Chinese sportswear brands count profits from Xinjiang controversy
SHANGHAI – College student Lin Hong has long turned to Nike for his sneaker needs, purchasing five pairs of his basketball shoes over the past two years.
He is now eyeing the biggest Chinese competitors of the American brand.
“It’s time to ditch Nike for Li Ning or Anta,” he said, complaining that his latest Nike sneakers haven’t held up well as Chinese brands come up with “dynamic designs and stronger soles. “.
Thanks to consumers like Lin, Li Ning, founded by the Olympic gymnast of the same name, has announced that it will see skyrocketing profit growth when it reports its half-year results on Thursday.
Xtep International Holdings and Anta Sports Products, the fastest growing sportswear company in the Chinese market over the past five years, are expected to follow suit two weeks later.
While all three companies have highlighted a pickup in consumer demand since the outbreak of the COVID pandemic last year, it has had little benefit for Western competitors in China like Adidas and Nike.
Their sales suffered in the spring after state media and social media users criticized their previous concerns about forced labor in the minority region of Xinjiang and the company’s claims about avoiding cotton from the region.
This follows joint actions by the United States, the EU, the United Kingdom and Canada in March to censor China and sanction those responsible for alleged human rights violations against Uyghurs and other Muslims in Xinjiang.
The resulting fury, fueled by Communist Party-run media, hit Swedish clothing retailer H&M hardest. Chinese celebrities have broken endorsement contracts with the brand, online mapping and ridesharing services have wiped H&M stores from their systems, major internet shopping platforms have abandoned their products, and some owners have canceled store leases as part of a boycott campaign.
For the quarter ended May 31, H & M’s net sales in mainland China fell 28.1% to SEK 1.62 billion ($ 186.86 million) from a year earlier, while its National store network contracted by 13 net outlets to 489. Previously, the chain’s third largest market, China finished the quarter in sixth place.
Adidas, meanwhile, recorded a 16.3% drop in sales in China to 1 billion euros ($ 1.18 billion) in the April-June quarter, according to figures released last week. Nike earlier announced that its largest revenue in China for the March-May period increased 17% to $ 1.93 billion, but this is due to the fact that its global revenue nearly doubled from the previous level. last year.
In contrast, Chinese brands have publicly trumpeted their use of Xinjiang cotton, with Anta and others leaving the Better Cotton Initiative, a Geneva-based group seen as one of the main culprits in the issues raised about the use of forced labor. , and captured a wave of nationalist sentiment. .
Li Ning said he expects to record revenue growth of over 60% and at least 1.8 billion yuan ($ 277.65 million) in net profit for the first half of the year, potentially tripling the 683.27 million yuan earned during the same period last year. year.
The shift in consumer attitudes has helped Beijing-based Li Ning cut discounts, with Daiwa analysts Adrian Chan and Sybil Hu predicting the company will post “a record net margin of over 18%” for the half year , because some stores sold some of the popular products.
Li Ning’s shares have risen 86% since the party’s campaign against H&M began, while Anta is up 44% and Xtep’s shares have nearly tripled in value.
Xtep told investors it would report profit growth of at least 65% for the half year, while Anta spoke of an increase of more than 110% thanks to a revenue increase of more than 50% in reducing discounts. Anta posted a profit of 1.66 billion yuan a year ago.
Building on its new sales momentum, the Xiamen-based company presented plans to analysts last month to increase sales volumes and shift its branding to the top of the market, with a target price for basketball shoes. ball up to 1,500 yuan a pair to get up to Nike’s level. and Adidas.
The momentum, however, now appears to be shifting, with Western brands gaining a foothold in China as the momentum of their domestic rivals over the Xinjiang controversy wanes.
Adidas chief executive Kasper Rorsted told analysts last week that the company’s Chinese online sales returned to growth in June as overall sales were flat. Analysts believe sales increased last month with high-profile appearances by Western brands at the Tokyo Olympics, with Chinese sprinter Su Bingtian setting an Asian record in the 100-meters, most notably with Nike.
“From our observation, talk of ‘Xinjiang cotton’ declined in most social media in July-August,” Citigroup analyst Xiaopo Wei wrote in a note to a client on Tuesday. “In recent weeks, Chinese public media have reported that Chinese athletes were wearing the Nike / Adidas uniform at the Tokyo Olympics, which sparked much more positive feelings among Chinese consumers towards Nike / Adidas.”
Chinese brands, meanwhile, face new threats in the United States
Although each of them generates almost all of their income in China, they looked to the endorsement of National Basketball Association players to raise their brand profile.
Senator Jeff Merkley and Congressman James McGovern, who head the Congressional Executive Committee on China, targeted the link in June, writing to the NBA Players Association to urge members to break contracts with Anta and Li Ning to unless they stop using Xinjiang Cotton.
“We urge the NBPA to work with its members to raise awareness of the ongoing genocide in Xinjiang and the role of forced labor in the production of products made by brands that NBPA members have endorsed,” they said. “We believe that trading relationships with companies that source cotton from Xinjiang creates reputational risks for NBA players and the NBA itself.”
“NBA players are used to using their large public platform to speak out against injustice, and we hope that will include Xinjiang,” the lawmakers wrote.
Meanwhile, Representative Scott Perry and three other members of Congress have written to the U.S. Department of the Treasury, calling on the agency to add Li Ning and Anta to a blacklist that would ban U.S. businesses and individuals from doing business with them.
“We believe that any kind of financial association with either brand by an American person is fundamentally unacceptable,” they said. Those who do so “undermine the national security of the United States by downplaying the seriousness of the genocide designation” announced by the US State Department in January.
Politics, however, is not the only reason Chinese sports brands have gained domestic customers. Jacob Cooke, managing director of e-commerce consultancy WPIC in Beijing, said Chinese manufacturers are making smart use of marketing data.
“Local consumer brands are successful with data-driven product offerings and strong marketing,” he said.
Additional reporting by Zach Coleman