At the second edition of the Sports Source Asia fair in Hong Kong, 240 exhibitors from six different countries will showcase apparel, footwear and equipment over four days. This figure is 20 percent lower than the 300 exhibitors at the same event last year and also a clear indication of how the economy is affecting the sporting goods industry today.
Overall, fourth quarter orders from Chinese manufacturers have declined versus the same time last year, as a result of the slowing economy, rising gas prices, increase in labor costs, and appreciating renminbi. Most of the cancellations and order quantity reduction come from the USA. Although the Chinese government has increased export tax rebates on 3,486 products, including clothing and textiles (from 13 percent to 14 percent), companies across the board have readjusted their 2009 pricing conservatively in order to accommodate the increase in operational costs and uncertain market demand.
Established Chinese manufacturers such as Xtep and Peak are bearing the rising production costs of their companies as well as the consumer. They are certain that an increase in product price will not affect their established brand and loyal customer base. Smaller Chinese manufacturers, on the other hand, do not have such liberties and must absorb most if not all of the additional production cost in order to lure new customers. Such manufacturers must assure buyers that quality is not sacrificed as a means to maintain competitive prices.
Amidst the economic turmoil, no Chinese manufacturer is willing to reduce budgets in other departments. In fact, many Chinese manufacturers are aggressively pushing their marketing efforts to claim their piece of the ever-shrinking pie. At the moment it is a wait-and-see attitude, as it is ultimately the customers who will dictate the fate of manufacturers in China.
The sharp increase in the value of the dollar has not affected business relations between European buyers and manufacturers in China. Local Chinese companies have felt no pressure from European clients to be invoiced in euros instead of dollars. Even if there is pressure to do so, the volatility of existing currencies and the time spent readjusting standard financial practices are reasons that many manufacturers consider in the meantime, an “unnecessary change.”
