Over the past year, pressure from overcapacity and high inventory has led many domestic and international footwear and apparel companies to search for the next lifeline. Coincidentally, the outdoor goods market has emerged as the new "blue ocean".
At the beginning of 2013, new posters for "waterproof and breathable windbreakers" could be seen at most Anta stores and counters, and some stores even set up dedicated shelves for outdoor items such as waterproof shoes.
Four months ago, domestic sports giant Li-Ning also opened its first flagship outdoor store—Li-Ning Adventure. This business module, authorized under the Li-Ning Group, specializes in outdoor products, including outdoor clothing, outdoor shoes, and outdoor accessories. It operates independently yet interdependently with Li-Ning Sports.
Tempted by the high growth and profits of the outdoor market, global sports giants Adidas and Puma had also set their sights on this sector before Li-Ning and Anta. Adidas established a dedicated outdoor division, while Puma, the world’s third-largest sports brand, identified two promising niche markets: extreme sports and outdoor activity products. In 2013, Puma plans to focus on outdoor sports products.
A number of established footwear and apparel companies are also making strides in the outdoor goods business. Outdoor brands such as Ledong Outdoor, Mulinsen Outdoor, Tianluntian, Lion, and Lesu are mostly long-established footwear or sportswear businesses from Fujian. Companies like Nanjing Jihua and Yueda Textile, based in Jiangsu, are also venturing into outdoor categories.
The lure of profit
"Starting this year, I will gradually shift to outdoor products," a Shandong dealer who has represented sports brands for six years told the First Financial Daily. Even for average outdoor brands, profits are at least more than double those of sports brands.
The dealer noted that the rapid growth period for domestic sports brands has passed. Products are not only hard to sell but also unprofitable, with high inventory becoming a common challenge.
According to the China Sporting Goods Industry 2012 Annual Report, the total inventory of six major domestic sports brands—Li-Ning, Anta, 361 Degrees (2.25, -0.02, -0.88%, real-time quotes), Xtep, and Peak—reached 3.721 billion yuan, an increase of 22 million yuan year-on-year. From 2013 order statistics, orders for domestic sports brand apparel dropped sharply, decreasing by 15% to 30% year-on-year.
Additionally, rising costs and declining terminal demand have intensified competition, leading to price wars and continuous profit declines for these sports brands. Without tapping into new blue oceans, significant growth is unlikely. As a result, following women’s and children’s product lines, the continuously growing outdoor market has become the new target.
Over the past decade, China’s outdoor goods market has grown at an annual rate of over 40%, now exceeding a hundred billion yuan in scale. According to data released by Outdoor Data Network in January this year, nine domestic and international brands selling in China with annual revenues over one hundred million yuan account for 55.81% of the outdoor goods market.
The China Top Ten Outdoor Brands Market Sales Report shows that well-known international outdoor brands such as Columbia, Arc'teryx, Jack Wolfskin, Black Yak, Marmot, Mammut, and Waterfield have all entered China, capturing significant market share with sales accounting for 54.89% of China’s overall outdoor market. Among them, Columbia ranks first in both market share and annual sales in China’s outdoor goods market.
Statistics from the China Outdoor Business Alliance show that China’s outdoor goods market is entering a phase of explosive growth. Like other emerging industries, China’s outdoor sector also features "high market share and clear advantages for leading brands."
What sports brands covet the most, however, is the high profit margin of outdoor goods.
"Outdoor goods have taken over the baton from traditional sports goods," according to a Guodu Securities research report. The main products of outdoor goods—clothing and footwear—have significantly higher unit prices than the average for sports goods. Among the top six brands in terms of average unit price in the sportswear market, four are specialized outdoor fashion brands, with prices averaging 70% higher than general sportswear.
Take Columbia as an example. By 2012, the brand had over 600 stores in China and plans to focus on expanding into second- and third-tier cities. In 2011, Columbia’s total annual revenue reached 1.694 billion US dollars, and its net income in the third quarter of 2012 was 64.4 million US dollars.
Take domestic leader Toread as another example. Its 2012 performance report showed a 46.68% year-on-year revenue increase, surpassing 1.1 billion yuan, and a 58.91% rise in net profit, reaching 170 million yuan. Orders at its 2013 product fair also grew by 40.21%.
In comparison, the performance of sports brands looks much more modest. In the first half of 2012, Li-Ning reported a net profit of just 44 million yuan, a sharp 84.9% decline from the previous year, while Peak’s net profit also fell by 43.3%... Both brands expect significant declines in full-year revenue and profit for 2012.
A representative from Ningbo Snowwolf Outdoor Clothing Co., Ltd. told reporters that 2013 order volumes increased by over 40%, with some brands even doubling. Overall sales in 2012 rose by around 10%, a growth rate generally seen across domestic outdoor brands. The reporter also learned that by the end of November 2012, international top-tier outdoor and skiing brand PHENIX had already exceeded its full-year sales targets.
Pivoting with "Outdoor"
Can entering the outdoor market be a turning point for domestic sports brands?
The aforementioned dealer said that for companies newly entering the outdoor market, especially those targeting the mass market—or the broad concept of outdoor—a significant initial investment is required for brand promotion and channel development. This could mean at least 30 million yuan in the first year, with continued support needed for channels and branding in the second year. The financial demands are substantial, and failure to follow up with additional investment in the second year could lead to wasted efforts. Without sufficient capital strength, it’s not a venture to be taken lightly.
He cited the example of a footwear company in Jinjiang that launched an outdoor sports brand last year. Early-stage distributor recruitment was highly successful, with channels rapidly expanding across more than 20 provinces and cities nationwide. However, due to funding shortages this year, product development couldn’t keep up, leaving agents without stock and the business in trouble.
An industry insider told reporters that, at present, both in terms of market recognition and the products themselves, there is still a long way to go.
He explained that looking at the product range of Li-Ning Adventure, there are ten categories including windbreakers, outerwear, down jackets, fleece jackets, shirts, T-shirts, bottoms, footwear, backpacks, and accessories. But the number of products is limited, and neither the styles nor descriptions have moved beyond the shadow of sports goods. The same applies to Anta, whose outdoor products seem to have been directly picked from the sports goods shelf.
"Currently, domestic sports brands only have outdoor series, not outdoor brands. Their approach to outdoor goods is still in the experimental stage," the insider said. Modern outdoor enthusiasts possess certain expertise and are more rational in their gear choices. Superficial marketing and homogeneous products find it hard to spark their interest.
Furthermore, most domestic sports brands lack clear long-term operational plans, and the outdoor industry has unique attributes. Sports brands accustomed to traditional models can’t easily adapt.
"The outdoor market is not a breakthrough point for sports brands either," said Zhang Bin from Guojin Securities. The outdoor market is relatively niche, with just tens of billions in scale. Such a limited market defines its prospects and potential.
“If everyone rushes into this industry, it will become the next sporting goods sector,” an analyst from Shanghai Zhiyuan Investment, who has long studied the sporting goods industry, told reporters. However, at present, domestic sporting goods companies all want a piece of the outdoor market, with more and more new entrants. This trend is somewhat similar to the children’s clothing market a few years ago, which is now beginning to show signs of a bubble. If the situation continues to spiral out of control, the good times for the outdoor market will soon come to an end, turning it into the next sporting goods industry.
However, commentator Ma Gang told reporters that while the development paths of the sporting goods and outdoor goods industries are similar, each has its own characteristics. With the improvement in people’s living standards and the popularization of private cars, the outdoor goods industry still has certain prospects. But at present, the domestic outdoor product market is a mixed bag with uneven quality. The lack of national standards and a shortage of professionals are also holding back the industry’s development.