China’s outdoor market spawns intense competition

Sep 7, 2010

Topic: Business

Like many things in China, the outdoor industry has been evolving at an accelerated pace.

There are few better examples of this than Sanfo, widely recognized as the pioneer of outdoor specialty retail in China. Owner Zhang Heng, a horseback riding and outdoor enthusiast, did not open the first store until 1998 after a three-month, low-budget tour of western China convinced him there was a market. Today he has 28 stores and expects to be operating 100 within three years. But Sanfo is far from alone. From VF Corp. and Columbia Sportswear to Nike and adidas, western brands have shifted massive resources to China in the last five years in a bid to capture market share.

Rapid change has led to a sometimes incongruous blend of old and new that western brand executives find strange. On the one hand, they wistfully compare the emerging outdoor scene to the early 1970s in North America. On the other hand, they note the country is already flooded with outdoor brands from every corner of the globe, including a growing number of legitimate domestic brands.

The primary dynamics driving the growth – rapidly rising incomes and conspicuous consumption – are different from what drove the U.S. industry in the last century, U.S. executives note. Scrape beneath the surface, they say, and you will be hard pressed to find core outdoor enthusiasts behind the thousands of shops. Ties with the conservation and environmental movements are even more rare.

Still, an enormous appetite for outdoor recreation exists. A survey of nearly 6,000 people in 10 major Chinese cities found 19% of respondents chose hiking as an activity they engaged in after work, according to the Chinese Outdoor Retailers Association. That put hiking third on a list of activities just below watching television and shopping and ahead of playing with children, ball games and cinema.

The pros of China’s emerging outdoor retail market include high growth rate, low barriers to entry and opportunity to shape a massive market, reports CORA. The cons include an abundance of brands, intellectual property risks and China’s VAT tax, which can put some brands out of reach of China’s growing middle class.

The coming generation
China’s potential comes not just from its sheer size but from its youth and rapid rate of development. Approximately 500 million Chinese will be 30 or younger in 2015 and this group will enjoy unprecedented education, income and leisure time. Today, 80 percent of China’s wealthy are under 45 compared with 30% in the U.S. and 19% in Japan, according to the consulting firm Enovate, which has helped New Balance, Under Armour and other U.S. brands establish themselves in China. Enovate argues China is already saturated with imports and Chinese youth are already highly skeptical of advertising. Nearly six in eight Chinese youth say they try to independently verify a brand’s green claims, in large part by surfing the Internet. A survey of 400 college students conducted by the firm late last year found them yearning for a more balanced and less materialistic life than their parents, who often worked 60 to 80 hours a week toiling in factories so their children could attend better schools or live in a better house.
 
“They are coming out of a culture where, until recently, six to seven days of work was not unusual,” , said Greg Foweraker, managing director for Innate Gear of Vancouver, B.C. “The whole concept of the luxury of time to engage in outdoor recreation is only bearing fruit in current generation.”

Foweraker, who helped develop global brand compliance for MEC in 1999 and 2000, has traveled to China more than 70 times since 1992 on sourcing, compliance and – more recently – brand-building missions. In that time, Chinese consumers have become much more discerning.

“Increasingly there is a level of unapologetic self confidence we are seeing with Chinese consumers,” he said. “The middle class is not to be under estimated.”

An abundance of brands
Some observers say China is already saturated with more brands than it can support. In addition to most of the major North American, European and Asian brands, there is growing competition from domestic brands.

An increasing number have been launched in the last two years by companies that started out manufacturing outdoor product for western brands, said Jack Lin of Himalaya Trading Co., which has represented Black Diamond Equipment, Innate Gear, Mountainsmith, Outdoor Research and Vasque in China.
 
“At this moment, the market is over supplied,” he said in an e-mail from China.

The competition is about to get more fierce. Adidas has big plans to grow its outdoor business in China, where it already derives nearly 10 percent of its revenue.  Company management has said they plan to open 35 outdoor stores in China this year toward their goal of establishing Adidas as the nation’s leading outdoor brand by 2015. The company will staff those stores with employees who “have to know, live and breathe the outdoors,” an executive told the online magazine mysportslink.com.

There are also a growing number of authentic domestic outdoor brands including Beijing Toread Outdoor Sports Products Co. Ltd., Ozark Gear, Black Yak, Kailas, Snowwolf and OnePolar. Domestic brands present formidable competition because they don’t pay import duties that can add 20% to landed cost, said Lin. 

Beijing Toread Gets $32M in IPO

In just 11 years, Toread has developed into a vertically integrated manufacturer and retailer of outdoor apparel and gear and a growing direct business. The company was licensed as an official manufacturer for the Beijing 2008 Olympic Games and has been recognized by the Chinese government as a “well known trademark,” which gives provides owners of trademarks, which were widely known in the marketplace but not registered, with a measure of protection against later registrations of the same mark by others. The company built a new R&D facility in 2008 and had 400 retail outlets that year. It is in more department stores than any other outdoor brand, been averaging 50 percent growth per year for ten years and raised approximately $32 million in an IPO last fall, according to the company’s website and other sources.

Like western brands, Toread has closely associated itself with conservation. Its causes include protecting Tibet’s antelope and it has donated cash and product to earthquake relief efforts. The company’s product line spans tents, sleeping bags, backpacks and other gear. It entered the apparel business in 2002.

Toread opened its first stand-alone store in Beijing in 2003, when it also began partnering with W.L. Gore on fabrics and exhibiting at the Outdoor Show in Friedrichschafen. It sponsors expeditions, advertises on television and employs some of China’s top outdoor athletes.

Such rapid development has allowed the Outdoor Asia show and the ispo China winter show to thrive. Ispo China grew to 300,000 square feet of exhibition space in seven years. Last February, 214 exhibitors showed 300 brands at the show, up 76 percent from 2009. Attendance grew 21 percent to 16,300, according to show owner Messe Munchen GmbH. First time exhibitors included Columbia, Mountain Hardwear, Salewa, Regatta and Ecco. The show is now held in conjunction with Asia Pacific Snow Conference, which features ski lifts and grooming equipment vendors targeting China’s blossoming ski resort industry. The day before the show 200 retailers attended the Chinese Outdoor Retailing Conference, which has been sponsored in recent years by Gore-Tex.

While not all the brands flooding into China will survive, their presence is destined to increase consumer awareness of outdoor recreation and that will be good for everyone, executives agree.

“This year many new brands exhibited at ispo China with the thought of making visitors even more aware of the outdoor segment and healthy lifestyles in China,” Beijing Toread President Sheng Faqiang said in March. “This is very helpful for the development of the entire outdoor industry.”