September 30, 2020
Domestic sales of sportswear (footwear included) exceeded Rmb310bn in 2019, and the textile & apparel subsector’s growth potential may prove to be sustainable, with leading names enjoying economies of scale.
While upstream knitwear manufacturers have established competitive advantages via integrated operations and global capacity expansion, end-market demand is increasingly diversified.
There could be new opportunities for domestic sportswear brands with precise positioning, efficient corporate governance and a good understanding of customers’ needs.
China may become the world’s largest sportswear market
China’s sportswear industry witnessed extensive destocking over 2012–2013, and entered a strong growth stage in the following decade. As domestic household income improved, average spending on sportswear has continued to rise and people are exercising more often.
Data from Euromonitor shows that China became the second largest sportswear market by retail sales value (footwear included) in 2019, only behind the US. Domestic sportswear retail sales rose from Rmb148.3bn in 2014 to Rmb316.6bn in 2019, a CAGR of 16%.
Sales volume and price of sportswear products could continue to increase in China, which could make it the world’s largest sportswear market in the future.
Figure 1: Domestic sportswear retail sales
Source: Euromonitor, CICC Research
Promotion of functional sportswear and sports could facilitate market expansion for domestic sportswear brands
Nike and Adidas still dominate the global sportswear market, but local brands representing domestic sports are rapidly rising globally.
Domestic sportswear brands became more competitive possibly because consumers recognized their high value for money and connected with the sports they represent. For example, Anta became a national sports brand by sponsoring sports events, and its multi-brand operation was a success thanks to its efforts in developing better designed and value for money products.
Figure 2: Market share gains of leading domestic sportswear brands
Source: Euromonitor, CICC Research
Sportswear segment is more concentrated than other apparel subsectors, such as children’s wear, menswear and women’s wear, and could boast strong growth potential.
Demand for mid-range/high-end and trendy sportswear is growing
The mid-income group in China has continued to expand, and these consumers may care more about quality when buying clothes.
With stylish sportswear taking the place of traditional casual wear, new domestic sportswear brands are becoming more popular, such as Anta’s Fila and Arc'teryx, and Li Ning sub-brand, China Li Ning.
Compared to mass brands, mid-range/high-end apparel brands seem to put greater effort in branding and developing classic products. Sales of mid-range/high-end apparel have been growing at a higher CAGR than lower-end brands in recent years.
Figure 3: Revenue CAGR over 2016–2019: mid-range/high-end brands vs. mass brands
Source: Corporate filings, CICC Research
Shift to direct-to-consumer (DTC) model and digitalization may better satisfy diverse needs
In order to strengthen retail capability, it may be important for sportswear brands to cater to specific demand in different markets, open stores at popular shopping malls, and accelerate product development and payment collection.
They may also need to improve their distribution networks. Sportswear brands at home and abroad are all shifting towards the DTC model. Their earnings grew further thanks to integration of their online and offline presence, simplification of distribution networks and opening of more large stores.
Growing sportswear demand in lower-tier cities may be accelerating the shift towards DTC. In 2018, around 30% of Chinese people lived in tier-1/2 cities, and the remainder lived in lower-tier cities, which could point to strong market potential. The DTC model may allow sportswear companies to simplify distribution networks, and enhance retail sales efficiency without hurting their brand image.
Figure 4: Chinese population breakdown by city (2018)
Source: Nielsen, CICC Research
For more details, please see our report Sportswear: Growth to prove resilient; smooth progress towards DTC published in September 2020.