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Shoe Expert: NBA Fallout In China Could Lead To Consumers Ditching Nike, Under Armour

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Shoe Expert: NBA Fallout In China Could Lead To Consumers Ditching Nike, Under Armour

The Los Angeles Lakers and Brooklyn Nets preseason game took place as scheduled in Shanghai, China Thursday despite fears of a cancellation. 

The Lakers and Nets played a close game in front of a sold out crowd of 18,000, and it appears likely the teams will also play their rematch in China on Saturday.

The ultimate fallout from Houston Rockets GM Daryl Morey's tweet in support of Hong Kong protesters remains to be seen — particularly for western sportswear brands that are banking on growth in China.

Chinese Sales Fueling Growth

The brands have not yet been pulled into the controversy, said Matt Powell of the NPD Group, but he said the potential implications are dire from a business standpoint. 

“From my observations, China has fueled much of the growth for most of the western brands. If sales in China were to slow, I believe it would have a major negative impact on quarterly results,” Powell said in a Thursday blog post

The performance basketball shoe business in the United States has been in decline for the last four years, according to NPD sales data — but China remains a bright spot.

“On the other hand, basketball shoe sales in China have been robust, with hundreds of millions of kids playing the sport. From what I’m seeing, endorsed NBA players still drive sales in China while they do not in the U.S.”

If Chinese youth  stop buying western basketball shoes, investments in athlete endorsements will be worth even less, Powell said. 

“The same goes for NBA licensed products; if Chinese kids stop wearing NBA jerseys, the sales and investments in the licenses will, in my opinion, likely be in jeopardy.”

Powell: Trade War, Chinese Competition Are Added Headwinds 

Greater China was a huge driver in Nike Inc (NYSE: NKE)’s first-quarter sales beat Sept. 24, with the region driving 22% sales growth across the board in every category for which the company reports.

It will likely be the most closely followed metric by investors when Nike reports second-quarter results. 

International sales have also been a huge driver of Under Armour Inc (NASDAQ: UAA)’s growth in recent years.

The turmoil between the NBA and China comes at a time when native Chinese footwear companies have ramped up efforts to take market share back from the western brands, Powell said. 

“Should the situation worsen between the NBA and China, we could potentially see a move by Chinese consumers back to the native brands. On another front, I believe the trade war with China could potentially cause consumers to turn their backs on western brands, which could also have negative consequences.”

Related Links:

Footwear Expert: Tariffs Hurt Nike In A Different Manner Than You Think

Houston Rockets, NBA Face Backlash In China After GM Tweets About Hong Kong Protests

Photo by Dustin Blitchok. 

Posted-In: Apparel Brooklyn Nets China Daryl MoreyAnalyst Color Sports Markets General Best of Benzinga

 

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