The Chinese government’s reaction to Daryl Morey’s tweet (and the NBA’s response to it) sparked conversations about the billions of dollars that the National Basketball Association has at risk in Asia and the “ripple effects” that a prolonged boycott of the league would have on U.S. footwear and apparel companies. As Matt Powell (NPD Group) explained, “all of the western brands are leaning heavily on China for their growth. If the growth in China slows, then the overall growth of those brands will slow dramatically; and there’s no place to make it up.” However, little attention has been paid to how the controversy effects the Chinese footwear and apparel providers; namely Anta and Li-Ning, the two with ties to the NBA.
Howie Long-Short: While tensions have seemed to cool in recent days (or at least they had until LeBron decided to speak last night), Powell isn’t sure “the situation has ended.” But even if it gets worse, don’t look for a significant drop in basketball shoe sales on the Chinese mainland. Even in a worst-case scenario, “if the Chinese government decided it would no longer show NBA games, [it’s unlikely they would order] the population to stop playing basketball. The Chinese are committed to sport and elevating the health of their people.” Blacking-out all NBA games on an extended basis (currently just Rockets games are unavailable) would certainly dampen viewership and perhaps result in lower basketball participation rates, but any loss in domestic shoe sales would likely be offset by an uptick in ‘patriotic spending’.
Wall Street analysts have suggested that should the NBA-China situation escalate it would be to the benefit of brands like Anta and Li-Ning. Powell laid out a scenario where “the government encourages its people to buy Chinese as opposed to Western products” (i.e. patriotic spending). Should that happen, the Chinese people would be likely to comply; remember, the Chinese consumer is “Chinese first and a fan of the NBA second.” Of course, Anta and Li-Ning products are also immune to the headwinds that western competitors like Nike and Adidas face from the greater U.S.-China trade war.
It was reported that 11 of 13 Chinese sponsors listed on the NBA China website – including Anta Sports – have suspended or ended their partnerships with the NBA. Anta has said it would be “suspending contract renewal negotiations” with the league, though it’s unclear what that means; the company is not believed to be an official sponsor. As for the players Anta sponsors, it appears as if those deals are safe. Gordon Hayward said that “[the company] reassured him that his contract was fine, that there is no issue.” FYI: Klay Thompson is also signed to the brand. Li-Ning has C.J. McCollum.
Speaking of Anta (OTC: ANPDY), shares of the company are +90% YTD. Competitor Li-Ning (OTC: LNNGF) is having an even better 2019, up +216% YTD; the best among all footwear/apparel companies. The rising popularity of branded sportswear in China and a growing Chinese middle class are driving both companies.
Anta and Li-Ning have also “elevated their game” of late, introducing high-end products (as opposed to playing in the mid-market where they established their niche) and working to enhance their retail presentation. The growing popularity of the game of basketball certainly hasn’t hurt, either, but Powell says, “the biggest delta seems to be their willingness to fight back.” He explained that the Chinese brands “appear to be suddenly responsive to the market share losses they’ve experienced. For years, they stood by as the Western brands [took business from the Chinese consumer]. It appears they’re now working to gain some of that share back.”
To be clear, Nike isn’t nearly as dominant in China as it is here in the U.S. where it maintains +/- 75% of the basketball shoe market. Phil Knight’s company and Adidas each control +/- 20% of the Chinese market.
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