Feature 4. Sports

For an entrepreneur, every day is a crisis.

Phil Knight, Co-Founder of Nike

Overview 2023

The scale of the global sportswear market continued to grow in 2023, with the Chinese market flourishing remarkably and contributing significantly to revenue growth. NIKE, adidas, and PUMA, the top three sportswear giants in the world, released their financial report for 2023, showing an improvement in sales. NIKE’s sales climbed by 16% year over year in the fiscal year 2023 (from June 1, 2022, to May 31, 2023) and by 2% proportionally year over year in the first quarter of the fiscal year 2024 (from May 31 to August 31, 2023), with 12% year-on-year growth in Greater China. Adidas reported a 6% year-over-year growth in revenue from Greater China in its third-quarter financial report for 2023. PUMA’s revenue rose by 10.1% year-on-year in the first half of 2023, with an increase of 26% in sales in Asia-Pacific, which includes the Chinese market. China’s sports brands achieved rapid growth due to supply chain efficiency, the nation's growing concern for health, and the nationwide fitness craze induced by sports events in 2023. In the first half of 2023, ANTA Group, the No. 1 player in the domestic sportswear market, saw year-on-year revenue growth of 14.2%; the company’s brand ANTA contributed 14.17 billion yuan, up 6.1% from the previous year, and its FILA brand contributed 12.23 billion yuan, a year-on-year increase of 13.5%. Li-Ning, one of the leading sportswear brands in China, saw revenues rise 13% year over year. Xtep Group’s revenue was 6.522 billion Chinese yuan, up 14.8% year-on-year. According to ZJQX International Consulting, sportswear retail sales in China will reach 542.5 billion Chinese yuan in 2024, a CAGR (compound annual growth rate) growth of 12.9% from 2020 to 2024. It follows that China’s sportswear industry remains a “golden path” with huge growth potential. However, it should be noted that in terms of growth rates, the leading players in the segment, including NIKE, adidas, PUMA, ANTA, and Li-Ning, have shown varying degrees of growth slowdown.

Challenge

• Inventory will remain a key factor affecting the growth of sportswear brands in the short term.

• Professional, finely classified functional sportswear is grabbing the market share of conventional sportswear due to the segmentalized sports industry and evolving consumer demand.

“Inventory issues” are mentioned in the 2023 financial reports of overseas sportswear brands, and domestic brands have also faced inventory pressure due to store expansion, which further leads to problems such as increased discounts, rising management fees, and poor cash flow, weakening corporate profitability. Meanwhile, consumers' increasing demand for professionalism and high performance is boosting brands’ investment in R&D, with varying degrees of impact on profit growth. “High-performance products are outselling the lifestyle category, and Chinese consumers are looking for top product innovations”, Matthew Friend, NIKE’s chief financial officer, noted in the company’s latest financial report. Currently, Greater China serves as a crucial growth engine for several international sportswear brands, and the rapid growth of China’s local brands in the domestic market share has brought new challenges to global brands. However, international brands such as NIKE and adidas still dominate middle to high-end markets. Domestic brands should consider enhancing brand power and increasing profit margins in the favorable environment of growing sales and market share.

Action

NIKE has always excelled at leveraging fashion collaboration as a long-term strategy to boost its sales and share of voice (SOV). From a sportswear brand to becoming an aesthetic symbol, NIKE has partnered with the world’s most influential creatives and brands, including Virgil Abloh, Hiroshi Fujiwara, Travis Scott, G-Dragon, Drake, Louis Vuitton, Dior, Tiffany & Co., Jacquemus, Supreme, Off-White, Fear of God, CLOT, Sacai, Ambush, etc., to create legends over the years, breaking down the barriers between conventional sportswear and cultures such as art, fashion, trend, and exclusive luxury, as well as the industry’s threshold of elitism. Stories about how NIKE’s collaborations were “sold out in seconds” “sneaker of the year”, “snapped up”, “priced at a premium”, and “up for auction” have been repeatedly analyzed and commented on, attracting more creators to join in while creating consumer desires. In 2023, NIKE teamed up with Chinese designer brand Feng Chen Wang for the first time to deliver a collaborated collection when Chinese female consumers went sports-crazy. The collaboration gained wide acclaim for its strong women‘s power, and the whole collection was priced at a premium on the secondary market. Its "old rival" adidas saw a recovery in popularity worldwide in 2023 when fashion styles such as vintage and blokecore were trending. In November, the adidas Samba won the Footwear News Achievement Awards (FNAA) for sneaker of the Year 2023. The hashtag #adidassamba has received over 830 million views on TikTok, and the adidas Samba has reported year-on-year sales growth of more than 2000% on the overseas online marketplace Laced. As of December, there were more than 50,000 posts with the hashtag #samba on Xiaohongshu, with over 140 million views. The 2023 collection of the adidas Samba in partnership with Wales Bonner, Sporty & Rich, and Notitle featured outstanding performance at a premium and sparked repeated buying frenzies. Hundreds of people flocked to Shanghai earlier this year for the SAMBA DAY pop-up, waiting in line to make purchases. Meanwhile, adidas has also collaborated with brands and fashion IPs, including Moncler, Pharrell Williams, Jerry Lorenzo, Crag Green, Song for the Mute, Qiu Shuting, and Melting Sadness, on its classic shoes and clothes. In addition, adidas has seen a general boost in SOV and sales in 2023 as a result of Edison Chen’s partnership with the brand. Compared with mature overseas brands, it is not easy for Chinese sportswear brands to grow their brand power and profit margins to enter middle-end and high-end fashion sportswear markets. ANTA Group, on the other hand, found the solution through acquisitions, leveraging trendy sports brands such as FILA as its second engine of growth. Take its streetwear line as an example. In 2023, FILA FUSION’s skateboard shoe collection in collaboration with Japanese brand BEAMS was sold out immediately after released on Tmall. In November, FILA FUSION and TEAM WANG design, a fashion label owned by Jackson Wang and Henry Cheung, unveiled their collaboration collection “DONG” at an immersive concept show, which boosted FILA FUSION’s WeChat index by 2293% on that day. As of mid-December, the hashtag #FILAFUSION×TEAMWANGdesign# received over 42 million views on Weibo.

GROWTH in 2024

Surviving in a large, structurally rich red ocean market is never easy. Some of the “replicable” paths are starting to emerge from the actions of top brands:

• “Professional sports + trendy fashion” remains an effective strategic path for sportswear brands to achieve growth.

• Build long-term partnerships with creative talents from various fields to promote hero product strategy.

• Strengthen local cooperation to help international brands establish a strong foothold in the Chinese market.

And more

Whether it is the “sports + fashion” path, or the collaboration model, their effectiveness and replicability are beyond doubt in the current sports industry. However, most brands appear to be denied access to NIKE and adidas’ powerful alliance of fashion collaborators. How do I attract talented collaborators in light of my lack of brand power, budget, and the access to high-profile exclusive partnerships? Can niche partners ensure the effectiveness of collaboration? Perhaps New Balance's success in 2022 can provide some inspiration. “Who is Aimé Leon Dore?” was still a mystery in the Chinese market before the Aimé Leon Dore x New Balance 550 became an internet sensation with secondary market premiums of up to 400%. The core reason New Balance chose Aimé Leon Dore over variables like popularity and fanbase size was its ability to define styles and set trends. Eventually, their collaboration went from a multi-season co-branding to the appointment of Teddy Santis, founder of Aimé Leon Dore, as the creative director of the New Balance MADE in USA collection, marking the triumph of niche creators who can make a hit. Joe Preston, CEO of New Balance, said that the brand’s 2022 revenue surged 21% year over year to a record high, while the 550 proved to be New Balance's best-seller throughout the year, accounting for 36% of total sales, according to GOAT’s aftermarket platform. It is also evident that brands should be well aware that no partner or co-branding initiative can be their “life-saving straw” for good. They can only make big things possible when considering collaboration a long-term strategy. This is reflected in brands such as NIKE and adidas. More importantly, collaboration is not the only growth strategy. In response to changing markets and consumer demands, NIKE has aggressively invested in professional technology R&D and launched the Kobe collection to cope with the slowdown in its main brand’s growth. In addition to cultivating fashion trends, adidas has striven to advance sports marketing and raise its profile in professional sports like soccer and marathons. It has also upgraded its flexible supply chain specifically for the Chinese market and explored Chinese cultural symbols, which has contributed significantly to brand growth.