It's like a football game, both sides try hard to score each other's half. The giants of foreign sporting goods represented by Adidas and Nike hope to further extend their reach to Chinese second and third-tier cities. Recently, Nike said that in the next five years its emerging markets, including Greater China, will grow at an annual rate of around 10%. Although there is no description of strategic details, the operating costs of first-line markets have increased significantly. The industry has already estimated that the second and third-tier cities will be the next phase of Nike's focus, which means that Nike will "invade" domestic brands. However, this is not a side-by-side game because Anta and Peak, the first grass-roots brands that have made their fortune in the second- and third-tier markets, consolidate their advantageous regions and are also among the top cities.
This is bound to be a wrestling match.
Nike growth relied on the market
For multinational giants in all walks of life, China, India and other developing countries not only manufacture manufacturing bases, but also consume “potential sharesâ€, and their market position has been increasing year by year. In the third quarter of the 2009-2010 financial quarter, Nike’s turnover increased by 7%. "It is appropriate to perform well in emerging markets." Nike bluntly stated this.
According to statistics, Nike’s earnings during the quarter increased by 6% to US$496 million, or US$1.01 per share. In the same period last fiscal year, the company earned 244 million U.S. dollars, or 50 cents per share. Sales increased by 7% to US$4.4 billion, unchanged from the same period last year.
One of the regions with the best Nike brand performance is the emerging market represented by China, with sales in the Chinese market rising by 10%. In view of this, Nike has also shown unprecedented importance to emerging markets. It is reported that Nike has made an estimate that in the next five years its revenue in emerging markets will increase at a rate of 10%, becoming a key area for business development.
According to estimates of 3.58 billion U.S. dollars in emerging market revenue in the first three quarters of this fiscal year, revenue for the entire fiscal year is approximately 5 billion U.S. dollars, and an annual growth rate of 10% means that by 2015, emerging market revenues will exceed US$8 billion.
Like multinational sports giants such as Adidas and Puma, Nike’s current sales network in China is mainly distributed in first-tier cities such as Beijing, Shanghai and Guangzhou. However, with the continuous increase in operating costs such as store rental, and Li Ning, Anta, Peak, Xtep and other domestic sports brands to lay the first-line market overweight, the growth space is far worse.
As a result, the industry generally believes that the second and third tier cities will be the next stop for such multinational brands as Nike.
Reduced prices for markets, difficult choices
However, unlike the high-profile entry of domestic brands into the front-line market, Nike has never expressed its strong desire to enter the second-tier and third-tier markets. Can't find cut-in point? To this end, the recent investment bank UBS has given Nike a move --- launch low-priced products.
“We believe that Nike’s current pricing strategy in China has made it impossible for businesses to break into second- and third-tier cities, and domestic brands have actively expanded in these cities.†UBS analysts after discussions with industry players concluded that Nike has the ability to put footwear products. The price is set at a very competitive 300 yuan/pair.
If Nike can really make the price more competitive, then even in the second and third tier markets where domestic brands are prosperous, they will still have no disadvantage. The UBS report believes that if Nike decides to sell low-priced products in China, domestic brands with higher average selling prices, such as Kappa (China Dongxiang Brand) and Li Ning, etc., will be the most affected in the short term because of the second and third tier cities. Some consumers may choose Nike instead. In the long run, some domestic brands with a brand image will be squeezed out of the market. “We believe that small and medium-sized brands with an annual marketing budget of 350-500 million yuan are unlikely to compete with Nike, Li Ning and Anta nationwide.
This seemingly quite lethal move, Nike will do it?
In 1998, Mr. Shao, who was still in high school, used his savings from working throughout the summer to purchase a Nike-branded NBA star Penny Hardaway. The price was 1,280 yuan. "In those days, having a pair of Nike basketball shoes was a very good thing among the classmates." The same happened to his nephew after a lapse of 12 years. Mr. Shao’s nephew read a sophomore this year. His pair of “Kobe Bryant’s†exclusive shoes made his classmates envy. For Nike to reduce the price, Mr. Shao and his nephew are opposed to "In this way, the sense of superiority to wear Nike will disappear."
Inadvertently, the backyard caught fire
This is true in any industry, and price is not the only factor that determines consumer choice. Excellent brands tend to retain more consumers because of their high prices. Naturally, they also mean more profits. Changing the market for prices is not necessarily a wise choice.
However, if you do not consider price cuts, Nike wants to enter the second and third line market is almost impossible, because it will face the domestic brand is constantly strengthening the wall.
At present, the main brands of domestic brands represented by Anta and Xtep are still placed in the second and third tier markets. “In some small cities in China, you just need to see a Nike store. There must be around 2-3 Anta and Xtep at the same time.†Liang Fenluo, analyst at Huajie Consulting Apparel Industry, believes that the second and third tier cities are the main battlefield for domestic brands. It is the cornerstone of the company. If we feel that international brands have channels to sink, the price of domestic brands and marketing “resistance†will be fierce. Under the spell, international brands may not be able to take advantage of it.
In addition, at the current stage, the domestic sports brand is still "a magnificent trend." According to statistics, during the four quarterly 2010 quarterly major sports brand domestic sports brands, Xtep International’s average orders increased the highest, reaching about 23%, China’s movement ranked second, reaching 20%, and Anta ranked third, reaching In 19%, Li Ning came in fourth, and the growth rate also had double digits.
“The four major sportswear suppliers received a common trend of growth in sales orders in the fourth quarter of 2010.†Taifu Securities believes that this phenomenon shows that distributors continue to have confidence in the sales prospects of domestic sportswear.
On the other hand, with the continuous decline of first-tier cities, Anta, Peak and other companies have an obvious intention to attack the hinterland of international brands. As a result, to achieve the goal of achieving a 10% annual growth rate, Nike has to consider how to defend in addition to offense.