Asia and Russia Offer Great Promise, Despite Challenges

Apr 5, 2012

Topic: Policy

Asia and Russia are quickly emerging as top potential international growth markets for U.S. outdoor brands. What makes Asia so attractive is its affinity for U.S. brands and the continuum of opportunities it offers. While China may be the biggest long-term growth opportunity worldwide, South Korea and Japan are larger markets today, particularly for equipment brands that rely on participation in core outdoor activities such as camping, climbing, hiking, mountaineering and skiing. India and Russia present important, but more distant opportunities for all but a handful of global brands.

While many outdoor brands are having success in mainland China, it remains a tumultuous and crowded market fraught with obstacles, including an embryonic specialty channel, a lack of participation in core activities and rampant counterfeiting. (For a deeper discussion of China’s emerging market, see the September 2010 edition of CEO Brief.)

And while there is a growing middle class in China, the average household income of $13,000 offers limited purchasing power for premium products, despite the country’s enormous population.

“China is definitely on our schedule — as is India, but we have to be very careful as to who we set up a distribution network with,” said Jerry Rinder, vice president of sales and marketing at Woolrich. “A number of companies have gone to China and gotten burned badly.”

American Rec and Woolrich are among the long list of companies focused on the thriving South Korean market, which is likely the second biggest market in Asia for outdoor equipment after Japan. This should come as no surprise, given the country’s population, income levels, climate and affinity for American brands.

Like Japan, South Koreans participate in a range of outdoor activities, including climbing, skiing and hiking. On the weekends, residents of Seoul, with trekking poles in hand, flock to trains to travel to trailheads about an hour out of the city. When they arrive, they must literally walk through outdoor specialty stores to reach the trail. Participation is motivated primarily by the desire for health and social interaction, say those familiar with the market.

“It’s quite different than any place in the world,” said George Brown, who has seen a lot of the world, heading up international sales for Vasque. “There are literally so many people on the trail it’s like being on a freeway at rush hour.”

Koreans are known for their brand allegiance and preference to dress from head to toe in a single brand, according to Josh Fairchild of Oboz Footwear, which has partnered with UK-based Mountain Equipment to provide Korean consumers with their outdoor ensembles.

The country, and particularly the 23-million strong Seoul region, is well served by independent outdoor specialty dealers. Japan’s Montbell operates more than 100 shops in South Korea, which has spawned its own domestic outdoor brands. Among them is Treksta — one of the few Asian brands born outside of Japan that seems to be gaining traction in the United States.

“We’ve been very pleasantly surprised by the high quality of footwear there,” said Garett Graubins, director of marketing for Boa Technologies, which recently hired a public relations firm in Seoul to provide more support to partner brands through point-of-purchase and direct-to-consumer marketing.

Russia looms as one of the few other markets in the region with a deep outdoor tradition. Petro-dollars have made it a good market for American outdoor apparel and footwear brands, including Columbia and Timberland, which are considered status symbols among the emerging middle class.

Since partnering with its distributor Ilios in 1998, Columbia Sportswear has emerged as a prominent Western sports brands in Russia, alongside Nike and adidas. Ilios opened its first Columbia store in 2001, was named Columbia’s international distributor of the year in 2003 and now operates 92 Columbia stores in Russia. Ilios also distributes the Columbia brand in Ukraine and nine other countries that split from the Soviet Union.

Timberland entered Russia in 2006 and its distributor now serves 40 wholesale accounts with a total of 70 doors, including 23 Timberland-branded stores.

But Russia has proven more difficult for equipment vendors because equipment distributors and specialty retailers are few and far between and often strapped for cash.

“It is a hard-core market, but it’s a hard place to do business, said Joe McSwiney, president of Cascade Designs. “They have highly intelligent and motivated distributors, but you need a strong brand because they won’t spend their limited dollars on lesser known brands. It’s not a place you go looking for early adopters. You go to Europe and Japan for that.”

Finnish companies are pushing particularly hard in Russia. Amer Sports says its 10 stores there reached profitability faster than in any other country where it operates. Intersport Finland Ltd, which is Finland’s largest sporting goods retailer, expects to double its store count to 72 in Russia in the next three years with help from Kesko Group, a Finnish retail group that generated $13 billion in sales last year in Scandinavia, the Baltic region and Russia.

India — despite its size, a growing middle class, Himalayan recreation opportunities, and the prevalence of English — remains farther down the list for many outdoor brands and may be falling lower. The subcontinent has shown growing hostility toward foreign investment since last fall, when it backed off plans to allow foreign investment of up to 51 percent in “multi-brand” retailers. The reversal was prompted by strong public opposition to Walmart Stores Inc.’s proposal to buy a 51 percent stake in a domestic supermarket chain. Walmart and some of the U.S. brands it distributes have since shifted their international focus to other emerging markets, in Asia and Latin America.

Yet India is not a total lost cause. Many people from upper middle class Indian families have lived in the United States and take their style cues from American culture, so they’re keen to buy American products. Timberland’s distributor in India has been able to open 14 doors since 2010, including 12 Timberland-branded stores and two wholesale shop-in-shops. In addition, some outdoor equipment brands report being approached by distributors interested in selling their products to the Indian military.

In sizing up Asian and Russian opportunities, it seems there is both promise and reason for pause. The reality is that these markets are in flux — and what works in one place might flop in another. The key is to understand distribution realities and consumer preferences in each country, and be prepared to adapt as the landscape changes.

Compare demographic and economic data for emerging market countries.