Could the love affair between Nike and China be in trouble?
The US sneaker maker has worked for years to embed itself in China’s growing and valuable sports market. Through partnerships with Chinese athletics organizations and steady efforts to win over consumers, it has laid the groundwork for what it has long seen as a lucrative future in the country. Shoppers have reciprocated, buying up Nike products and elevating its Jordan sneakers to status symbols.
But the relationship is now at risk. Nike is among the international companies contending with a backlash in China over a past statement distancing itself from ties to Xinjiang, where western researchers and officials say China is pressing Uyghurs and other predominately Muslim ethnic minorities into forced labor. Beijing has denied the claims and pushed back against western officials and companies.
Nike has seen its apps scrubbed from the store of telecom giant Huawei, had two popular Chinese actors announce they were cutting ties, and been the target of calls for a boycott on Chinese social media, where users may know little of the forced-labor reports from Xinjiang. Guo Ailun, the first Chinese basketball player signed to Nike’s Jordan brand, unexpectedly sat out a Chinese Basketball Association game over the weekend, sparking speculation that his absence was related to the endorsement deal.
Nike’s strong foundation in China is suddenly in danger of being shaken, especially as competition grows from homegrown Chinese rivals and US-China relations remain tense.
Will the outrage in China have long-term consequences for Nike?
It’s difficult to say at this point what the long-term impact of the situation in China might be. In a March 25 note to clients, investment firm UBS said it expects the international companies caught up in the furor to see a temporary drop in their China sales, with Swedish retailer H&M, which has born the brunt of the vitriol, feeling the impact most. Historically, it noted, boycotts of foreign fashion and footwear brands have not had long-lasting effects.
But the situation today may be different. “I do not think Nike will vanish from the Chinese market anytime soon, however I do think this will affect Nike’s market share and serve as a turning point for Nike’s brand image,” said Hank Zhang, leader of the consulting practice at China Marketing Insights, which helps companies and investors understand China’s consumer landscape, in an email. “This is not necessarily something Nike itself can overcome though as, even without this scandal, souring China-US relations and the pandemic have caused Chinese consumers to support homegrown brands more than ever.”
Chinese shoppers once viewed domestic brands as being of inferior quality, but those perceptions are changing. Today more are embracing brands such as Anta (paywall) and Li-Ning, which have simultaneously been working to elevate their brand images. These companies also play into feelings of national pride that are becoming more prominent among young shoppers in China. Nike is still the clear market leader, according to data from research provider Euromonitor, but these companies have emerged as strong competitors with the ability to steal away customers.
China’s nationalist consumer activism is also intensifying, particularly as tensions escalate with the US and Europe. While some foreign brands have rebounded from flubs like racist marketing or design choices that inadvertently question China’s national boundaries, the outcome can be different when the Chinese government has a stake in the matter.
South Korean retailer Lotte learned that lesson in 2017. After it let the US install an anti-missile system on one of its golf courses near Seoul, Beijing cracked down on its Chinese operations and ultimately forced it out of China, despite $9.6 billion in investments in the country. The US National Basketball Association ran afoul of Beijing in 2019 after a team’s general manager expressed support for the pro-democracy protesters in Hong Kong, and though the NBA was able to preserve its access to China, the episode was costly.
In the current crisis facing international companies, Beijing has inserted itself directly into the situation. State media and officials are pressuring companies to refrain from commenting on Xinjiang.
“To do business in China you have to respect China,” Zhang said, adding that being a well-known western brand is no longer enough.
Nike declined to comment for this story except to point to its previous statement on Xinjiang, which says it is concerned about reports of forced labor and states that Nike does not source products or materials from the region.
Nike’s deep roots in China
Nike has never simply coasted in China. On the contrary, it has invested heavily to make itself synonymous with sport in the country, which was an object of fascination for Nike cofounder Phil Knight. In his memoir, Shoe Dog, Knight wrote about his thoughts ahead of a 1980 trip to visit China:
The question wasn’t how to get into China. One shoe company or another was going to get in, eventually, and then all the others would follow. The question was how to get in first. The first to get in would have a competitive advantage that could last decades, not only in China’s production sector, but in its markets, and with its political leaders. What a coup that would be. In our first meetings on the subject of China we’d always say: One billion people. Two. Billion. Feet.
That year Nike signed its first sponsorship deal with China’s national basketball teams. It has been steadily building its brand in the country since. In recent years, it has partnered with China’s government on programs for school kids; expanded its presence in Chinese athletics, including in sports such as basketball and soccer; and signed deals with high-profile athletes and celebrities.
On earnings calls, Nike executives have talked about the importance of China to its business. “As I’ve said before, Nike is the brand of China for China, and the results continue to prove it out,” said former CEO Mark Parker in September 2019. “We’ve driven double-digit growth in Greater China every quarter for more than five years.”
The pandemic solidified China’s role as Nike’s primary growth engine, as the country has rebounded faster than other large economies.
There are indications Nike’s image in the country won’t suffer much. Unlike H&M’s products, Nike shoes and clothing haven’t been removed from China’s big e-commerce platforms. The South China Morning Post even reported that a sneaker Nike launched on Alibaba’s Tmall after the backlash sold out immediately. It noted that although China’s governing body of soccer, the China Football Association, had condemned Nike internally, it hadn’t ended its contract with the company.
But the situation remains delicate. The Beijing-backed Global Times reported that some social media users want the CFA to take a tougher stance with Nike. In a separate story, it warned that global brands such as Nike could see their growth in China plunge if they don’t change their positions on Xinjiang.
Nike may be too deeply embedded in Chinese sports and culture to be easily extricated. But it still faces the difficult challenge of maintaining a firm position on Xinjiang while trying to appease Chinese authorities and shoppers, especially if new conflicts arise between Washington and Beijing.