Nike struggles in China: Temporary shift in brand loyalty, or long-term loss of faith?

Adidas has a 11.2 per cent market share, a close second to Nike. In recently released quarterly results, Nike predicted that sales in China will probably fall for the next two quarters. China has been generating 25 per cent of the company's global profits, before interest and taxes.

Nike has been struggling in China amid a slowdown in the Chinese economy. Its Chinese sales fell for the quarter ending May 31 from the corresponding period last year, marking a third consecutive quarterly drop. The prediction for the next two quarters means that it will have five consecutive drops.

"A brand, like a product, has its cycle: from innovating to maturing and rejuvenating," said Samuel Mak, CEO of Madison Communications. "The Nike and adidas brands are probably going through different brand cycles in the minds of their consumers in China, who may feel they need to switch brands to make a change." 

Brand loyalty is challenging for marketers in China, as there are many reasons for a brand losing market share to competitors, including brand relations, distribution and pricing strategy. Angelina Ong, regional MD for APAC and senio vice-president for China at Burson-Marsteller, said that in general, sports marketing in China should adopt a two-pronged strategy: to educate on what to wear or use for different sports, and to enliven the brand beyond the gym.

"Purely from the branding point of view, the relationship with consumers is the last defence line to lose," added Mak. "Are Nike followers losing faith in the brand? Or do they feel that adidas’ spirit is more relevant to them now than Nike’s?"

Answers to these questions, he said, will offer insights on whether Nike’s current downturn is a brand or non-brand issue. 

Nike's momentum began slowing after the Beijing Olympics, when its market share dropped from 12.3 per cent in 2008 to 10.9 per cent in 2009, according to Euromonitor data.

That was the year inventories started piling up, according to financial analysts, which prompted Nike to start discounting to clear out unsold merchandise.

Last summer, it became clear to its shareholders that Nike inventories were growing faster than sales. Revenue from China declined 5 per cent, even though the country's total retail sales rising more than 10 per cent, and as the athletic apparel market in China growing at a CAGR of 29 per cent from 2006-2012.