NiuBBall.com » Chinese shoe companies: A case of too much, too soon?

“Over-expanding” in an effort to compete inside of a crowded Chinese shoe market has resulted in a sharp overall downturn for China’s athletic apparel industry. The expansion of Chinese athletic apparel brands has been an easy trend to spot for basketball fans both in the United States and in China.Â*Over the last few summers, there have been a number of high-profile NBA players who have signed lucrative endorsement deals with China-based companies in order to directly <a href="http://www.redwingsale.com/red-wing-shoes-3140-c-11.html"><strong>Red Wing Heritage Boots</strong></a> tap into the world’s second biggest basketball market. Li Ning has Evan Turner and Baron Davis; Anta has Kevin Garnett and Luis Scola; Peak features Jason Kidd, Shane Battier and JaVale McGee, all of whom have signature shoe lines and television spots. Adding players, which in turn add credibility, is key for these ambitious brands: With 2.6 billion Chinese feet that can potentially be fitted for sneakers, and an economy that sees consumer spending power rise steadily each year, there’s a lot of money to potentially be made. Competition between Chinese shoe companies is thus quite fierce and to gain an edge, brands have <a href="http://www.redwingsale.com/"><strong>Red Wing Sale</strong></a> expanded aggressively. In China, companies have been opening hosts of new retail locations and filling them to the brim with merchandise. In the United States, Li Ning opened its first store outside Asia in Portland, Oregon in 2010, and quickly tripled in size after an encouraging start. Peak has a U.S.-based headquarters in Los Angeles, and has an online shop for American customers to buy their products. But, instead of one companyÂ*separatingÂ*itself from the rest, it appears as if the entire industry is headed for a bust due to over-spending and over-stretching its means.Â*According to a report published yesterday by MarketWatch, experts are seeing a rocky future for Li Ning, Anta and Peak, as well as a host of other smaller companies, whose rapid expansion “is beginning to cause cannibalization of sales and [a] price war," according to UOB KayHian analyst Ken Lee. Lee goes on to explain what went wrong: The problem, Lee said, can be traced back to the initial-public-offering boom in Hong Kong during recent years, when mainland Chinese consumer-related themes were able to raise funds easily to fuel ambitious growth plans. For example, Peak Sport Products Co.Â*HK:1968Â*+1.54%PSPRFÂ*+5.46% — which signed U.S. basketball star Jason Kidd and other top athletes to represent its line of apparel — was able to raise 224 million in a September 2009 listing, pledging to use the funds for product development and to expand its retail <a href="http://www.redwingsale.com/products_all.html"><strong>Red Wing Shoes Outlet</strong></a> sales network in China. Likewise, apparel group 361 Degrees InternationalÂ*HK:1361Â*-1.84%TSIOFÂ*-1.85% was able to raise 231 million as part of its offer, which debuted in June 2009. Promoters said the company would benefit from sportswear spending, expected to rise at a 30% annualized rate for years. But what followed, says Lee, was a retailing arms race that outpaced consumer spending power. The news comes on the heels of Li Ning’sÂ*disappointing sales in the U.S. after two quarters. Adding to the grey weather, plans to hook up with Champs Sports, which would have given the company a long reach into the American market,Â*have been squashed. In our humble (and rather basic, we don’t pretend to be market experts) opinion though, there is still some optimism for Chinese sneakers.Â*According to the report, Chinese spending power has increased 30% for the last several years. That’s an important aspect to keep in mind here: spending power will keep going up, which means the potential market is only going to get bigger and bigger. <a href="http://qqegg.net/blog.php?do=showone&uid=420&type=blog&itemid=24079 9"><strong>A ugg in need is a friend indeed! - UGG is great</strong></a> As a high up American shoe company executive once told me, the race for Chinese feet is being set-up to be won five years from now. This could be a permanent thing, but it could also just be capitalisticÂ*Darwinism –Â*a survival of the fittest that is to be eventually won later this decade. Though the news short-term may not be so rosy for companies, there is good news for consumers — huge, huge sales. A recent visit to some of these stores revealed product markdowns of 50% to 90%, or even two-for-one promotions on summer wear. "We have never seen such deep and prevalent discounting," said Lee, whose retail survey in June took him to six cities around the Chinese mainland. If it weren’t for our size 13 feet, we’d be all over it. Maybe in five years, one of these brands will get some bigger shoes in their Beijing stores.