Shoe surprise

By Fang Yunyu Source:Global Times Published: 2013-3-14 23:43:01

New Nike and adidas sneakers that have just arrived in Beijing are being sold at an unexpected discount, with up to 50 percent off at the New World Department Store on Dawang Lu last weekend.

Dozens of consumers were trying and buying the new sneakers at the store, with prices of around 300 yuan ($48), which is usually what domestic brands cost.

A mid-range pair of Nike shoes normally sells for around 600 yuan ($96.36) in China, while a mid-range pair of Li Ning shoes costs 400 yuan.

The shop assistants were greatly outnumbered by the customers, who had to wait for a long while before being served. 

One consumer told the Global Times that although she had to wait, she was still very happy to be able to buy a new pair of adidas sneakers at a "very fair" price of only 290 yuan. 

Such discounts are set to become more common across China.

Too much stock

On March 4, the Shanghai-based National Business Daily reported that US sportswear maker Nike will open 40 to 50 factory outlets (discount stores) in China this year to sell its shoes and clothes at huge discounts, as a way to address its high inventories.

Nike stores will open not only in big cities but also in smaller ones, offering discounts up to 70 percent, the newspaper said, citing a source close to the company. Nike refused to comment when contacted by the Global Times Tuesday.

"After recent years of fast expansion, overseas sportswear brands, like their domestic peers, have encountered the problem of high inventories," Zhang Qing, founder and CEO of Beijing Key Solution Sports Consulting Co, told the Global Times Sunday.

Fierce competition from fashionable clothing brands like Zara and Hennes & Mauritz AB (H&M) is another factor making the circumstances tougher for sportswear firms, Zhang noted.

H&M disclosed earlier this year that its 2012 China sales surged 50 percent year-on-year to 5.4 billion Swedish kronor ($843 million), much faster than its 9 percent global sales growth rate. The Swedish clothing company also said it added 52 new stores in China last year, pushing the total to 134.

In comparison, Nike said in its latest financial report that its total revenue for the September-November 2012 period reached $6 billion, an increase of 10 percent over a year earlier. However, Nike's sales in China during the period dropped by 12 percent year-on-year to $577 million. It was the only market around the world to generate negative growth for the company.

Nike does not yet post full details of its China inventory figures, but it said they were up by 9 percent year-on-year in the same period.

"Our main area of focus for inventory management continues to be China, where we're working to manage down inventory at retail," Don Blair, Nike's chief financial officer, said during a conference call on December 22, 2012.

Changing strategies

Wei Guangju, a senior consultant at Adfaith Management Consulting, told the Global Times Monday that after the 2008 Beijing Olympic Games, many sportswear companies viewed China as a fast growing market and were active in entering it.

"The overheated market led to high inventories, which is why they are all changing strategies," said Wei.

Adidas was the first sportswear giant to encounter inventory problems in China.

In 2009, the German company saw its sales in China fall by 16 percent year-on-year, the biggest decline globally.

"But since then, adidas has diversified its product line, producing more fashionable products, and controlling its inventories strictly," said Zhang, noting that these measures have kept adidas running well in China.

The German company disclosed last week that its revenue in China jumped by 15 percent year-on-year to 1.56 billion euros ($2.03 billion) in 2012, with its inventories down by 1 percent.

Adidas did not respond to e-mail inquiries sent by the Global Times Thursday.

Inventory problems have also affected domestic brands.

In the first half of 2012, the total inventory of six leading brands, including Peak Sport, Li Ning Co and Anta Sports, was worth 3.7 billion yuan, up from 3.69 billion yuan at the end of 2011, according to statistics in the companies' financial reports.

Peak Sport unveiled its 2012 financial report on Monday, revealing profits for the year of 310.6 million yuan, a decrease of 60 percent compared to 2011. Peak also said that it closed 1,323 outlets last year.

Li Ning Co, which has also been hit by a slump in profits, shut down 1,200 stores in the first half of 2012, and announced at the end of last year that it would invest up to 1.8 billion yuan in helping the firm's distributors clear their stock.

Another Chinese sportswear maker, Xtep International Holdings, disclosed that its distributors had cut orders for the first half of 2013 in order to control their inventories.

"For Nike, the factory store expansion can help alleviate the inventory burden, and also inject more cash flow," said Wei, noting that Nike could take the opportunity to pressurize its rivals and take a bigger share of the Chinese sportswear market.

Uncertain outcome

The potential of China's sportswear market is still huge, Wei said, partly because more and more Chinese people are paying attention to their health and getting into sports. Also, apart from soccer and basketball, many sports have not yet been commercialized in China, Wei noted.

"We're doing all the right things to position the China marketplace to be a market that delivers long-term, sustainable growth for the Nike brand," Charlie Denson, president of Nike Brand, said in December last year.

Adidas is also working on an expansion plan. In 2012, 800 new adidas stores were opened in China, exceeding the scheduled number of 500.

All these new Nike and adidas stores are located not only in first-tier cities but also in lower-tier ones, Wei said, adding that "such rapid expansion will surely generate huge pressure on domestic brands."

"As competition in the sportswear industry becomes more intense, I think some companies will be forced out, and the biggest ones will dominate the market in years to come," said Zhang from Beijing Key Solution Sports Consulting, noting that some small brands could survive by focusing on specific sports areas.

However, Wei said that small sportswear companies still have the advantage of greater business flexibility.

"After this tough time, some small domestic brands may stand out, and some big firms may suffer high inventories for a while as they usually have to address big procurement orders," he said.

Posted in: Insight

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