With all eyes on China with the 2008 Summer Olympics, it's prime time for global companies to expand their market presence in the growing Chinese economy. As the U.S. retail economy falters at the finish, China's annual retail sales are expected to high-jump over the $1.3 trillion level by 2012, and the country's sports market sales are forecast to swim to $7.2 billion in 2009.
With so many opportunities to market new products, the Beijing Olympics should be the perfect time for U.S. companies to expand their base in China. Former Chinese gymnast Li Ning has expanded exposure of his sports brand during the games and is hoping to build his company into the Chinese sports market leader. His Chinese market share of 10.5% still trails U.S. leaders in market share, with Nike (NYSE:NKE) and Adidas at 16.7% and 15.6%, respectively. Springboarding past these entrenched leaders should prove to be interesting, as Nike is one of Asia's most admired companies, and Adidas spent $80 million to be an official Olympics sponsor.
So, as China continues to grow at a breakneck pace, who can capitalize on the Olympics coverage to build a long-term client base in this emerging market? Here are some thoughts on China's sports market potential.
Swimming to double-digit growth?
One stock with obvious gold medal potential is Warnaco (NYSE:WRC) and its signature Speedo swimwear. At this point, it looks like anything that Speedo-sponsored Michael Phelps touches is turning gold. Not only are folks talking about those spiffy and speedy new LZR swimsuits that Phelps was wearing as he broke seven world records, but apparently even that white, boxer-like parka that he wore when entering the Water Cube is sparking increased buzz for a product that the company hadn't even planned to market.
Yes, Warnaco is facing a lawsuit from competitor TYR Sport, but those new LZR suits have set at least 62 world records since they were introduced in February, with all but one gold medal-winner wearing the new suit. Competitors such as Adidas are racing to compete with the "compression zone" that these new suits create, but you have to wonder if it'll be too late to edge out the new technology that has revolutionized swimming. The market likes what it sees in growth potential here, with a stock jump of more than 20% since the beginning of August.
Hiking for expansion
Timberland (NYSE:TBL) hasn't had it easy lately, what with halting growth and continued turnaround attempts. Its newest attempt to gain market share in the U.S. and China is its "Podium" campaigns, which target an outdoorsy audience with hiking-based spots. In the U.S., Timberland has done well when targeting the masses versus athletically minded folks, so it'll be interesting to see how Chinese consumers respond to a campaign focused on athletic success. Timberland has been in the process of expanding in China, with 50 wholesale channels opening last year. Even at more than 25% off of its 52-week high, Timberland may still be a little expensive -- with a P/E of 20.5 -- considering its recent revenue and profit losses. We'll see if targeted commercials and new stores are enough to boost the company's presence overseas.
Will Nike keep doing it?
Nike is the leader in the sporting race and sales grew by close to 50%, as Nike used its famous "Just Do It" campaign in preparation for the Olympics. Nike had planned for a jump in coverage through its sponsorship of Chinese hurdler Liu Xiang, called China's Tiger Woods by many. With Liu Xiang dropping out of the Olympics due to a foot injury, Nike may not see the bounce that it had hoped for, but it still isn't down for the count by any means. At a P/E of 16, Nike is cheaper than Timberland, with a 5-year growth rate of 11.2% versus the industry average of 6.6%. Nike has also demonstrated an ability to continually drive growth, even with competition from up-and-comer Under Armour (NYSE:UA)
Sponsoring its way to growth?
$80 million is a lot of money to spend to spread your influence, but Adidas is hoping to edge out Nike as the leading sporting retailer in China. Of course, Adidas isn't alone in spending a fortune to grow its Chinese exposure through Olympics sponsorship. UPS (NYSE:UPS) has signed up as the official transportation carrier of the Olympics, and Coca-Cola (NYSE:KO) and McDonald's (NYSE:MCD) are among those who are actively using Olympics sponsorship to drive Chinese market growth. Adidas has successfully used its natural sporting associations to increase brand awareness and revenue growth through euro 2008 and World Cup soccer. Certainly, Adidas is targeting this type of growth on a much larger scale through its Olympics sponsorship.
As China continues to grow and increase its overall prosperity, the opportunity for global brands to penetrate the market will continue. Whether the catalyst is updating sporting technology, new ad campaigns, or Olympic sponsorship, retailers are looking to increase their standing in the growing Chinese economy, as savvy investors forecast the next big trend in China.
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