Nike challenger Anta faces fresh rivals in Chinese sportswear race

In 1987, a teenage Ding Shizhong boarded a train from the southern Chinese city of Fuzhou to Beijing, carrying leather shoes manufactured at his family’s factory in the coastal province of Fujian.

The 17-year-old managed to bargain his way into selling the shoes they made in the capital’s department stores. It marked the start of his company Anta’s evolution from being a little-known provincial shoemaker to last year overtaking Adidas to become the second-largest sportswear retailer in China behind Nike, with annual revenues of $7.8bn.

“Ding realised early on that the money is in the brand, not the making of the product,” said one person close to Anta’s management.

But after years of rapid growth, the company is now “at a crossroads,” according to Shaun Rein, founder and managing director of the China Market Research Group. “The Anta brand’s growth in China is slowing, and it’s unclear whether the group is well positioned to capture evolving Chinese trends in sportswear,” he said. Anta declined to comment.

It is one of several sportswear companies known as the “Fujian Tigers” that emerged in the 1980s and manufactured clothing and shoes for western brands, including Nike. After listing in Hong Kong in 2007, Anta has been snapping up foreign brands to target higher-spending consumers and, more recently, push into fast-growing niche sportswear categories.

In 2009, it bought the China rights for Italian sportswear company Fila and 10 years later, it led a €5.6bn takeover of Finland’s Amer Sports, which owns a portfolio of brands including Arc’teryx and Wilson tennis rackets.

“There is no possibility of creating an Arc’teryx or Wilson with the branding power of Chinese companies today. But it is possible to create this through an acquisition strategy and growing in the China market,” said Ding, who had risen to be the company’s chair, at the time.

With Anta on the hook for a €1.3bn loan expiring in March that its consortium took out to complete the 2019 deal, investors are focused on whether it can pull off a successful IPO of the Amer Sports business.

The company has been targeting a New York listing early next year, according to people familiar with the matter, which would provide funding to turbocharge growth in China and help Anta pay down the debt from the acquisition. The goal is to raise more than $1bn at a $10bn valuation, but those people cautioned there could be a delay due to unfavourable market conditions.

Up to June this year, Anta had reported Rmb1.8bn ($250mn) in accumulated losses on the acquisition.

“Profit levels should rise significantly with a successful IPO that allows them to pay down the debt,” said Melinda Hu, a retail analyst at Bernstein.

In its home market, the top three domestic sportswear companies — Anta, Li Ning and Xtep — have suffered slower growth in 2023 due to weaker consumption, and the market capitalisation-weighted average performance of Chinese brands is down by 26 per cent year-on-year, according to HSBC analysts. Market leader Nike itself announced a new restructuring programme last week, blaming it in part on weak demand in China.

Meanwhile, revenue growth from the Chinese company’s mass-market Anta brand, which accounts for just over half of sales, has petered out, after a boom driven in part by a patriotic boycott of foreign brands over their stance on Xinjiang cotton products made using forced labour.

Bernstein’s Hu said the group’s acquisitive strategy has resulted in under-investment in its main label. “They’ve allocated more resources to mergers and acquisitions and turning around brands they’ve bought than investing in the Anta brand,” she said.

In another challenge, higher-end Fila, which accounted for around 40 per cent of revenue in the first half of 2023, is coming under pressure from incomers like Lululemon Athletica, Hoka and On Running.

Lululemon said its revenue in China grew by 61 per cent in the three months to June and that it wanted to triple the number of stores in the country to 220 by 2026.

“Chinese are doing a wider range of sports at a high level. This new batch of athletes creates opportunities for foreign brands with strong product lines in the west,” said Allison Malmsten, sportswear analyst at Daxue Consulting.

“Anta is being outcompeted by hotter brands with a true sports heritage,” said Rein, “the trend is not looking fit and healthy but actually being fit and healthy. This is a problem for Fila,” said Rein.

In response to the new trends and increasing competition, Anta has introduced more technical and functional Fila products while cutting underperforming product lines, said Walter Woo, retail analyst at the Hong Kong-based bank CMB International.

In addition, it has taken a majority stake in Maia Active, a Shanghai-based “athleisure” brand, with an annual turnover of Rmb400mn ($54.7mn) and formed joint ventures with Japanese skiwear company Descente and Korean outdoor sportswear group Kolon Sports to sell their products in China.

In 2020, Anta overhauled its business model after being attacked by short seller Muddy Waters for allegedly inflating revenues through a network of “secretly controlled” distributors. It denied the allegations.

The company shifted away from a 20-year-old wholesale distribution model by taking control of retail stores in large cities. The move helped it ensure quality while repairing its image with investors, said Hu.

The direct connection with customers also allowed Anta to adapt rapidly to emerging trends, with lead times of just 3 months to bring products to stores, compared to 18 months for foreign brands, according to company insiders.

It is an ability that will serve it well as competition mounts. “Anta is quick to respond to new trends and bring products to market,” said one senior executive at a rival sportswear company. “They’re fast learners.”

Additional reporting by Annachiara Biondi in London