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.