The Making of China's Sportswear Titans
By: Sol Ahn, CFA, Portfolio Manager
As the 2020 Tokyo Olympics drew close, China announced a five-year plan to pump trillions into the sports industry. The timely move came on the back of mass regulatory clampdowns on big technology platforms, gaming, entertainment, and gambling, which brought much uncertainty to markets.
However, the State Council’s plan for the sports industry is not like the past “couch-to-5k” fitness program—China intends to kick the sports sector into shape and transform the industry into a US$774 billion industry by 2025, by targeting better access and participation in sports, mass fitness events and stepping up the war against adolescent obesity.
In particular, the government is paying particular attention to the young demographic. In a bid to pivot attention from after-school tutoring and online gaming, two industries that have come under recent regulatory pressure, the government will require schools to implement a daily hour-long period of activity.
In our view, China is well-positioned to grow the sports industry, which is still quite underpenetrated compared to other countries. This suggests that an onslaught of increasingly sophisticated facilities and demand for premium sports equipment and apparel could help boost sports participation from a top-down perspective.For example, Chinese citizens living in counties, towns, and administrative villages and communities will be no more than 15 minutes away from a fitness facility. Mass participation events will also encourage people to hike and jog together, with a particular focus on “300 million participants on winter activities”.
China’s Love for Winter Sports is Snow Joke
China’s winter sports market is at quite a different point in its lifecycle when compared to the mass market in Europe, which gives us reason to believe that there could be potential opportunities in this largely underpenetrated market. China’s winter sports market has potential room for growth, on the back of the government’s emphasis on an active lifestyle, a growing middle-class population, and a boom in the athleisure trend.
Unlike other sports such as running, gym classes, or yoga, skiing has a higher barrier of entry. Yet as disposable income rises in China, the costs associated with winter sports have become more manageable for the Chinese population. That said, the Chinese ski market remains relatively untouched. There are currently 13.2 million skiers in China that equates to just 1% of the population, or 1.5% of the urban population, far below the 9% or 8% of the population that ski in Japan and the US. As such, we believe the upcoming 2022 Beijing Winter Olympics is set to drive this burgeoning winter sports industry, and in turn boost demand for ski apparel.
Ski culture has not yet made its impact in China either. The activity is considered more of a form of entertainment rather than an official sport. Many of those that travel to the slopes do not visit more than once per season, while 75% of those are one-time skiers. However, as more of the population become acquainted with the slopes, amateur skiers will gradually improve their skills. They may even buy their own equipment and drive demand for premium ski-related goods.
As consumers become more sophisticated, domestic brands such as Anta and Li Ning, which have built a solid Chinese following, are well-positioned to benefit from this long-term trend. Both are strong global players covering the premium segment of the sportswear and outdoor apparel sector: Li Ning capitalizes on national pride and leverages the “Guochao” trend, while Anta has a strong multi-brand strategy that encompasses a wide range of sportswear, from mass-market sports clothing to specialized climbing or professional winter sports names. We anticipate these domestic names will likely gain more market share from competitors as local brands, on the whole, are priced lower than international peers.
A Race at Home
Domestic brands are becoming more competitive for various reasons:
- Research and development (R&D) spending is on the rise
- Brands’ prominent locations in shopping malls are gaining consumer attention as direct-to-consumer (D2C) strategies are meeting consumer demand at a much faster pace
- Celebrity endorsements are elevating Chinese brands to domestic consumers
We’ve observed these domestic brands increasing in popularity on the back of favorable political conditions and consumers pivoting to home-grown brands after Western brands became embroiled in the Xinjiang cotton controversy. For example, Li Ning’s appointment of Chinese idol Xiao Zhan as its newest brand ambassador and Chinese entertainer Wang Yibo’s promotion for Anta signals that consumers have pent-up demand for quality Chinese products creating a virtuous cycle that could lead to domestic names taking more market share from giant sports names such as Nike or Adidas.
In conclusion, China’s sports blueprint means there is considerable potential for sports-related businesses to thrive over the next five years, as a combination of increased sports participation and national pride are driving demand for quality domestic brands among consumers.
 Caixin Global, August 5, 2021.
 Xinhua, December 16, 2020.
 Goldman Sachs Equity Research, 2019.
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