Nike's Waning Dominance in China
Nike has long held a dominant position in China’s sportswear market, but its grip on this segment has loosened significantly over the past decade due to increasing competition from both domestic and international brands. As China’s sportswear sector becomes more fragmented, prominent homegrown names like Anta, Li-Ning, and Xtep have gained market share, joining international premium brands like Lululemon and the Swiss company On in challenging the global giants. While Nike continues to be well-regarded in terms of quality and performance, its overall influence in the region is declining as consumers now have more brand options than ever before.
Analysts suggest that Nike’s share in China is likely to stagnate in the coming years, with BNP Paribas analyst Laurent Vasilescu predicting a lack of growth for Nike across both footwear and apparel due to intensified competition from both local and global brands. Companies such as Hoka, On, Lululemon, Salomon, and Asics are contributing to this shift, offering diverse products that resonate with a growing segment of the market. Even if larger international brands like Nike and Adidas manage a short-term rebound, many analysts believe they will not regain their former levels of dominance in China.
Growth of China’s Expanding Sportswear Market
China’s sportswear market has grown considerably and was valued at $61 billion in 2023, accounting for roughly 15% of global demand. It is expected to grow further, with a projected 5% market increase in 2025 according to equity research firm Bernstein. Chinese consumers have dramatically increased their spending on sportswear, doubling over the past ten years. However, the gains are not evenly distributed, with international brands losing ground to local companies. In the early 2010s, foreign brands like Nike and Adidas were able to increase their Chinese market share by about 10% annually, but this trend has reversed in recent years, with brands like Anta and Li-Ning now taking substantial market share from Nike and Adidas. Adidas, for example, has slipped from being the second-largest sports apparel brand in China to the fourth.
A major reason for this shift is that domestic brands in China are no longer perceived as low-quality alternatives. Over time, Chinese sportswear companies have improved their product quality and built stronger brand identities, which has made them increasingly attractive to local consumers. For example, Anta’s market share increased from 14% in 2019 to 19% in 2023, while Li-Ning grew from 6% to 9% in the same period. In contrast, Nike’s market share in footwear saw a slight decrease from 25% to 24%, while Adidas experienced a significant drop from 19% to 10%. Nike remains the leading brand in sports apparel in China, but Anta is closing in rapidly, according to Morningstar analyst David Swartz.
Under Armour, a popular brand in the U.S., has failed to gain a significant foothold in China. Although it ranks among the top 10 sportswear brands in America, it does not make the top 10 in China and recently reported an 11% revenue decline in the Asia-Pacific region. Despite this, there are areas of growth within China’s economy that have helped boost sportswear sales, even amid economic challenges. According to a McKinsey report, sectors like sportswear, urban outdoor apparel, and consumer health have been growing at double-digit rates, a reflection of strong market demand. A shift towards casual fashion, where sneakers and sports apparel are worn for everyday activities, has also supported the sportswear market. Government initiatives, such as China’s National Fitness Plan launched in 2021, aim to encourage sports and fitness, which should provide additional growth opportunities for the sportswear industry over the next decade.
Running, in particular, has become highly popular in China, making the country home to more marathons than any other nation. David Swartz highlights this surge in running culture, noting that China’s sportswear market has transformed from insignificance to the second-largest in the world over the past 25 years. However, Chinese consumers still spend less on sportswear per capita compared to Western countries, which suggests additional room for market growth. International brands like Nike and Adidas are also being challenged by smaller premium brands that are gaining traction. On, a Swiss sportswear brand, entered the market in 2010 and has quickly grown in popularity. Although China represents only 5% of On’s total global sales, the brand’s potential for growth is substantial, particularly in the footwear category. Lululemon is another example of a premium brand gaining ground, with net revenue in China rising by 34% in the latest fiscal quarter. Since 2019, Lululemon has quadrupled its market share in China, largely due to its rapid expansion in store openings, which have increased from 29 in 2019 to 132 today. The brand’s revenue in China grew by 67% in 2023 alone, with a 39% increase in the first half of 2024.
Challenges to Nike and Adidas’s Dominance
According to analysts, market leaders Nike and Adidas might recapture some of their lost market share, but they are unlikely to return to their previous levels of market dominance. For example, the Swiss brand On was founded in 2010 by triathlete Olivier Bernhard, who initially created the concept by adding pieces of garden hose to his shoes for added cushioning. This innovation eventually turned into a successful business, with On reaching nearly $2 billion in sales in 2023 and achieving a market valuation of $17 billion. Nike and Adidas have faced increased competition globally, with the two brands accounting for a reduced combined share of the $146 billion sportswear market. While Nike and Adidas once represented 63% of the market share of the largest 15 sportswear brands in 2018, their combined market share is now down to about 51%.
Footwear remains central to the success of large sportswear brands. Shoes contribute to 68% of Nike’s revenue and 58% of Adidas’s revenue, as they provide an avenue for product differentiation. Global demand for sneakers has also been rising faster than other sportswear categories, with the market for branded sports footwear growing by nearly 50% from 2018 to 2023. Running shoes have been particularly successful, partly due to the pandemic, which encouraged more people to take up outdoor exercise like jogging. The increase in casual dress trends, where running shoes have become acceptable in settings like the office, has also supported the growth in sneaker demand.
The rising popularity of running has opened the door for smaller brands to make an impact. These challenger brands, like On and Hoka, have utilized distinctive designs to stand out in a crowded market. For instance, Hoka’s running shoes feature thick soles, while On’s latest shoes employ lightweight materials and advanced manufacturing processes. Analysts argue that Nike and Adidas have lagged in innovation, while Adidas has overly relied on its fashion lines, such as the Samba range. Both brands have also shifted their distribution strategies by prioritizing direct-to-consumer sales via their stores, websites, and apps, hoping to increase profits. However, this strategy has led retailers to replace them with emerging brands, causing Nike and Adidas to reconsider their relationships with third-party sellers.
Navigating Challenges of Rising Competition Shifts
Nike and Adidas are now trying to address these challenges. Nike launched a new range of products this year, including an updated version of its Pegasus running shoes, and appointed a new CEO to oversee a strategic overhaul. Adidas, on the other hand, has been phasing out its Yeezy line in the wake of its split from Kanye West. Some of the challenger brands, like On, have expanded their offerings into fashion-oriented products, which have higher profit margins. However, while these moves could boost growth, the challenge of sustaining success in fashion remains. Historically, only Nike and Adidas have been able to successfully extend their influence from sportswear into fashion, making it unclear whether challenger brands will be able to maintain their momentum.
Nike and Adidas face unprecedented competition in China’s rapidly evolving sportswear market. Both local and international brands are capitalizing on shifting consumer preferences, a rise in casual fashion, and the increased popularity of running to claim market share. The major brands may regain some ground, but their previous dominance is unlikely to return, especially as challenger brands leverage innovative designs and the benefits of a fragmented market to their advantage.
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