China's outdoor industry is poised for consolidation following a five-year boom that doubled the number of core domestic outdoor brands and retailers competing in the country.

“Due to the decline in the outdoor boom over the last one to two years, there is likely to be some consolidation on the market, both on the part of the Chinese manufacturers and smaller retailers,” said Stefan Reisinger (pictured at right), who oversees the Asia Outdoor Trade Fair for Messe Friedrichshafen. “There will probably be fewer, but therefore stronger market players.”

The country was home to 354 domestic core outdoor brands at the end of 2014, up nearly 25 percent from a year earlier according to data released in mid-July by the as China Outdoor Association Co., Ltd (COA) of Hong Kong. Including foreign brands, 775 brands were competing for Chinese consumers, up 61 percent from 2010.

Sales of core outdoor products reached an estimated RMB17.06 billion ($2.5 bn) in 2014, up 10.9 percent, according to COA research commissioned by an affiliate of Messe Friedrichshafen, the German company that produces the Outdoor Friedrichshafen and Outdoor Asia trade shows. The estimate, which excludes sales of cycling, fishing and hunting products, is based on analysis of data collected from brands, retailers, malls, public company reports, government agencies, local outdoor clubs and more than 5,000 responses to a consumer survey.

Multi-brand and online retailers gaining share
COA research indicates consolidation is already underway in the retail sector of the industry, as western style multi-brand retailers displace the mono-brand outlets that dominate China's retail landscape. The number of multi-brand outlets grew 3.3 percent to 3,801 in 2014, while the number of mono-brand outlets declined 2.8 percent to 12,302, according to COA.

Reisinger sees consolidation favoring the industry's more authentic brands, which should favor global brands such as Vaude, Black Diamond, Columbia and Then North Face,  and multi-brand retailers dedicated to growing the market through grassroots marketing such as sponsoring rock climbing competitions and trail races.

Digitally savvy retailers are also expected to gain market share amid Chinese consumers' rapid migration to online shopping. COA estimates Internet sales of core outdoor products grew 61.7 percent to RMB4.85 billion ($709 mm) in 2014, or 28.4 percent of all retail sales.

In mid-July, COA forecast annual sales of core outdoor products will grow 10-to-15 percent per annum over the next decade and reach RMB44.2-to-69 billion by 2024.

Wither consumer spending?
What’s unknown is how much the slowdown in China's broader economy will slow consumer spending on outdoor products. Figures published by the Chinese government show year-over-year growth in consumer spending slowed to 10.5 percent in July compared with 12.2 percent a year earlier.

“It's been interesting to note that the recent declines in the stock market really haven't impacted our business there in any specific way,” Columbia Sportswear Co. CEO Tim Boyle observed July 30, during the company’s second quarter earnings call.

Still, the company's updated guidance for the full fiscal year assumes flat growth in China, implying a mid-single-digit decline in the second half following a high-single-digit increase in the first half. CAt VF Corp. which markets The North Face, Timberland and Vans in China, it's business as usual, VP and Group President, International Karl Heinz Salzburger said July 24.

“We still have a lot of room there and also we had a relatively good quarter,” said Salzburger. “Our comps are strong; so it’s really good feedback from China at the moment.”

IPOs, private  placements at risk
Reisinger noted that the bigger threat from China's stock market correction may be that it forces China's major outdoor companies to shelve IPOs and other capital raising initiatives needed to finance expansion in China and abroad.

Sheng Faqiang
Founder of Toread Holdings Group Co., Ltd.

Toread Holdings Ltd, which is one of China's largest domestic outdoor companies, announced plans in June to sell 80 million shares via a private placement to raise about $340 million to build out what it calls its “outdoor ecosystem.” The idea is to fast track development of China's outdoor recreation infrastructure to generate demand for the Toread (Pathfinder) branded outdoor gear it sells through 1,000 retail locations. Ventures include a joint venture with a manufacturer of snow making equipment aimed at accelerating the development of four season mountain resorts.  It's Discovery Expedition business also recently acquired one of China's leading adventure travel companies.

Toread reported Aug. 18 that its sales grew 8.6 percent to RMB676 million ($110 mm) in the first half 2015.  Operating profit increased 24.3 percent to RMB164 million ($27 mm).  The company also owns the Acanu cycling brand.

Telent Outdoor Technology Co Ltd, filed paperwork in late 2014 to sell 103 million shares on  Bursa Malaysia.

The Hong Kong-based company, which started as an OEM for outdoor footwear, would use the funds to expand retail distribution of its Telent brand in Malaysia.

In an interview with the edgemarkets.com published Friday, Telent Executive Director Hui Tang Tat said he sees the company's 20 to 30 percent annual growth rate in China continuing for the foreseeable future.

“Economic data which show the overall economy slowing down do not mean that every single city here faces the same situation,” he told theedgemarkets.com. He added that China’s preparation to host the 2022 Winter Olympics will stimulate interest in mountain sports.

Financial data Telent submitted to the Malaysia Security Commission late last year shows the company grew revenues 37.7 percent to RMB575 billion ($94 mm) in the fiscal year ended March 31, 2014, with about half coming from outdoor footwear, 44 percent from apparel and the remainder from equipment. Net profit grew 34.9 percent to RM108 million ($18 mm).

Preaching conservation
To sustain the industry's growth, COA is focusing on  promoting the Asia Outdoor trade show and its concurrent COA Outdoor China Summit, building the COA Outdoor League Tournament and developing a products quality standard. The association also wants to improve the professionalism and safety standards for the country's outfitters and outdoor guides to ensure Chinese tourists outdoor adventures are both fun and and safe.

Asia Outdoor drew 19,002 visitor to Nanjing, China in mid-July, up nearly 10 percent from a year earlier, according to Messe Friedrichshafen. The show, in its tenth year, drew 617 exhibitors, up from 613 a year earlier.

At its annual meeting May 29, COA's announced that  it had formally incorporated as a not-for-profit and would begin recruiting more members. The group's core members include the founders of prominent Chinese brands as B.C. Sports, Kailas, Mobi Garden, Scaler and Toread as well as a handful of European brands such as Halti, Leki, Lowa, Meindl and Vaude.

In the meantime, COA continues its “We Need Fresh Air” campaign as part of a more visible effort to promote conservation and environmental protection in China. COA just released a second edition of T-shirt emblazoned with the slogan that is being sold at thousands of stores across the country as well as JD.com and Tmall.  

As for The North Face, their China strategy remains unchanged.

“I always say that very consistently,” said Salzburger. “This is a marathon; it’s not a short-term race.”