Sneaker makers off to running start in China

Athletic footwear shows some COVID resilience, smaller players making dash for it

When life and production returned to normal in Shanghai on June 1 - about two months after the temporary lockdown to contain a COVID-19 outbreak in the city - the first thing 41-year-old Zhao Fei did was to run 10 kilometers around Century Park in the city's Pudong New Area, a venue that attracts thousands of running enthusiasts like himself.

"The 5-km track around the park boasts elite runners and amateurs,bringing a great deal of fitness enthusiasm and creating a buoyant running environment. I assume that is one of the reasons that quite a large number of brands have organized running clubs and activities around the park, which is really effective marketing," Zhao said.

One such club's members running in the park is sponsored by Swiss running shoe brand On, and is one of the better-known runner unions around Century Park. In August 2021, the 12-year-old brand launched a WeChat mini program in China through which consumers can exchange running experiences or share product reviews, extending offline activities to online channels to enhance brand loyalty.

The company's operational data represents the effectiveness of its offline and online activities. With its first physical store opened in Shanghai in December 2019, On opened a brick-and-mortar store in Wuhan,Hubei province, in early September.By Dec 31, the end of fiscal year 2022,On will have 13 offline shops in China, the company's CFO and co-CEO Martin Hoffmann said during an analyst meeting in late August.

While saying that the two-month shutdown of On's warehouse in Shanghai caused 5 million Swiss francs ($5.2 million) turnover loss to the company earlier this year due to the resurgent epidemic, Hoffmann said robust recovery was a certainty when the restrictions were removed.

It turns out that On and French athletic shoe company Hoka One One are the only two major sports shoe brands worldwide unaffected by the COVID-19 pandemic, according to New York-based market research company the NPD Group.

London-based market consultancy Mintel said jogging and hiking have become the most popular outdoor physical activities in China,with both enjoyed by many Chinese.

Similar to On's strategy, 13-year-old Hoka attaches greater importance to offline retailing, with its store opening pace accelerated in 2021. Up to now, the French brand has opened 12 regular chain stores in China after first tapping into China six years ago. Its newest regular chain store was unveiled in Chengdu in mid August, which is also the first Hoka store in Southwest China. Hoka's official website in China shows that its shoes are available in another 90-some third-party stores that the company has partnered with via licensing agreements.

Hoka was acquired by Deckers Outdoor Corp - also the parent company of well-known boot maker UGG - in 2013. As Deckers said in its 2022 annual fiscal report, the company plans for most of Hoka partner retail stores to be operated in international markets, with the largest number expected in China.

David Powers, president and CEO of Deckers, said in an analyst meeting in late May that the opening of physical stores in China is one way to better reach into the Chinese market.

"As to Hoka retail, it's definitely early days," Powers said.

His ambition is supported by the large group of runners in China and a relatively smaller market share that emerging sneakers brands take at present.

Market consulting firm iResearch estimates that there are around 100 million elite runners and another 300 million amateur runners in China, making the country the world's second largest running market after the United States.

But the largest share of the Chinese sneaker market is still dominated by Nike, taking up more than one fourth of the total, according to Qianzhan Industrial Research Institute. Adidas took up second place with 17 percent, followed by domestic sportswear giant Anta. Other big names coming into the top 10 are Li-Ning, Xtep, Guirenniao, Toread, Kappa and 361 Sport.

The competition is already intense. According to Xiao Kaixi,consumption analyst from Nomura China, market consolidation will continue in the country and leading sports brands will gradually seize more market share given higher thresholds regarding technologies and marketing campaigns in the sports sector.

Efforts made by Chinese domestic brands in terms of product innovation and marketing should not be overlooked as they aspire to catch up with international leaders, said Xiao.

One example is Anta's specially designed shoe for 5 to 10 km training that it rolled out in early August. Tagged "Olympic champion shoes", the newly launched product has integrated running data from more than 100 Chinese Olympic champions and samples from another 7,700 runners. This is part of the long-term program that Anta kicked off in late 2020, which aims to introduce more running shoes especially designed for Chinese consumers.

Anta's efforts have paid off. Fiscal results for the first half, showed that sales revenue from shoes contributed over 11.1 billion yuan ($1.6 billion) of income, comprising 42.8 percent of the company's total turnover. More important, income from shoes reported the most robust 25.8 percent year-on-year growth in the first six months of the year, apparently little affected by the epidemic.

"Apart from the sales increase in the short run, we have seen changes in Chinese consumer preferences,upgrading in distribution channels and reallocation of marketing resources. All these will help to elevate market share taken by domestic brands," Xiao of Nomura said.

But no company should be discouraged as the potential of the Chinese market is tremendous. The State Council, the country's Cabinet, released in August 2021 a national fitness plan for the 2021-25 period, which states that the market value of the Chinese sports industry will top 5 trillion yuan when the five-year plan wraps up.The sports industry will grow into a new pillar of China's economy by that time, said the plan.

Looking more closely, the Chinese sports apparel and footwear market was valued at around 372 billion yuan in 2021, and the number is expected to amount to 599 billion yuan in 2025, according to market consultancy MKT Index.

The increasing number of younger sports enthusiasts will translate into sustained purchasing power for sports brands in general.According to the 2022 sports development white paper for the Chinese younger generation released by iResearch in August, up to 60 percent of consumers born after 2000 have increased their expenditure for sportswear and activities over the past five years.

Xiao said that the growth of the sportswear sector will remain resilient in China this year despite the negative impact from resurgent COVID-19 cases in the country.Functional sportswear, especially footwear, will report the fastest growth in China this year, he said.

"With Chinese people's rising awareness of health and greater importance attached to exercise,the sportswear industry in China is of long-term investment value,especially empowered by supportive government policies," he said.

原标题：《Sneaker makers off to running start in China》

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