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Rise of China's sports industry boosts activewear brands

Athletic brands are riding the momentum of a sports boom in China, where fitness awareness is growing and the government is pushing for more sports participation and consumption ahead of the 2022 Winter Olympics in Beijing.

China previously has not embraced winter sports. But the central government now wants more than 300 million people to take them up by 2022, which would be supported by building more than 500 ice skating rinks and 240 ski slopes nationwide over the next five years, according to a state development plan. In Beijing, authorities are working to make winter sports compulsory in schools, requiring every student to master at least one sport.

In line with this, Chinese label ANTA Sports Products Ltd. plans to increase investment in its winter sports apparel line over the next few years. "With the government initiatives promoting winter sports and more people getting on board, the market potential is huge," a company spokesperson told S&P Global Market Intelligence.

ANTA also recently became an official partner of the 2022 Winter Olympics, for which it will supply the host country's athletes with sports apparel showcasing typical Chinese elements.

Winter sports are only one part of China's booming sports economy, for which the government set out a plan in 2014 to make it triple in size to 5 trillion yuan by 2025 through such initiatives as encouraging research and development in sports gear.

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Growth is also boosted by an expanding middle class with more disposable income that is increasingly open to active lifestyles, according to Peijuan Li, an analyst with Chinese market research firm Forward Intelligence.

A cultural shift is spurring the growth of China's fitness industry as well. A growing number of Chinese females, influenced by Western culture and social media, are dropping the traditional beauty standard of "skinnier is prettier" and becoming more interested in building a toned physique, according to Li. "Firm abs and the Apollo's belt [V-shape in torsos] are some of the fitness trends going viral on the Chinese internet," she said in an interview.

Reflecting this new interest, the number of fitness clubs in China mushroomed to 10,000 in 2016, 20% more than a year ago, while spending on sports-related goods and services increased 17.1% on the year in the first half, outpacing the 10.4% growth in broad retail consumption during the period, government data shows.

These rising demands are fueling the country's sportswear market, which is projected to grow to 269.6 billion yuan in 2021 after reaching 186.6 billion yuan in 2016, according to a report by market research firm Euromonitor International.

Foreign brands are the unrivaled leaders, with NIKE Inc. currently taking a 22.1% market share and adidas AG claiming 16.7%, the report added.

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"Adidas and NIKE gained ground in the China market from very early on," Li said. "Consumers are viewing them not only as prestige sportswear labels but also as cool fashion brands for daily wear."

Adidas reported that net sales in Greater China grew 28% in the first half, outpacing any other region. Greater China also contributed a 9% year-over-year revenue jump for NIKE in the first quarter of fiscal 2018, while the company's biggest market, North America, fell into negative growth territory.

The two athletic giants are also leveraging the Chinese government's investment in the sports industry to drive brand awareness in the country. This includes forging partnerships with the Ministry of Education to promote physical activities such as soccer in Chinese schools.

Meanwhile, other foreign brands are working to expand in China with an eye toward replicating the success of Adidas and NIKE.

Canadian yoga apparel maker Lululemon Athletica Inc. opened its first three stores in mainland China in late 2016, with more in the pipeline. CEO Laurent Potdevin said in a recent earnings call that he expects China to represent up to 70% of Lululemon's Asia-Pacific market by 2020.

U.S.-based athletic brand Under Armour Inc. has opened more than 210 stores across China since its initial entry in late 2013. The company is building its brand image in the country using NBA star Stephen Curry, who is highly popular there, and positioning itself as a professional brand with training and running gear, company founder and CEO Kevin Plank told the South China Morning Post in 2016.

While foreign brands mainly focus on the higher end of the pricing range, domestic players are largely targeting the mass market, which favors cost efficiency, according to Orient Securities analyst Hao Hu.

"ANTA is currently a leader in Chinese sportswear brands, increasing its market share with a multibrand and omnichannel strategy," he said. The homegrown company has a diverse product line that covers professional training, athleisure, winter sports, outdoor activities and children's sportswear.

Although strategies may vary across different brands operating in China, they all have the same driving force. "The sportswear market has entered a period of robust growth. And the momentum behind it is more enduring and stable than the surge in interest in sports right ahead of the 2008 Beijing Summer Olympics," Hu said.

As of Oct. 12, US$1 was equivalent to 6.59 Chinese yuan.