After years of "breakneck expansion", Chinese athletic brands such as Li Ning and China Dongxiang are “grappling with shrinking margins, slowing sales growth and mounting inventories of outdated products, threatening the sector,” according to Zhu & Kwok of REUTERS. While the Chinese brands struggle, Nike and adidas, “armed with heavy investment in research and development plus marketing expertise, are gaining market share in the world's second-largest economy.” Struggling with “rising costs for labour, raw materials, rent, and advertising and promotion, Li Ning and Dong Xiang posted 50 percent and 71 percent falls in first-half earnings, respectively.” adidas “aims to unseat Li Ning -- the country's No.2 sportswear maker with a one-third share of the market after Nike -- this year, targeting double-digit growth in China over the next five years and planning to expand coverage to 1,400 cities from 550.” In Greater China, Nike “topped $2 billion in annual revenue, double 2007's level.” Still, Zhu & Kwok note pricing competition “is set to intensify as domestic players scramble to dump inventories, sharpen their branding focus and scale back distribution networks.” An HSBC report stated, "With Nike and Adidas introducing lower priced products, it remains to be seen whether fans of domestic brands will maintain their loyalty. This could well become a case of 'survival of the fittest', with some getting hurt if not disappearing along the way" (REUTERS, 9/21).
