After four years’ losses, Chinese leading sportswear Li Ning Co reported on Thursday that it had returned to profitability in 2015. A few weeks earlier, one of its competitors, the German sportswear manufacturer adidas AG, announced its financial results for its business in China in 2015. As sports become a larger part of people’s lives in China, both foreign and domestic sportswear manufacturers have been making out. However, they have different strategies to gain market share. Foreign companies such as adidas plan to further expand their presence across the country, especially in lower-tier cities, while domestic companies need to further strengthen their research and development capabilities.
Even though he had just bought a pair of Li Ning athletic shoes, a civil servant surnamed Peng recently decided to pick up a new pair of Nikes for his semiweekly badminton matches in Yichang, Central China’s Hubei Province.
“Nike has a better design. When I play badminton, I feel more comfortable wearing their lightweight running shoes,” the 48-year-old told the Global Times on Wednesday.
Peng has seen sports become a bigger part of people’s lives in Yichang. In his badminton club, a dozen players meet every Tuesday and Thursday to bat the shuttlecock around.
As more Chinese take up sports in their spare time, both domestic and foreign brands of athletic apparel have been gaining momentum in recent years, said Lin Jing, a senior manager at China Investment Consulting Co.
Leading domestic sports brand Li Ning Co announced on Thursday that the company returned to profitability in 2015 for their first time since 2011, according to its annual report.
The company’s revenue grew about 17 percent to 7.09 billion yuan ($1.10 billion) in 2015, when it reported 14 million yuan in profit attributable to equity shareholders.
Other sportswear makers including Germany’s adidas AG and its Chinese competitor Anta Sports Products Ltd also reported rising revenues and profits in 2015.
Adidas’s sales rose 18 percent on a currency-neutral basis on the Chinese mainland, Taiwan, Hong Kong and Macao, according to the financial report Adidas released on March 3.
Adidas said it is confident that its new “Creating the New 2020 Greater China” strategy will allow it to “outpace the competition” and remain the best sportswear brand in the market, Colin Currie, managing director with adidas Group Greater China, said at a press conference on March 4 in Shanghai.
“Adidas and its major rival Nike Inc each reported double-digit growth in China, with both sportswear makers accounting for about 12 percent of the market in China as of September 2015,” Lin said on Thursday. “Competition between the brands is likely to further heat up in 2016.”
The stakes are rising as more people in China take up regular sports and exercise. That number is projected to hit 500 million people by 2025, creating a market worth an estimated 5 trillion yuan, Lin noted.
Targeting lower tiers
Liao Xuchun is a loyal buyer of Anta basketball shoes, as well as those produced by another Chinese sportswear maker Peak Sport.
“Patriotism aside, the domestic companies make basketball shoes that are less expensive than those produced by Nike and adidas, even though the latter two have the endorsements of NBA stars,” said Liao, who lives in Jianshi county in the Enshi Tujia and Miao Autonomous Prefecture in Hubei Province.
Liao said it is also easier to find domestic sportswear brands in his neighborhood, especially after some of the foreign sportswear stores closed in recent years.
“If I want to buy Nike or adidas shoes, I have to go to the downtown shopping malls,” he told the Global Times on Wednesday.
Some foreign brands, such as adidas, believe that small and mid-sized cities will remain an important part in their corporate strategies.
Under adidas’s 2020 strategy, “60 percent of our growth will come from lower-tier cities,” Currie told the Global Times on March 4.
The company says more people in China’s lower-tier cities will enter the middle class as their cities urbanize, Currie said. And as their incomes grow, they will be more willing to trade up to buy the adidas brand.
When contacted by the Global Times on Friday, Nike, adidas’s biggest competitor in China, refused to comment about foreign sportswear companies’ marketing plans for China’s lower-tier cities.
On Tuesday, Nike is scheduled to release its financial results for its most recent fiscal quarter.
Although Nike and adidas have immense international profiles, Chinese companies have taken sizable portions of the domestic sportswear market.
According to a survey by FT Confidential Research, Anta was China’s third most popular sportswear maker and scored particularly well among lower-income households, the Financial Times reported in February. The Fujian-based company caters to an estimated 520 million people living in China’s smaller cities.
Different segments
Considering the prices of their products, foreign sportswear brands such as Nike and adidas will continue to target middle and high-end customers in larger cities, said Zhang Qing, CEO of Beijing Key-Solution Sports Consulting Co.
It is “unlikely” that they will lower their prices when they enter lower-tier cities, Zhang noted.
“One possible solution is that they could further strengthen their positions in promoting athletic lifestyles, especially in lower-tier cities,” Zhang told the Global Times on Wednesday.
Also, big foreign sports brands need to work more closely with their franchise owners to come up with more specialized strategies for China’s second- or third-tier cities, Zhang said.
Adidas plans to have about 12,000 stores in China by 2020, Currie said. The company will take into account the preferences of customers in small and medium-sized cities.
When competing for a larger market share in China, domestic brands, which started from lower-tier cities, should focus more on branding, which is not the same thing as signing partnerships with star athletes, Lin noted.
“They should invest more in R&D (research and development) to become a more innovative sportswear manufacturer,” Lin said.
