匹克运动鞋依然大行其道

A small and little-known city in eastern China's Fujian province makes three claims to fame: it boasts the country's earliest seafaring vessels, a large Islamic temple – and an odd cluster of sneaker companies.

At least 10 firms in Quanzhou city make athletic shoes, and four have listed on overseas stock markets. Known collectively as the “Fujian Tigers”, these brands started out stitching together shoes for the likes of Nike and Adidas, then found success under their own names by selling into lower-tier cities.

Their sudden emergence sets a crucial piece of received wisdom on its ear: it is no longer true that reliable retail sales of branded products can be generated only in China's top cities.

Foremost among the Fujian Tigers is Peak Sport Products, a family-run company that now ranks among China's best-known sportswear brands. The company listed in Hong Kong in September 2009 and now has a market capitalisation of US$1.4 bn on the back of regular annual revenue increases of 60 per cent or more. Peak's turnover is likely to exceed US$500m sometime in 2011.

Such eye-popping growth comes at a time when most leading foreign brands are struggling, and Adidas is suffering double-digit declines. Peak's story underscores both the growing importance of China's consumer class and the emergence of competitive domestic brands.

The key to understanding Peak's rise to a sneaker powerhouse can be found by looking where its shoes are not available. Visitors to China's biggest cities – Beijing, Shanghai and Guangzhou – will likely search in vain for a Peak outlet.

Peak is instead expanding fast into second-tier cities and below, all the way down to county towns – markets where the China's biggest athletic shoe sellers, Nike and Adidas, fear to tread.

Like a guerrilla strategist, Peak has abandoned China's large cities to its powerful foreign competitors and instead occupies territory exclusively in the hinterland, where incomes have crossed a critical threshold. People in these once-impoverished places can now pay for holidays, home-video systems and branded shoes – and they want them.

Peak now has more than 6,000 retail outlets and is opening another three every day. Nike and Adidas, by comparison, each have about 3,500 stores in China.

Peak's goal is to gain first-mover advantage by opening the maiden athletic-footwear store in major shopping districts across China. Most homegrown brands share this strategy and are growing at a similar clip.

Peak's most mature local competitors are Li Ning and Anta. There is also growing competition from Dongxiang, which owns the China licence to the Italian sportswear line, Kappa. Based on phenomenal growth, its market capitalisation is higher than Li Ning's even though Li Ning boasts higher margins and twice the market share.

Most observers think the lower-tier markets will be saturated within five years. Such congestion will lead to a shakeout, with the strongest and best-organised companies winning. By then, Peak and friends are betting they will be ready to move into the gem markets of Beijing and Shanghai.

It is unlikely that Peak will ever offer top-quality, high-performance shoes. But Peak CEO Xu Zhihua says being a value brand is good enough. “What would you rather be?” he asks. “The company with the highest-tech products or the biggest profits? We'll be the Toyota of shoes.”

Matthew Forney is president of Fathom China, an independent research company that conducts due-diligence investigations on firms and executives in China.