While there are fears that the fast-growing Chinese outdoor market could face some of the same issues as the country's glutted sports market, the buzz at the ninth edition of Ispo Beijing remained strongly upbeat: The fair bustled with a growing number of visitors thronging increasingly slick and busy stands.
The numbers provided by Messe München, the organizer of the fair, point to unabated growth for the fair. Held over four days starting from Feb. 27, Ispo Beijing welcomed 27,800 trade visitors, an increase of 14 percent compared with last year. The number of exhibitors climbed by 18 percent to 415 and the number of brands represented at the fair jumped by 10 percent to 567, including 297 Chinese brands. Newcomers included Adidas Outdoor, Briko, Mammut, Li-Ning Adventure, Haglöfs and Klättermusen. The surface covered by the fair rose by 14 percent to 40,000 square meters. Alpitec, the simultaneous specialty fair dedicated to equipment for ski resorts, hosted another 53 companies.
Ispo Beijing, which was held for the third time at the China National Convention Center near the Olympic Bird's Nest, was apparently made accessible to the wider public on the last day of the event, which encouraged some exhibitors to sell directly to consumers, but only a few suppliers did so.
The show's organizers paid a lot of attention to supporting foreign brands and their efforts to have a good appearance at the show. The creation of national villages was meant to help smaller brands in particular to have an appropriate represention on the showground. The concept was successful in some cases, though it will need some improvement in the future. Well represented were the Italian brands with their wide range of footwear and other, usually smaller categories, and even more so the U.K. brands, which in spite of their size came out in a really satisfactory way. The Austrian village was a special case, enjoying the support of the neighboring and partly integrated Alpitec show. In fact, the Austrian village was the backbone of the show for categories that were not outdoor. The French village, on the other hand, was not exactly the size of Paris.
Discussions at Ispo Beijing were dominated by question marks about the prospects of the Chinese sports and outdoor markets. As reported earlier in our sister publication, Sporting Goods Intelligence Europe, thousands of stores franchised by sports brands were closed down last year as suppliers struggled to clean up the inventories that have plagued the market for the last two years.
We should stress, however, that this development was mainly seen in the wider sporting goods sector rather than in the outdoor category, where new openings of shops are countless. According to the China National Commercial Informational Center, the total sales of fashion and outdoor stores ? which are awkwardly (or wisely?) bundled in the authority's statistics ? increased by 36.1 percent in 2012 after a “smaller” increase of 23.9 percent in the previous year. In any case, there is no evidence that the pace of new openings has slowed down for outdoor shops, notably those hosting domestic brands and operated by independent retailers.
Several speakers at the outstanding side program organized at Ispo Beijing pointed out that the problems have been partly caused by the relative weakness of sports participation in China, meaning that consumers have used sports brands mainly to make a fashion statement and that they could easily switch to the next big thing.
And they warned that the same could well happen with the outdoor market. Soaring consumption of outdoor products in the last two years has been driven by shoppers in malls rather than in hiking and skiing resorts. So, unless brands and retailers work harder to stimulate participation in outdoor activities, consumers could gingerly move on to another alternative in a few years. It was therefore pointed out that the national industry ought to invest more in grass-roots marketing to create a sizable community of active people who buy gear for going outdoors.
As funny as it may sound, the trends are developing in the opposite direction as those that have been seen prevailing in the West over the past decades: The outdoor industry in North America and Europe had its humble beginnings in small communities of enthusiasts, and it took many years for it to make it into the broader mainstream lifestyle segment. In China, on the other hand, outdoor shoes and apparel have been used until now mainly for urban uses, so brands and retailers alike are just beginning to look into opportunities to create such communities and to stimulate the demand for more technical gear – right at a point in time when outdoor as a mass market phenomenon may have reached its peak or will do so in the next few years.
Foreign brands are still rushing ahead to expand in the Chinese market as well. They do it, however, at quite different speed levels: Black Yak, the South Korean outdoor brand with global ambitions, already has 175 stores in China and wants to open another 46 this year, mostly in department stores. The list of companies in the outdoor category that are still eager to open their own or franchised stores in China reads almost like an encyclopedia of the outdoor business.
Other companies are by far more cautious, notably among those that have arrived just recently on the Chinese theater. Mammut, for instance, is setting up its own Beijing-based operations right now, but it has decided to move into China with much smaller steps than some of its competitors: The first sales meeting was held with just 17 retailers from across the country, mainly those with one or two stores. The Swiss brand does intend to open single-brand doors, but at a slow pace. There may be one in Beijing or Shanghai next year. Not much more. A major roll-out of a brand in China usually looks different. It is up to the individual judgment whether the cautious market entry is a result of Mammut being aware of a possible cooling-down of the market, or whether it reflects the fact that the Swiss group arrived sort of late.
There are a few factors – which are partly interconnected – that have helped and will help Ispo Beijing to develop further as a meeting point for the national and international industry. First, the typical Chinese optimism – some observers would say indifference – keeps the market players from steering their attention to the potential perils of the international economy. To Chinese businesspeople who are working on their domestic field, it doesn't seem to matter whether the economy in the U.S. may not be in as good a shape as it used to be, or whether things in Europe may be turning from bad to worse. The simple truth that Westerners are hesitating to buy Chinese goods may have a more or less direct impact on the well-being of the Chinese economy as a whole.
Earnestly, why should the Chinese bother if their economy has managed to grow again at an annual rate of 8.3 percent and if the expansion of the local sporting goods industry, in particular, has been even stronger lately? The figures that we have collected so far in China show little evidence that the Chinese outdoor retailing scene has been affected with recent economic backlashes, an oversupply or an overheated market. Sego Sports, the big east coast sporting goods distributor and retailer, aims to open 200-odd stores dedicated to outdoor footwear alone over the next years to come.
Shehe, the former distributor and still the original manufacturer of Marmot Mountain, wants to add some 80 to 90 own shops to its current network of Shehe-branded stores in the course of next year. Bill Lu, the Guangzhou-based chief executive of Shehe, is cautious when he talks about new single-brand shops, since they are not necessarily corporate. Nor are all of them classical franchise stores in the way Westerners would understand them. Instead, Lu leaves most of the business to his local distributors, which are supported by the brand with marketing and shop-building tools, but the risk for the inventories remains with those distributors, which buy the merchandise on their own account.
Secondly, Ispo Beijing is taking advantage of the fact that domestic brands continue to be so busy at home that they don't have the time and resources to eye the international markets. Kailas, the big local Chinese brand of outdoor goods, which sees itself as the No. 3 in the market behind Toread and Columbia, but in front of The North Face, intends to take the total number of its single-branded shops up to around 200 from 130-odd doors last year and 80 in 2011. Kailas' boss and founder, Baggio Zhong, asks: ‘Why should I spend money on foreign business as long as I can grow easily in China?' He stubbornly denies any ambition to take his business to the West, but fewer and fewer observers are willing to believe him.
Thirdly, the brands, notably the Western ones, can use Ispo Beijing to check which retailers show up and which ones place orders in a fast-changing market environment. Basically everyone agrees that the very small specialty shops will be facing tough uphill fights that they are likely to lose over the next few years: Observers told us that they were too unprofessional and, more important, that they did not have the financial muscle and a sufficient standing against the banks to access fresh capital enabling them to expand their business. It would, however, be a big mistake to assume that the specialty retail market in general is going downhill.
It is just a matter of size. But the right size is an ongoing subject of discussions in the market. Bill Lu, the chief of Shehe, predicts that not only small stores will face growing problems, but big ones as well: Notably, the ones in top locations in the major cities will increasingly struggle against exploding lease rates. Therefore, Lu believes that the future of outdoor retailing belongs to shops of 100 and 200 square meters in size that are not necessarily located in the top malls or shopping streets.
The brands, even the big ones, feel that they can no longer rely on the outdoor fashion trend alone, and are therefore eager to ground their image and base their business more on retail operators that are also capable of selling equipment and better serving the outdoor community. One example is Adidas Outdoor, which showed at Ispo Beijing for the first time; another is The North Face, which did not show (yet) in Beijing, but will do so at Asia Outdoor in Nanjing this summer. In fact, the figures given by the China National Commercial Information Center suggest that the proportion of sales of equipment grew at the expense of apparel and footwear last year as compared to 2011. The share of equipment gained 3.5 percentage points and reached 16 percent of total sales of outdoor products, while apparel shrank from 76.4 percent to a still-impressive level of 74.2 percent.
Since the team of The Compass has been visiting both of the Chinese shows frequently, we are often asked by Westerners which of the two is better – Ispo Beijing or Asia Outdoor. Our answer is: That is the wrong question. Ispo Beijing certainly has a more international flavor thanks to the larger number of foreign executives going to the show. What is more, many brands are trying to penetrate China from the north, i.e. through Beijing, because that is where the ski resorts and a potential winter business are more likely to develop than in subtropical Nanjing.
Even though both shows emphasize their national or international appeal, both of them also have a regional dimension, with more southern retailers likely to pop in at the Nanjing show and with northerners happy to have their show nearby in Beijing. Some exhibitors shared with us their impression that Ispo Beijing is by far more visited by buyers from larger retail operations and a specifically Chinese class of trade professionals who act as middlemen between the brands and the shopping malls, since not all of the business that brands have in shopping malls is direct. At Asia Outdoor, there are a large number of small specialty retailers. While Beijing is the logical place to meet to see winter-oriented gear, it should not been forgotten that Nanjing – in spite of its less outdoor-friendly climate – is close to the big cities such as Shanghai in the central section of China's prosperous east coast.
The next Ispo Beijing will be held at the China National Convention Center on Feb. 19-22, 2014. More information on how foreign brands are trying to penetrate the Chinese market will be given in the next issue of The Compass. Subscribers will also learn more about the situation for local manufacturing of outdoor products. Other reports on the side program and the Chinese winter sports market will appear in the next issues of SGI Europe, as a prelude to an in-depth report on the Chinese sporting goods market that we plan to publish early next year.