Chinese Booming Outdoor Industry Attracted Capital Investment
Recently, ISPO, the leading international main exhibition for the sport business elite 2016 Sports Industry Forum, was held in China National Convention Center. Mr. Li Changfa, deputy director of COCA, delivered the 2015 Survey Report on Chinese Outdoor Products Market. This is the industry report COCA released at ISPO for the 9th consecutive years. Li said that the number of audience attending the ISPO increased by at least 30% from previous years.
As the outdoor products become increasingly popular among consumers, both foreign and domestic brands have mushroomed in recent years. Northface has established more than 500 stores in China, while another famous brand Columbia owns more than 600 stores in China.
“The outdoor industry has become hit of the capital investment market thanks to its rapid growth and huge development potential.” An expert from Beijing Economics Bureau said that as the clothes industry is in predicament and the outdoor clothing has become emerging hits of the market, which is gaining increasingly rapid growth.
Market expansion due to the spread of outdoor concept
Outdoor-related TV programs have been very popular these years, such as the Amazing Race, and Adventure with Bale. Amazed by the performance of actors and actresses, the audience also paid attention to the outdoor clothing. The influence is obvious as more and more people have been involved in jogging, outdoor challenge games and exercises, and large purchasing of outdoor equipment. These factors have stimulated the growth of Chinese outdoor products market.
“The outdoor products have gained more attention due to the popularity of TV programs. The online searching of outdoors products has been rocketing,” said Chen Guohua, General Manager
— 2015 Survey on Chinese Outdoor Products Market
of Shishi DZRZVD Outdoor Products Co., Ltd. It also boosted the confidence of outdoor products companies. Now the industry is increasing investments in R& D to improve the functions of products, to make them more comfortable and fashionable to consumers.
In 2015, Chinese outdoor products market revenue increased by 10.51%, reaching 22.19 billion yuan. The distribution revenue reaches 12.111 billion yuan, up by 12.22%.
“The revenue growth rate of Chinese outdoor industry is below 30% in the past 3 years,” said Li Changfa. He commented that the industry had increased very rapidly during 20022011, when the market volume was quite small. The growing speed has decreased from 2013 and the number was only 12.22% for last year.
The outdoor products entered Chinese market in 1995, when people purchased the products at Silk Market or overseas. The industry began to gain public influence during 19952000. After the year 2000, the outdoor products became more available to mass consumers, due to the development of shopping malls and e-commerce.
Li Changfa said that the Chinese outdoor products market will undergo expansion in the long run, which is unquestionable. The major driving factor of such growth is its small market volume.
He listed several factors supporting his judgment on industry growth: the huge population of China and the developing status of the country. The major driving factor is the spread of outdoor lifestyle and people’s increasing acceptance of the outdoor products.
“Many categories of the outdoor products are very popular, which become primary choices for the common people. For example, in 2015 the number of wind jackets sold on the Tmall reached 16 million, which was unimaginable in the past. Apart from the booming sales of wind trousers and outdoor feather jackets, the tent and sleeping bags have also seen rapid growth of sales.” Li Changfa said that the increasing sales of outdoor products have also become a very important factor for promoting the industry development.
The second factor is upgrading of consumption. According to foreign media, Chinese middle class consumers spend more on sports products than luxury products. Li Changfa further explained that the sports equipment has a wide range of aspects, including outdoor products, the sports accessories and wearable devices. Also the meaning of the word equipment has changed. Many brands would not touch upon the concept of equipment in the past, while in recent two years, both leisure brands and professional brands would embrace equipment. It has become the hallmark of high-end lifestyle.
The third driving factor is the emergence of new sports activities. Wu Bin, deputy chairman of Vanke Songhua Lake Recreation Center, shared a group of data at ISPO 2016. In 2015 the number of Chinese people skiing reached 12.5 million, the people cycling reached 20 million and about 1,700 cycling camps have been established in China.
“The emerging outdoor activities have stimulated the growth of the outdoor industry. People riding bicycles and running could be seen in Beijing Olympic Forest Park. It is undeniable that the booming outdoor events have uplifted the sales of outdoor equipment.” Said Li Changfa.
Li continued that the fourth driving factor of outdoor industry growth is the popularity of e-commerce, which is not only a new business channel, but also a publicity platform for the outdoor equipment products. As a matter of fact, the appearance of e-commerce has also boosted the sales record of outdoor equipment.
In the past, professional media was the major channel for people to know about the outdoor products. Now Taobao and Tmall would post the outdoor product advertisements on the main page, educating people about the functions of outdoor activities. This is also a big promotion for the development of outdoor product industry.
“E-commerce could reach those areas where real shopping stores could not extend, such as villages and countryside, small towns.” Li Changfa said that the outdoor products are more suitable for scenery sales. The exhibition and promotion of outdoor product functions will become much easier in a comfortable environment.
Li said that the slow growth of consumption in recent two years has been breeding pessimism in the market. Out survey interviews show that many people have been downplaying the outdoor products market. But people calmed down again in the 2015 survey. This shows that the market players regained confidence about the market and would find their own positions and way of development.
“Also, the increasing competition is another factor that promotes the industry growth. Chinese outdoor product market is homogeneous, and the price war will promote the sales growth. This is another important factor that benefits and industry and promotes the stable growth of the industry,” said Li.
Slow market growth related to economic environment
Many insiders of the market commented that the outdoor product business is meeting a tough situation. Li Changfa said that this is because people had given high expectations towards the industry, as many people believe the outdoor market will grow at annual rate of 30%, or even 50%. For many industry players, the slowing growth has cast doubt on the future development of the industry and the gap of expectation is an important cause. One thing worthy
E-commerce could reach those areas where real shopping stores could not extend, such as villages, countryside and small towns.
of notice is that the Chinese outdoor industry has developed from a small industry to a large one and the growth of outdoor products is related to the whole economic environment.
Li l isted a g roup of macro economic data. In 2014 Chinese GDP grew by 6.9%, and social consumption grew by 10.7%. The e-commerce sales account for 10.8%. About 35% on-line consumers have experiences of overseas purchase. People travelling overseas spent about 1 trillion yuan on shopping products. About 60% domestic shopping malls have seen slump in sales. Chinese has 900 million internet users and data shows that the sports product industry has been recovering in recent years, with annual growth rate of more than 10%. These are major factors influencing the future of outdoor industry development.
First and foremost, the economic downturn will dim consumers’ confidence and reduce impulsive consumption. The change of consumption behavior has exerted impact on real economic operation. Also as outdoor products are very durable, the changing speed is relatively low.
“We have visited many shopping stores and most of them are undergoing adjustments. Some are changing their layers, and others shut down the stores. Small and medium-sized dealers have seen weak growth and even shutdown. Our survey shows that the transaction price for outdoor products has been falling by 30-50%.” said Li Changfa.
The increase of labor costs adds to the burden of companies. There is no effective method for market promotion. Some brands have seen weak growth and those brands depending on private loans have seen marginalized or exit the market.
“We found that the group purchase includes both government purchase and corporate purchase. As outdoor products are quite unique, many of them are suitable for government purchase and used as gifts. This part has seen very remarkable growth.” he said.
Li made a summary of the size of Chinese outdoor product market. “Suppose the sports product market has a size of 200 billion yuan, the outdoor product market shall be a mature market when its market value reaches 100 billion. Even so it is a starting period and up to now the Chinese outdoor product industry is still small.” he added.
Li Changfa said that there are more favorable conditions for the Chinese outdoor industry. The type and venue of programs have been increasing. The Olympic Games and second-child policy will create favorable conditions for the sustainable growth of the industry. Meanwhile, the whole economic climate, the increasing competition, slower industry growth and lower industry profits and market segmentation have also emerged as negative factors. After two years of adjustments, market players have calmed down to transform their business or reduce the scope of business.
“In the past, the clothing brand cannot expand its business if its product catalog is not full. Now if you could do one particular product well, you will earn market share and becomes successful.” Li Changfa emphasized that this year’s ISPO has seen coalition forged by many companies to combine their brand resources, increase cooperation with dealers and distributors and promote the common development. “The strong will come together and the weak will be abandoned by the market.” he said.
“It takes three years for the sports product market to get recovery. I think it will be the same for the outdoor industry. New year will be the third year and I believe Chinese outdoor product market will undergo recovery after three years of adjustment.” Li said with confidence.
Strong brands account for more than 50% of market share
Talking about Chinese outdoor product brand, Li Changfa said the brand market growth is quite slow and this is because there are “ins and outs”.
“The growth of the Chinese outdoor brand market is slow as the number of companies exiting the market is large and beyond measurement. This year there is one change to our survey, which is the comparison of brand and dealer
First and foremost, the economic downturn will dim consumers’ confidence and reduce impulsive consumption.
operations, to gain intimate knowledge of the brand operations.” Li Changfa said that about 47% brands witnessed increase of sales revenue, while 32% brands have seen reduction; about 29% brands have seen profit rise, while 40% saw lower profit margin. About 50% brands have seen increase of costs, and 15% brands have seen reduction of inventory. The survey shows that the brands with value of more than 100 million have seen reduction of inventory by 20% on average.
Li summarized several features of 2015 Chinese outdoor brand development based on the survey and interview results.
First, the brand market becomes more concentrated. The domestic strong brands and international brands have gained more advantages. Companies with sales revenue of more than 100 million yuan have accounted for 58% market share. Profits for small and medium-sized enterprise become less and about 50% companies have seen such profit shrinking.
“The most prominent change of Chinese outdoor brands in 2015 is the enhancement of supply chain and channel cooperation to cope with market challenges.” Li Changfa thinks that Toread has purchased four franchise companies to increase its regular chain stores; while small and medium-sized enterprises tend to cooperate with channel dealers to survive the competition.
“Big brands are also drawing blueprints for their future development by establishing ecological circle and eyeing the whole industry growth direction. This is based on the fact that they have taken up more than 50% of the market shares. Small and medium-sized brands focus more on particular brand categories to seek strength and market differentiation. In general, the brand market is more calm and down to earth.” said Li Changfa.
What’s more, some professional brands have become more accessible for consumers, thanks to the emergence and development of e-commerce. This is another reason for the rapid growth of professional brands.
“We have conducted survey on people’s willingness to invest. For companies with sales revenue of more than 20 million yuan, about 60% companies said they will increase investments, while 40% will maintain their business size. For companies with sales revenue of less than 20 million yuan, most companies hopes to increase their investments, and only 5% companies said they would invest less.” Li Changfa said that in general the investors are quite optimistic about the future of the market.
Distribution layout basically finished, entering a “New Normal”
The sales channels of outdoor products mainly include professional outdoor stores, the shopping malls and online sales. Professional outdoor stores are further divided into single operation and chain operation. The chain operation is subdivided into regular chain and franchise chain.
The concentration of Chinese outdoor product industry is low and competition among channel distributors is still in the early phase. The endmarket sales increased robustly, and competitions among different channels are less fierce than those among brand operators. Currently, the major channel competitions happened mainly between professional outdoor stores and the shopping malls. Online sales channel has small market share, although its growing speed is quite remarkable.
As a matter of fact, the channel distributions of Chinese outdoor products have already taken in shape. The rest part is undergoing constant adjustment, upgrading and transformation. It has entered the period of “new normal”. It is said that in 2015, about 34% market players of the Chinese outdoor industry have witnessed rise in sales revenue, while 21% have seen the opposite. The transaction price has fallen by more than 17%, and the costs rose by more than 50%. In terms of sales revenue, department stores have seen the negative growth for the first time. The e-commerce rose by more than 50%, domestic brands increased by 14.36%, foreign brands increased by 9.89% and a lot of new brands entered the market.
According to the market share statistics, in 2015 about 23 brands have value of more than 100 million yuan, and 88 brands have value of more than 10 million yuan. The total number did not change much and the brands with value of more than 100 million yuan accounts for 58.25% of the market shares.
“The future of Chinese outdoor product industry is perspective, but the development process will never be smooth. We shall cooperate more and compete less to build a better future.” Li Changfa said. The outdoor product market will undergo further development in the next few years and the market segments and brand groups will become much clearer.
The future of Chinese outdoor product industry is perspective, but the development process will never be smooth.