Sporting Goods

Overview

• The World Cup fever in 2006 has boosted global sales of sporting goods. For instance, the sales of football team uniforms of all major sponsors have skyrocketed, and it is estimated that over 15 million footballs were sold all over the world. It is widely expected the impending 2008 Beijing Olympic Games would further propel demand for sporting goods.
  
  
• Health/beauty awareness waxes, giving rise to the popularity of indoor exercises such as yoga and aerobic/Latin dance. New products such as yoga matresses and vests and rubber bands and dance outfits have been developed. Meanwhile, more children are taking part in sports classes. Thus, formerly a traditional domain of males, sporting goods extended its clientele to include more females and children.
  
  
• Technology has become a more pronounced changing force in the industry. During the year, some sporting equipment has been developed with technology features attached, like MP3/ipod sports shoes and the "iGallop". Sportsgear are increasingly designed with the help of the latest sports science, with the application of new materials to enhance sports performance.
  
  
• Hong Kong companies export a diverse range of sporting goods. Major categories include sports equipment and accessories, sports apparel and sports footwear. Total exports of Hong Kong's sporting goods remained stable in Jan-Oct 2006. The US was Hong Kong's largest export market with a share of 36.8%.
  
  
• Many of Hong Kong's sporting goods are exported under OEM/ODM arrangement with overseas manufacturers and brand holders. Big OEM/ODM manufacturers include Yue Yuen (551), Smart Union Group (2700), Win Hanverky Holdings Limited (3322), Symphony Holdings (1223), Hembly Int'l Holdings Limited (3989), Sino Golf Holdings (361) etc.
  
  
• Crossovers of casual design and athletic design have become more evident. Young people nowadays wear athletic apparel and footwear even though they are not doing exercise. Therefore, sporting goods companies such as Puma and adidas joined hands with famous fashion designers to introduce separate lines of fashion sportswear to target the youth market.

Industry Features *

* Industry statistics refer to production in Hong Kong only. They exclude swimwear, headgear and other sports wear.

Hong Kong companies export a diverse range of sporting goods to the world market.  Major categories include sports equipment and accessories (72% of the total), sports apparel (23.6%) and sports footwear (4.6%). Sports equipment and accessories cover a wide range of products, for example, sporting bags, bicycles, water-skis, surf-boards, skate-boards, golf equipment, fishing and hunting requisites, and tennis and badminton rackets.
 
Hong Kong is one of the world's leading suppliers of sporting goods. The production bases of Hong Kong's sporting goods industry have largely moved to the Chinese mainland. Hong Kong's sports apparel manufacturers receive strong support from ancillary industries. Sportswear production benefits greatly from a strong presence of clothing industry in Hong Kong. Indeed, the production of other sports gear is well served with a variety of quality threads, fabrics, zippers, labels and other components at reasonable prices. Easy sourcing of materials and components adds competitive edge to Hong Kong's sports goods sector.
 
Many of Hong Kong's sporting goods are exported under OEM/ODM arrangement with overseas manufacturers and brand holders like Reebok, Nike, adidas, Umbro Timberland, Quiksilver etc. For instance, adidas Sourcing Ltd (responsible for worldwide sourcing for adidas) is headquartered in Hong Kong. Only a few Hong Kong manufacturers have attempted to develop their own brands backed up with R&D undertakings. Notable examples include Neil Pryde (windsurfing sail), Super-X (sportswear) and Nikko (camping gear and accessories). Some Hong Kong companies serve as agents/distributors of foreign sportsgear/sportswear companies and football clubs in mainland China.

Performance of Hong Kong's Exports of Sporting Goods ^

The statistical figures of the sporting goods below relate to the following goods (in terms of SITC Code):

• Sports equipment and accessories – 65822-4, 65829, 65831-3, 65839, 65893, 71331, 74313, 78520,79311-2, 79319, 82127, 83199, 87111, 87325, 87411, 88539, 88549, 88594, 89131, 89471-9, 89942 and 89996
• Sports footwear – 85121-5
• Sports apparel – 84119, 84219, 84310, 84410, 84561-4, 84581, 84591-2, 84841-5 and 84849
  

^  Since offshore trade has not been captured by ordinary trade figures, these numbers do not necessarily reflect the export business managed by Hong Kong companies.

Total exports of sporting goods remained stable in Jan-Oct 2006. Exports to the US, the largest market for Hong Kong sporting goods exports, decreased by 4%. Exports to Japan and Canada surged by 9% and 8% respectively, and exports to China escalated by 25%. In terms of product categories, exports of sports equipment and accessories and sports apparel remained more or less stable in the first 10 months of 2005, while exports of sports footwear increased by 11%.

Many Hong Kong sporting goods are exported under licensing and contract manufacturing arrangements with overseas manufacturers and brand holders such as Nike, Puma, Umbra, Quiksilver and Wilson etc. Buyers usually provide production specifications and product designs. Yet, Hong Kong manufacturers are increasingly devoted to product design and development, engineering, modelling, tooling and quality control, so that they can generate higher value along the supply chain.

Sales Channels

As mentioned, a few large local manufacturers export products bearing their own brand names. For example, the "Nikko" line of tents and knapsacks and "Neil Pryde" sails are well known in overseas markets.  It is common practice for these manufacturers to appoint overseas distributors to promote sales. A good distributor is a valuable source of market information and can be helpful in advising Hong Kong companies on appropriate pricing strategies. However, Hong Kong companies are advised to ensure that their potential partner is well established in the market, supported by warehousing and product handling facilities, and with good knowledge of the dynamics of the local market. In China, sporting goods are channelled through shopping centres in 1st tier cities and specialised retail stores in 2nd and 3rd tier cities.

For manufacturers shy of developing their own brands, selling to discount stores, speciality stores and importers are normal distribution methods. There are large discount chain stores in the US, such as Wal-Mart and Target, which buy from Hong Kong exporters. Large speciality chain stores selling sporting goods in the US include Sportmart and Sports Authority. In Europe, Decathlon, Intersport and Go Sport are the big players.

The Super Show in the US and ISPO in Germany are the 2 world-class trade fairs in sporting goods. The latter is holding trade shows in Shanghai. A golf show cum golf apparel expo is held in Hong Kong every year. In 2007, a large scale trade expo for sporting goods (Sports Source Asia) would be launched in Hong Kong. Practitioners are encouraged to join trade missions and exhibitions organised by the Hong Kong Trade Development Council (TDC). TDC also organises from time to time study or match-making missions for Hong Kong manufacturers, many of whom are OEM manufacturers, to visit specific markets for establishing new business connections.

Retail consolidation is one of the biggest issues facing the sporting goods industry. Retailers are transforming into super size stores with "shoppertainment" format. Manufacturers are dealing with fewer, but more powerful retailers such as Wal-Mart or large specialty chains such as Sportmart and Foot Locker. These sporting goods retailers, in turn, put increasing pressure on manufacturers for better deals. They also shift the inventory risk to manufacturers.

Industry Trends

Generic sporting goods tend not to be influenced by changes in favour of particular sports, though they are still highly affected by fads and fashions. A "life cycle hypothesis" is proposed to describe the boom and bust in the specialised sporting equipment market. As people grew older, they prefer fishing, golf and exercise equipment, as opposed to more strenuous football and tennis etc. Stiff competition has led to industry consolidation in the international arena. Converse was acquired by Nike earlier; the Hockey Company was acquired by Reebok in 2004, with the latter subsequently acquired by adidas in summer 2005. Luxury brands such as LV and Chanel etc. have entered into the sporting goods business.

With capital intensive products as exceptions, sporting goods are like other consumer goods, where research and development and marketing are the processes with the highest value-added. Thus, industry barons offshore their physical production to China, Vietnam, Indonesia and Thailand etc. Hong Kong manufacturers have largely off-shored their plants to low wage and low land rent countries. While international players focus their R&D on the use of new materials and design incorporating engineering, biomechanics and physiology, some Hong Kong manufacturers have also developed their R&D capabilities.

As regards marketing, endorsement agreements with sports stars and sponsorship and licence agreements with sports events are crucial factors in a products' success. Thus sports stars, teams and tournaments are often sponsored by sporting goods companies. Close connections with sports stars and coaches etc. could provide a source of competitive advantage. Their feedback on products could help direct R&D activities.

Though the US and the EU remain the biggest markets, sporting goods manufacturers are keen on China due to its high growth and a market which worth an estimated RMB 65 billion in 2004. The fitness drive that sweeps across China, exacerbated by the 2008 Olympic Games, is fueling demand for sporting goods. The Li Ning Group, listed in Hong Kong since June 2004, is one of the most successful local sporting goods enterprises in China, which operates over 2,000 sales outlets and offers over 1,000 varieties of products. While international brands such as Nike and adidas are projecting their brand names as upmarket brands in China, Li Ning tries to appeal to the grass-root level, creating a casual and popular brand image. Other popular local China brands include Kangwei, Gweat, Anta and Doublestar etc.

CEPA Provisions

The Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) came into effect on 1 January 2004 and was subsequently expanded in 2004-2007. From 2006, by meeting the CEPA rules of origin, all goods made in Hong Kong, including sporting goods, are eligible for duty-free access to the Chinese mainland.

Non-Hong Kong made sporting goods will remain subject to tariff rates of around 12%-25% when entering the mainland, according to China's 2006 tariff schedule. For more information about country of origin criteria of sporting goods, please refer to the Trade and Industry Department's CEPA web page: http://www.tid.gov.hk/english/cepa/index.html

Trade Measures Affecting Exports of Sporting Goods

Many sporting equipment items are required to observe the safety and technical standards of the importing countries. For example, sporting equipment used in Germany must comply with the technical and safety standard approved and maintained by the German Standards Institute in co-operation with several technical industry associations. These products must also be labelled according to the prescribed regulations. The EU and Japan have banned the use of a list of substances to be used in consumer products. In particular, the REACH Regulation by EU effective Jun 2007 would have an impact on the exports of products such as textiles and shoes that used hazardous chemicals.

Ethical sourcing is a common practice for international sports companies in response to social demands for corporate social responsibility. Leading companies have introduced measures to monitor working conditions of workers in their factories and contracted factories overseas. For example, Nike has hired a team of employees to monitor the labour conditions of its contracted factories throughout the world. Reebok has introduced Reebok Human Rights Production Standard and Reebok Restricted Substances Policy and adidas has implemented its Standards of Engagement, and other companies have followed suit.

In the US, the 2003 Trade Act has imposed new requirements on (containerised) cargo security. In addition, anti-terrorism programs have been introduced (e.g. assessing security of the whole supply chain), and may become mandatory.

Increased protectionism in the US and the EU may take the form of trade measures against products produced in China, including apparels and footwear. China-made textiles and clothing are still subject to quotas by the US and the EU. In addition, the EU has imposed anti-dumping duties on Chinese leather footwear.

Product Trends

One of the emerging trends in sporting goods is the convergence of casual and athletic designs. The best selling sports outfits nowadays combine sports activities with leisurewear, as sports lovers want to look smart and fashionable when doing exercise and people wear athletic apparel and footwear for casual or leisure purposes. A case in point is adidas, which colaborated with famous fashion designer Yohji Yamamoto to introduce a separate line of fashion sportswear carrying the brand name of "Y3".

Modern technology is playing a role in the industry, with designers seeking new fabrics and applications e.g. sun-protecting and reflective fibres with synthetics blended into wool and cotton etc. Manufacturers of sports balls and golf equipment have upgraded the materials used on basketballs, volleyballs and footballs from rubber and PVC to high-end PU. The use of nanotechnology in sports apparel is also expected to become more widespread. Apart from new materials, products have been developed with hi-tech devices attached e.g. MP3/ipod sport shoes and pulse timer bras. Furthermore, new sportsgear are increasingly designed with the help of the latest sports science, which enhances performance. Equipment for indoor "passive exercise" has been invented e.g. the iGallop.

Among different types of sporting activities, golf continues to be one of the high growth areas, although the rise in the number of players has been steady rather than dramatic in recent years. With golf averaging a 14% growth over the past few years, opportunities are becoming more promising for retail sales of golf equipment and specialist clothing.

Fitness activities have become a worldwide trend, and yoga and aerobic/Latin dance are gaining popularity, and sporting goods companies have introduced series of products (outfits and accessories) especially for yoga. Other new indoor sports equipment includes foam roller, balance disc, rubber bands/tube, fitball, Masai barefoot tech etc. As a result, women are an increasing prominent clientele of the industry, and companies have devoted more resources to introducing women sporting goods.

In the US, outdoor pursuits i.e. hiking, camping, backpacking, rock climbing, kayaking and fishing, have also grown in popularity.  Nordic fitness, such as Nordic walking, which involves walking with the use of poles to optimise fitness, is expected gain popularity.  Gloves as an accessory will also benefit from the rising trend of Nordic fitness.