets, of which 25 were self-operated. Its original plan was to invest £90 million ($113 million) – a sum matched by its local partner Trendy Group – in brand building over a time horizon of 10 years, noted National Business Daily. However, the coronavirus outbreak ruptured its operations and heaped an extra burden on its already struggling finances. Between 2016 and 2019, the fashion retailer saw its losses rise to £3.7 million from £1.5 million.
Analysts blame the performance on Superdry’s poorly differentiated market position. While its upscale offering makes it too pricey for a lot of Chinese consumers, its price power is limited given its status as a non-luxury label. Superdry was also battling local rivals that could rapidly push out new designs (in some cases in just 10 days, versus 12-14 days for the likes of Zara and H&M), and yet charge 20-30% less for similar items, like hoodies (see WiC455).
Superdry is promising a strategy rethink. “Combined with the improvements we are making to our product ranges, I am confident that this is the right time for us to take back full control of our brand in China and to reposition our operations in the region to deliver profitable future growth,” the brand’s chief executive Julian Dunkerton said in a statement.
He stressed that China still represents “a huge opportunity for Superdry in the longer term” and that the company will shift its focus to online and wholesale channels.
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