Jul 26, 2010 4:00 AM AWST

Doing It: The Rise of the Chinese Sports Brands

Walking the streets in China today, you may notice many young teenagers wearing sports clothing with unfamiliar logos emblazoned on their chests.

Looking at the curvy L that is Li Ning's signature or the sideways V that stands for Anta, you may wonder to yourself, is that a knock-off Nike shirt? No, in fact, these two Chinese brands are well established and are quickly becoming Nike's biggest competition in China.

China's sportswear market is poised to expand at an annual average of 18% to RMB149. 1 billion by 2013, according to an estimate by ZOU Marketing inc. Zou Marketing also notes that branded sportswear in particular has experienced double-digit growth since 2000. While Nike remains the number one sports brand with 16.7% market share in 2009, Li Ning surpassed Adidas to become the second most popular brand in China with 14.2% of the market compared to Adidas' 13.9 percent, according to AdAge.

Though Li Ning holds the second place, Anta's net revenue was actually higher than Li Ning's in 2009 with a net profit of 21.6% compared to Li Ning's 11.7%.Other domestic players, such as Dongxiang, Xtep, 361, Hongxing Sports, Peak, and Kangwei are also competing for their share of the pie and have achieved high growth rates in the rapidly expanding market. While Li Ning and Anta managed growth rates of about 20% last year, some smaller brands have been enjoying growth rates of 30% or more. Marie Jiang, analyst at JLM Pacific Epoch, says that this recent emergence of domestic brands will make the market-place more competitive to the established international brands trying to grow in the Chinese marketplace.

Stiff Competition

Building a brand name and facing stiff price competition are the two main challenges for Chinese brands competing against the big names like Nike and Puma. In 2002, Dongxiang acquired Kappa, a European brand, and has been working on a marketing campaign that creates a new image targeting an upscale, fashion conscious crowd who don't have or are not ready to shell out money for the more expensive Nike or Adidas. Chinese brands worked on international imaging through sponsorship; in this instance it was Shaquille O'Neal who gave them the right to use his image, name, and shirt number on their basketball products sold in China. Li Ning also produced a "Shaq line of shoes. Not to be outdone, other brands have been upping the game by signing similar sponsorship deals with international sports stars. Anta signed deals with three players of the famous U.S.basket ball team, the Houston Rockets; Xtep signed the English Premier League Birmingham City Football Club; and Peak signed Shane Battier, also with the Houston Rockets.

Home Game

Besides targeting the international market, sportswear brands are trying to expand into another market much closer to home. While competition remains intense in Tier 1 cities, brands have realized there is a huge, untapped market in Tier 2 and Tier 3 cities. "Li Ming and Anta penetrate everywhere, even into villages. Nike and Adidas are at the higher end, and most people can't afford the price, says Jiang. With Chinese brands penetrating into international markets and taking over the domestic market, are foreign brands such as Nike and Adidas doomed? Perhaps not. According to a recent UBS analysis, Nike could successfully penetrate lower level markets in China by lowering its price. Jiang, however, disagrees with this approach. She says, "Coach and other brands names have penetrated Tier 2 and Tier 3 cities, which still have wealthy people willing to buy brand names. But if Nike and Adidas lower their price, they may run the risk of ruining their brand image, so they should seek other ways to penetrate these markets.

Online

Another way brands are reaching the market is through Taobao and ecommerce. In April of 2008, Li Ning opened it's own channel on Taobao. Sales were such that in 2009, Li Ning started to offer its merchandise on its own website. In 2010, Li Ning plans to make it even easier to shop online by allowing users to buy from their website with cellphones and sending coupons through cellphone messaging. Even if Li Ning didn't have its own online store, other enterprising citizens would have capitalized on the opportunity. As simple search within Taobao turned up 17,427 individual "stores offering Li Ning merchandise. As Ben Cavender of China Market Research Group observed, "it will disturb things, but ecommerce is here to stay. It will make store distributors provide better service. Kappa is starting to sell on Taobao, but distributors won't walk away because Kappa has market pull. Though storefronts are suffering from the loss of business, they are still a necessary part of the distribution chain. Customers benefit from browsing the store and trying out the physical merchandise, even if they end up then ordering it online. Some brands are dealing with the distributor backlash by buying out or owning their distributors.

Which domestic brands survive to battle Nike is still in question. Analysts have differing opinions. A January report from China Construction Bank favors secondtier brands such as Peak and Xtep, which they believe have a better chance of capturing the lower tier markets. However, analysts from UBS and Core Pacific Yamaichi think that smaller brands will not be competitive in the long-term, and will eventually lose out to the bigger brands, which have larger advertising budgets and are eyeing the lower tier market. Whether or not surviving brands will be able to compete with global brands is also a question that remains to be answered. "A name like Li Ning and an identity so much centered around Chinese nationalism don't travel. Plus, the company needs to truly differentiate from its competitors in a way that is globally relevant in order to expand to international markets, commented Francesco Wesel from integrated Marketing Communication on an online article from Adage. What is not in question: China's sportswear market is expanding and the battle between domestic and foreign sportswear brands is far from over.

During a recent retail summit held by the Global Supply Chain Council, delegates discussed the upcoming role of domestic brands.