A woman wearing Nike shoes. (Photo/Xinhua)
Burdened by its high inventories in China, Nike is going to target second- and third-tier cities in its plans to open 40-50 outlets in the country, according to the National Business Daily in Shanghai.
As part of the sportswear giant's plan, these new outlets, each with an area of more than 500 square meters, will be in charge of selling the company's unsold goods at discounts of 60-70%.
This campaign poses a great threat to Nike's Chinese competitors, which have been staying afloat by offering discounts.
Given the fact that Nike's current outlets typically offers a discount of 65% on winter products, a discount of 60% on spring products and a discount of 70% on summer products, an analyst predicted that Nike would sell all of its popular 1,500 yuan (US$238) sneakers at 400-500 yuan (US$63-80), close to the price offered by Chinese sportswear companies.
The company's policy to venture into second- and third-tier Chinese cities will also deal a hard blow to Chinese sportswear companies, which consider these cities their stronghold.
Chinese sportswear companies are not a match for their foreign counterparts, with the daily revenues of their outlets typically being about one-tenth of Nike or Adidas, said an analyst.
The top six Chinese sportswear makers — Li-ning, Anta, 361 Degrees, Xtep, Peak and China Dongxiang — are also saddled with heavy inventories. Their combined inventory was estimated to be 3.7 billion yuan (US$591 million) in 2012, against 3.7 billion yuan (US$587 million) in 2011. It is estimated that it will take these companies three years to dispose of this inventory.
Expectedly, the combined market capitalization of the top six Chinese sportswear companies listed on the Hong Kong Stock Exchange has declined from HK$70 billion (US$9 million) in Aug. 2011 to HK$30 billion (US$3.9 million) in Sept. 2012.
The decline in their stock prices will continue this year, according to US investment bank Goldman Sachs, despite the closure of 2,000-3,000 outlets to save costs, and the introduction of high-value-added products.
The cost cutting by these companies comes at a time when orders for sportswear are shrinking, triggering attrition among their franchisees, said the National Business Daily.