(Analysis by Markus Huber, who is handling the outdoor section of a report on the Chinese sporting goods market that we plan to put out in 2014) - After a few roaring years of massive double-digit growth, it is becoming clear that the Chinese outdoor market needs to be cleaned up, calling for structural corrections which are now on their way. It is not clear yet who the real winners will be in this changing environment but, at least, we can summarize here a few key aspects that will have a powerful impact on outdoor retailing in China. Our team, which attended the last edition of the Asia Outdoor show held in Nanjing in late July, learned about a few critical factors which may determine the future of the Chinese outdoor business in the coming years.

Financial and macroeconomic uncertainties - Since last year, the outgoing and the new Chinese government alike have been taking harsh, but possibly necessary decisions to cool down the hyperactivity of the economy. Access to loans has become increasingly difficult – not only for small retailers, but also for the bigger ones, which badly need money. The latter are hungry for new financial resources to develop their nationwide network of shops through to two- or three-tier cities, but they are facing tough problems. One way to dig new wells for fresh money is generally an initial public offering, a strategy that bigger brands and retailers like Northland, Acome and Sanfo have been looking at. To cool down the economy, however, the Chinese government decided last year not to allow any new IPOs. This restriction is expected to be lifted later this year, but meanwhile the companies that want to grow have to wait. On the other hand, the new government has decided to rely less on exports to keep the Chinese economic engine running, but rather on domestic consumption.

Brutal competition. - The increasingly fierce competition is critically connected with access to financial resources. As reported in a recent issue of The Compass, the Chinese outdoor market still enjoyed massive growth of between 20 and 30 percent last year. Unfortunately, however, the number of points of sales jumped even higher, intensifying the competition. The word is out that substantial growth is no longer to be expected in the mega cities of Beijing and Shanghai where the appetite for outdoor products and related shops is basically fully served already. The penetration of smaller cities and the western provinces has begun and will bring companies, notably the big domestic and international players with their well-filled coffers, into a better position. That may be bad news for smaller retailers who have lived relatively well in their remote places far away from the Pacific money belt. In China, it is still a normal thing in retail not to ask for credit for purchasing, but to pay cash in advance. Once they need money, many will sink. According to Heng Zhang, head of the Sanfo chain, 95 percent of all Chinese retailers have no access to loans.

Oversupply and discounts - While the conquest of the “smaller cities” (they are called small even though some of them are easily the size of Paris or Berlin) is on its way, heavy weaponry has been set up in the big eastern cities. The big players in those areas are determined to defend their positions in the shopping malls and are trying to do so with mighty discounts to secure their clientele and to get rid of excess inventories. The North Face is definitely one of those. The U.S. company exhibited at Asia Outdoor for the first time last month with a massive booth, but it did not draw countless independent retailers. TNF clearly understood the necessity to open its arms to that type of retailers to improve its market penetration, notably in the western provinces, but the brand has a long way to go to win the trust of the specialty shops after many years of counting on its own retail.

The perils of the fashion trend - Outdoor has been driven by fashion in China over the past few years. Starting with the high-priced items of Arc'teryx, most outdoor products have not been sold for outdoor activity purposes, but as fashion items in the shopping malls of the bigger cities. Loads of money have been earned thanks to that, but some market players warn that the whole industry may suffer once the fashion trends change. As we know from the West, that can happen quite fast. Many brands operating in China have understood this danger and have started to get busy with grassroots campaigns to enhance participation in “real” outdoor activities, but a master plan has yet to be developed.

The rise of the internet - It is still difficult to evaluate the importance of online sales for the Chinese market in the long run. As a matter of fact, estimates say that the internet secured a share of some 17-18 percent of the total retail turnover last year. This is impressive, given the fact that online sales were basically zero five years ago. Only a few domestic and international brands run online shops themselves, but hand over the business to external specialty online retailers on an exclusive or non-exclusive basis. Such providers are trying to attract Western brands that are either small or have arrived in the market late, with the advice that they should drop any plans to install subsidiaries or joint ventures with their costly overheads. Instead, they should rely entirely on the web and on retailers that are capable to cover the entire country with fast deliveries within one day at tiny shipment costs. We will continue to observe how long the gold rush in the Chinese internet lasts and how big the real potential of online sales in the country actually is.

It will be interesting to see how the outdoor industry in China develops in the next years. In any case, the current symptoms clearly indicate that the retail landscape will look quite different in the years to come.