American sportswear giant Nike (NYSE: NKE.US) stunned the market last night as its latest quarterly results smashed expectations. The togs manufacturer advised that total sales advanced 5.4% during June-August, to $8.4bn, a result that powered profits a whopping 23% higher to $1.18bn.
The most eye-popping takeaway from Nike’s results was the strength of product demand in Greater China — the company saw total sales in the territory leap an astonishing 30% in the three-month period, to $886m.
Following the results Nike chief financial officer Andy Campion commented that “while we are very mindful of the macroeconomic volatility in China, our brand has never been stronger and our marketplace has never been more healthy.”
Brand power is key
Nike is undoubtedly reaping the rewards of the rising fitness craze in China, a trend helped by the growing popularity of ‘wearable’ apparel and other technological developments. But the results also undermine the idea that economic cooling in the region is smashing consumer spending power — with the right product mix and brand strength, the growth markets of China still provide plenty of upside.
Oriental-inspired retailer Supergroup (LSE: SGP) certainly thinks so, the business having unveiled plans to create a joint venture in the country with Trendy International Group (or TIG) back in July. The Cheltenham-based retailer advised that “China is a very exciting market and [is] forecast to overtake the US as the largest apparel and footwear market in the world,” and reckon the venture will be self-funding within two years of launch.
Unlike many retailers who have charged into China with all guns blazing, Supergroup is taking a more measured approach. TIG — which already operates thousands of luxury and ‘hip’ fashion outlets across the region, like those of Ochirly and Trendiano — will be responsible for day-to-day operations. This will leave Supergroup to deal with “strategic brand support, design services and marketing.”
Ready… Ted… Go!
Supergroup will be hoping the venture will emulate the success being seen over at Ted Baker (LSE: TED), a clothing manufacturer also carrying plenty of clout in the branding stakes. The London designer has also been expanding its store portfolio in China in recent times, including the opening of its first street-level store in Hong Kong in April.
Ted Baker is working hard to develop the power of its label amongst these new customers, and noted in March that initial reactions to its brand have been promising. It added that “we are positive about the long term opportunities in this territory,” and with good reason — retail sales in Asia galloped 19.2% higher in the 12 months to January, to £11.8m. Encouragingly the business advised of “further progress” in it global markets back in June.
Burberry poised to bounce
The situation in China has been far from rosy over at Burberry (LSE: BRBY), however. Sales in Hong Kong collapsed by double-digit percentages during April-June as challenging market conditions intensified, although its performance in the rest of the country was far better — demand in Mainland China “grew by a low single-digit percentage” in the period from a year earlier.
The impact of anti-extravagance measures by China’s government has severely dented demand for high-priced goods, a factor that ‘streetsmart’ labels like Supergroup and Ted Baker are far more immune to.
But while this issue could provide further headaches for Burberry, in the long term I remain convinced that the steady emergence of a rising middle class should power demand for the fashion house’s apparel resoundingly higher in the years ahead, along with those of its two London-listed retail peers.