NIKE Low Price Grab Market, Many Sports Companies Are Affected.

Affected by the NIKE's desire to occupy the mainland market at a low price, the price of Chinese sports apparel manufacturers listed in Hong Kong has fluctuated in recent years. From June 22nd to July 6th, many companies such as Lining [26.80 0.56%], Anta, China trend [5.02 -0.40%] fell more than 10% in two weeks.

Affected by the recent plan of the US sports brand Nike (NIKE) to enter the mainland two or three line market with the help of low price products, the price of Chinese sports apparel manufacturers listed in Hong Kong has fluctuated in recent days, but most of them are steadily stabilizing after a short period of decline.

After the news came out in late June, Chinese sports apparel stocks fell for two consecutive weeks. From June 22nd to July 6th, Lining (02331.HK) fell 14.4%, Anta (02020.HK) fell 10.5%, China's trend (03818.HK) fell 12.7%, PEAK sports [4.95 -2.37%] (01968.HK) fell 15.5%, XTEP (01368.HK) fell 14.3%.

Until last week, these stocks had stabilized.

Recently, a number of agencies report that the distribution system will become a bottleneck restricting the low price offensive of NIKE, and the growth of mainland labor income will boost the sales of domestic sporting goods and clothing, so the prospect of this sector is not pessimistic.

Many sports companies are affected.

UBS expects NIKE to launch low-cost shoes in China in the second quarter of 2011, ahead of the bank's original forecast for the second half of 2011.

UBS expects Nike's sales growth in the Greater China region in the 2010 fiscal year will be mediocre. NIKE is eager to introduce cheap shoes to infiltrate the two or three tier cities in the mainland, because NIKE's business in this area is lagging behind.

UBS analysts believe that those domestic brands with higher average selling prices, such as Lining, Anta and XTEP, will be hit in the near future. In the long run, those companies that have enough marketing budgets will be able to survive.

Nanhua data research predicts that the price war of NIKE will have limited impact on domestic two or three line brands, such as 360 [3.37 0.60%], XTEP and PEAK, because the products of these brands still have a great price difference compared with NIKE, but the bank also expects that the domestic first-line brands will be affected, such as Lining, Anta and China's Kappa brand, because consumers may be willing to pay relatively less cost and get better brand products.

Under pressure from NIKE to launch low-priced shoes in the mainland, Chinese sports apparel manufacturers' stock has fluctuated in recent days, as investors worry that NIKE's move may lead to intensified competition in the industry.

However, Dahua's report shows that although NIKE has some negative effects on its entry into the mainland market with the help of low-priced products, the recent decline in Chinese sports apparel manufacturers' stocks has been excessive.

Because the distribution system will become a bottleneck restricting the low price offensive of NIKE. In view of the higher initial investment requirements and the lower profit margins of foreign brand products, some mainland distributors may not be willing to take risks. NIKE and Adidas will find it difficult to find local distributors in the two or three tier market of the mainland.

The bank also predicts that NIKE and Adidas's move to the mainland's two or three tier market will gain some market share from the Kappa of Lining and 03818.HK.

The prospect is still cola.

Although NIKE's low-priced offensive is threatening, many agencies are optimistic about the Chinese sports apparel sector.

Citigroup expects that in the next 5 to 10 years, the wages of mainland unskilled workers will increase by 15%-20% annually, and the annual growth rate of skilled workers will be 12%. The increase in labor income will bring about inflation effect, which should be conducive to domestic consumption and thereby boost the expenditure of non essential consumer goods.

The bank argues that the biggest beneficiaries should be retailers with a wide range of products, such as department stores, household appliance distributors, and the preferred BELLE [11.46 -1.21%] (01880.HK), Lining and [24.50 1.03%] (0551.HK) in the Hong Kong stock market.

Das said China sports apparel stocks have bright prospects.

The latest statistics of Da ho show that the ordering of sports apparel brands in mainland China will achieve good results, and the discount of retail sales will decrease.

Das noted that sports apparel companies have increased their average selling price of products delivered in the fourth quarter of 2010.

PEAK (01968.HK) recently released the two quarter sales figures up to June 30th this year, during which the same store sales grew by 12.5% over the same period. The group's retail network expanded according to plan, and by the end of June this year, the number of retail outlets increased to 6768, a net increase of 562 over the 2009 end of June.