Nike was once China's sneaker king. Here's why its sales have fallen 30%

Sports-related products are the fastest growing consumer category in China and participation in sports and exercise is at its highest level in decades. The overall sportswear market has ballooned 51% in the past five years, fueled by a new focus on healthy living, according to GlobalData.

But instead of thriving during China's sports renaissance, Nike's business in the region is languishing. Sales have fallen from the prior year eight quarters in a row, and the overall business has shrunk 30% since 2021, with annual revenue hitting its lowest level in eight years at the end of May.

China was once Nike's fastest-growing region, beloved by investors for its high margins and potential for sustained growth. Now, it's the company's smallest market and has become a drain on a global turnaround that some on Wall Street believe is taking too long .

Some U.S. analysts expect Nike's China business to recover once its North America operations stabilize, but experts on the ground told CNBC its challenges in the region are deeper, and far different, from what it faces at home. Young Chinese shoppers are increasingly choosing domestic brands over expensive foreign names as part of a larger "China Chic" movement, and consumers are hungry for a localized assortment — not the same product that's being replicated from Utah to Shanghai. Nike is also working to overhaul its distribution model in China, which critics say has become messy, overly complex and driven by discounts.

"In a way, Nike has just become irrelevant," said Yaling Jiang, the founder of consumer research firm ApertureChina and an expert on the Chinese consumer. "I don't think young people can remember what's the last new thing they've done. But if you mention Adidas to them, they will tell you about … their pet clothes, pet jerseys, or their China jackets."

During its most recent earnings call , Nike's outgoing finance chief Matt Friend couldn't say when the China business would return to growth, telling analysts that revenue trends in the near term "will be in line" with recent performance and "profitability will bottom before sales."

In January, Nike CEO Elliott Hill announced Cathy Sparks, a 25-year Nike veteran, would become the next vice president and general manager of Greater China, reporting directly to him.

In an interview with CNBC, she said Nike is taking the steps it needs to reconnect with Chinese consumers.

"The one thing that I have certainly learned over the last six months is that the Chinese consumer has changed and they have high standards for what they want through product connections, engagement with the brand," said Sparks. "We know that if we can design footwear and apparel, lifestyle or performance, that's specifically targeted towards the unique needs of Chinese consumers, we'll drive full price revenue."

A Nike spokesperson pushed back on the idea that the company has lost relevance in the region and said what's changed is younger shoppers are looking for "hyperlocal connections," including through events and broader cultural moments.

"Nike has been in China for more than 40 years, and from day one, our approach has been to start with local consumer insight and turn that insight into inspiration, innovation and storytelling that can spark movement," the spokesperson said.

When Nike turned to China as its next major growth market in the mid-2000s, it won by largely replicating its global strategy and betting that popular clothes and shoes in the Western world would also land with Chinese shoppers.

"The premium brand at the time that was available was Nike. Nike was just clearly better. They had cooler designs. They were more expensive. There was more brand cache," said a retail consultant based in Shanghai who advises domestic and international brands, including Deckers and Adidas, and asked not to be named to protect client relationships.

"If you go back to the early 2000s, if consumers had some money to spend, they were really quite image conscious. They wanted to show that they had whatever the nice thing was and at the time, Nike was it."

In March 2021, a previous statement Nike made saying it was "concerned" about reports of forced labor in the Xinjiang region resurfaced, leading some Chinese consumers to call for a nationwide boycott and post videos online of them burning their sneakers . Popular Chinese actor Wang Yibo terminated his contract as a representative for Nike as domestic competitors Anta and Li-Ning doubled down on their use of Xinjiang cotton , using the conflict as a nationalistic marketing opportunity.

The controversy, which also impacted other Western brands that put out similar messaging, helped supercharge a political campaign that Chinese President Xi Jinping started years earlier called Guochao, or "China Chic" in English. It was designed to drum up pride in Chinese made and designed products and promote domestic brands over international ones.

"In line with the period of 2010 to just before Covid, people did feel like maybe they were inferior if they wear Chinese brands … but the elevating cultural confidence campaign really shifted that mindset," Jiang said. "What this political campaign does is it also encouraged a lot of e-commerce platforms, including Alibaba's Taobao, Tmall and JD.com, to have a separate section just for the China Chic brands and … people started adopting this China Chic mindset and started feeling like owning something from your own culture is cooler than owning foreign brand."

Now, many younger consumers feel more connected to domestic brands like Anta and Li-Ning over premium, foreign brands like Nike, said Tracy Dai, the director of operations at consulting firm China Skinny, which helps overseas companies enter China or expand there.

"Years ago when you're talking to a high school boy asking which sports shoes you may want, they probably say Nike or Adidas, but right now if you ask them, they say Anta or Li-Ning," Dai said. "[Nike] probably...

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