Chinese Sportswear Market: Watch out, Nike & Adidas!

This article originally appeared on Sportswear International

Chinese Sportswear brands Xtep and Anta are making big moves to challenge Nike and Adidas in China’s sportswear market, which grew by 12% to ¥212.1 billion ($31.4 billion) in 2017, making it the second-largest sportswear market globally after the US, according to a study by Euromonitor International.  

At the end of March, Anta Sports closed a landmark US$5.2 billion acquisition of Finland-based conglomerate Amer Sports. Amer Sports owns Wilson tennis racquets and other sports brands such as Arc’teryx, and Anta plans to grow these brands in the China market.

On March 5, Xtep announced its partnership with conglomerate Wolverine Worldwide to sell outdoor footwear brand Merrell and running shoe brand Saucony in mainland China. The company will invest US$23 million in the 50/50 joint venture and open 400 to 500 stores for each brand within the next five years.

So what's going on and what are the implications for other foreign brands trying to crack the Chinese market?

Photo: Anta

Anta

Multi-Brand Strategies are Needed for China’s Evolving Market

Historically Anta and Xtep have focused on smaller-tier cities, and because of this, they’re still perceived as low- to mid-quality brands in China. Their sneakers sell for 200-600 RMB a pair, compared to more than 800 RMB for Adidas and Nike sneakers.

Both of them need more premium-end products to sell to consumers with higher purchasing power, especially as Chinese consumers are becoming more sophisticated and the market is fragmenting into different groups of customers.

And yet, it’s difficult to start off as a mass-market brand and all of a sudden branch into high-end products. It also takes a long time to build a brand from scratch and cement yourself as a premium brand in the minds of consumers.

Photo: Xtep

Xtep

This is where a multibrand strategy comes into play.

Anta's acquisition of Amer Sports is a bet on less mainstream sporting activities in China, such as skiing, hiking, tennis, etc. Amer owns different niche brands for different sports categories: Salomon ski boots, Louisville Slugger baseball bats, Arcteryx outdoor apparel, etc.

Xtep's partner Wolverine Worldwide owns motorcycle brand Harley-Davidson and boat-shoe brand Sperry Top-Sider. Wolverine’s Merrell brand specializes in outdoor hiking footwear and Saucony footwear is generally used for jogging.

By working with Amer Sports and Wolverine Worldwide, both Xtep and Anta are:

1. Purchasing/partnering with premium international brands instead of building their own from scratch

2. Targeting brands in niche categories where incumbents Nike and Adidas are not as strong

This strategy makes sense. Competing with Nike and Adidas head-on in the general sportswear market is bound to be difficult.

They have massive marketing budgets and years of global branding experience, so they dominate the premium end of the casual sportswear market.

But even companies as large as Nike and Adidas cannot serve every subcategory as well as a niche brand, so this multibrand strategy makes sense for smaller players such as Anta and Xtep.

What Chinese Partners Bring to the Table for Western Brands

For international brands, Chinese partners such as Xtep and Anta provide valuable local know-how and wide distribution networks that can help them expand their footprint in China.

As large, publicly listed companies, both Xtep and Anta have the balance sheets to invest in a large network of retail stores and build them from scratch. This can be invaluable for foreign brands who may have limited capital and just want to focus on branding.

Xtep boasts 6,200 stores in China. Anta has an extensive network of 10,057 retail stores, according to its 2018 annual report. It has also helped other foreign brands expand in China:

   -   2009: Acquisition of rights to Fila in China (now 1,652 stores in greater China + Singapore)

   -   1H 2016: Partnership with Japanese ski brand Descente (now 117 stores in China)

   -   2016: Partnership with English leisure footwear brand Sprandi (104 stores)

   -   Early 2017: Partnership with Korean outdoor brand Kolon Sport (181 stores)

   -   Sept 2017: Acquisition of HK children’s brand Kingkow (77 stores)

And it looks like Anta’s strategy is paying off. In 2018, its revenues jumped 44% to reach 24 billion RMB (US$3.59 billion).

Its acquisition of Amer Sports could be just what the brand needs to take its business to the next level.

Photo: Xtep

Xtep

Key Takeaways

1. Sportswear is booming in China. Younger Millennials are increasingly conscious of their health and strive to live balanced lifestyles. Sports of all different kinds are becoming more popular

2. Smaller niche brands should focus on how they can differentiate themselves from bigger incumbent players. Focusing on a niche and building a story behind it is how smaller brands can build a market for themselves.

3. Foreign brands may be good at branding, but Chinese companies have large retail and distribution networks and understand local retail operations better. Foreign brands should consider finding a strategic local partner to build and scale their retail operations in China. Having a local partner who can help navigate China can let brands focus on what they do best–branding.