Domestic Shoe Brands Expand Actively In The Two Or Three Tier Cities

　　 We believe that Nike's current pricing strategy in China has made it impossible for businesses to enter the two or three tier cities, while domestic brands are actively expanding in these cities. In this report, we consider whether Nike will launch lower priced footwear products for the two or three tier cities and the potential impact of the move on China's sports apparel industry.

　　 A unique model is used to assess the ability to reduce the cost of digestion.

After discussing with manufacturers, we created a unique value chain model to examine the ability of the value chain to absorb cost. Our conclusion is that Nike has the ability to set the price of footwear at a competitive 300 yuan / double. We also cited two examples of successful penetration of both companies into high-end and low-end markets.

Short term effects: the average selling price of domestic brands will be the most affected.

We believe that if Nike decides to sell low priced products in China, the average high priced domestic brands, such as Kappa and Lining, will be most affected in the short term, because some consumers in the two or three tier cities may choose Nike instead.

　　 Medium and long term impact: domestic small and medium-sized brands are afraid of being hit.

We believe that if Nike can successfully penetrate into the two or three tier cities, some domestic brands with general brand image will be squeezed out of the market. We believe that the annual sales budget of 350 million -5 billion of small and medium-sized brands is unlikely to compete with Nike, Lining and Anta in the whole country (these companies spend more than 1 billion yuan a year in marketing costs). Although we may suffer a heavy blow in the short term, we believe that the domestic brands with considerable marketing budget should be able to resist Nike, which is "the lowest" market. Anta is still our first choice in the industry.