Chi­nese Boom­ing Out­door In­dus­try At­tracted Cap­i­tal In­vest­ment

China's Foreign Trade (English) - - Contents - By Liu Xin­wei

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.

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