Skechers Is Doing So Well in China Because It Squeezed Out a Market “Above Anta and Li-Ning, Below Nike and Adidas”

“Skechers isn't necessarily interested in making the next Air Jordan, because it doesn't need to.”

If Korean dramas are the only way you can explain why Skechers is popular in China, you are probably seeing a small slice of the truth. The company is more complicated than you think.

On March 25, Skechers China opened its first brand experience store on Chunxi Road, the busiest shopping district in Chengdu. The store sits on a side street, but you can pick out the logo from a long way off: Skechers wrapped the entire building in vertical aluminum strips lit like columns of light. In fact the store occupies only the ground floor. The floors above belong to Little Swan Hot Pot and Haoshanghao Steakhouse, which you notice only up close — their yellow signage sits awkwardly beside Skechers's posters for new arrivals.

The store covers 1,300 square meters and is split into four zones, none of which match. As fit-out goes, it is nowhere near Nike's or Adidas's. Wander from the black-white-gray fashion section into the candy-colored kids' section and you feel you have walked into a different shop. Even so, Willie Tan, CEO of Skechers China, Hong Kong, Southeast Asia and Korea Ltd., considers it the best way to show the southwestern market what the brand can do. He is pleased with the layout: there is enough space to give individual sneakers a full display, so the single display panel of an ordinary store has grown to four.

Ten years have passed since Novel Enterprises and Skechers set up the joint venture that became Skechers China. After shaking off its early mistakes in positioning and store location, Skechers China began growing fast in 2014, and it now supplies nearly a quarter of the brand's global sales. In 2016, its sales on the Chinese mainland reached 6.5 billion yuan, up 89% year on year; same-store sales rose 25%, almost eight times the global same-store figure.

Speaking Mandarin with a Cantonese accent, Tan reels off operating numbers fluently and without dodging any of them: “6.5 billion is our retail sales; our company revenue is 3 billion. Our net profit is mid double-digits — that's what I can say... We have 150 directly operated stores, each averaging more than 400,000 yuan in revenue.”

He stresses the point: “Ninety percent of our stores are profitable.” Skechers China now has 2,260 stores, the vast majority of them opened by distributors in a rush between 2015 and 2016. Adidas currently runs more stores on the Chinese mainland than any other sportswear company, more than 10,000; Nike has around 7,000.

Tan's ancestral home is Quanzhou, Fujian, but he grew up in the United States. His father, Tan Siu Lin, founded the Novel Group in Hong Kong. Before he moved into retail, Tan ran the family's garment business and its apparel supply-chain services. On a trip back to the ancestral hometown he heard that Chinese retail was growing quickly, and started looking for a brand to partner with.

Skechers China has plainly become the business case Tan most likes to tell. In 2014, My Love from the Star was a hit on the Chinese mainland, and in it “Professor Do” wore a pair of sneakers that looked like Skechers's D'lites “panda shoes.” Those black-and-white sneakers with a hidden lift turned into a smash after the Korean girl group Sistar was seen in them. Baidu Index shows searches for them climbing sharply in the second half of 2014, to three times the level at the start of the year.

In August 2015, a Skechers store on Wuma Street in Wenzhou sold 60 pairs of the 599-yuan D'lites panda shoes in its first ten days of business, plus 40 pairs of the unisex Wild Panda. The panda shoes have sold more than 3 million pairs in China to date.

That frenzy has surprised Americans. Seen globally, and especially at home in the United States, Skechers is still a steady, even conservative company. Even the panda shoe China is so excited about is an old style Britney Spears endorsed ten years ago — though Skechers now files it under “Heritage.”

Skechers's 2016 sales in the United States came to $3.56 billion, up 13% year on year, with net profit of $243 million, up 5%. Its best years are already behind it: in the three preceding years, annual sales grew by more than 30%. In May 2015, Skechers held 5% of the U.S. sneaker market, second only to Nike. The run did not last long. A false-advertising case and the shrinking retail channel for American sportswear brands pushed results down, and the company now expects domestic wholesale sales growth to stall in 2017.

Skechers's caution shows in how it handles investment and dividends. Management has resisted so firmly that the company is sitting on too much cash — more than $719 million. Because those assets are not being put to work, analysts warn, Skechers's market value is undervalued and it could become an acquisition target.

None of this has much to do with Skechers China. Tan wants to open 1,000 new stores this year. The company, he says, is in a state of “high-speed growth.” Before the end of 2018, Skechers China will have more than 4,000 stores.

Panda shoes alone cannot carry that kind of growth. Tan believes his success rests on precise product positioning. “We won't go after the 299-yuan customer. That's Anta's and Li-Ning's customer. But if you want an international brand at 399 or 499, come to me. I won't come down to 299. That's someone else's customer.”

The empty band in the market “above Anta and Li-Ning, below Nike and Adidas,” Tan believes, is the best space for Skechers to live in. Its two best sellers, the D'lites panda shoe and the Go Walk walking shoe, are priced under 700 yuan and between 279 and 599 yuan respectively. Most Skechers shoes fall between 399 and 699 yuan; the most expensive is 1,249 yuan, and only four styles cost more than 1,000.

It is a subtle slot. It avoids most competitors, and it suits shoppers who want value for money: students and people just out of school and into their first jobs, plus middle-aged and older buyers who will not spend one or two thousand yuan on a pair of sneakers but may not want a brand as mass-market as Li-Ning or Anta either.

Study the product lines and you find two things that set Skechers apart from almost every sportswear brand at the same price or below. Its women's line is noticeably bigger. And by sheer count, it releases new products very fast.

One of Skechers's strengths — if you do not count looking a lot like your competitors as a stain — is how quickly it can push out product for every position in the market. Its design headquarters in California releases more than 3,000 shoe styles a year, over 10,000 SKUs (stock keeping units).

Some of them will look familiar. There are fisherman shoes like Toms, boat shoes cut exactly like Sperry's, and, back when hidden-lift high-tops were in fashion, Ash-like styles on the Skechers shelves.

“Skechers isn't necessarily interested in making the next Air Jordan, because it doesn't need to,” says Nicholas Durante, an analyst at the market research firm Celestial Market Research.

Which is why Skechers keeps ending up in copycat lawsuits. In 2016, Adidas sued Skechers for copying its Mega Flex and Stan Smith designs. Nike has sued Skechers twice, arguing that “an ordinary consumer could observe the similarity between the two.”

Skechers is, however, friendly enough to women. In the Chengdu store, the women's range and its display space are generally much larger than the men's. While men's shoes remain the mainstay for most sportswear brands, more than 65% of Skechers China's revenue comes from women's shoes, against 35% for men's.

That may follow from how Skechers positions what its shoes do. Unlike Adidas, Nike and other brands that sell athletic expertise, Skechers talks about “comfort,” “health” and “making everyone happy.” It puts memory foam in its shoes for comfort, and describes its customers as light exercisers — people who track their step counts on WeChat, middle-aged and older people, young people following the athleisure trend — which is also, as it happens, what women who exercise less intensely want from a shoe.

“Everyone has their own model. Our shoes have technology and function. We were the first to bring really light shoes to China... Consumers find the shoes are light, why not?” Tan says.

Chen Jiabao bought her first pair of Skechers in Hong Kong, when shopping had worn her out and she wanted to change into sneakers. She and her husband tried them on and were “amazed.” “How could there be shoes this light and this comfortable?” she told QDaily. Counting the pairs she has bought for her children, her household alone now owns nine pairs of Skechers. She has also bought Skechers on Tmall and mailed them to her parents.

Zhou Yu, a graduate student in Nanjing, says the Skechers sole feels “like stepping on QQ candy.” She has since bought two more pairs.

This positioning gives Skechers stores a slightly split personality. More than a year ago, at the Skechers store in Shanghai's Raffles City, QDaily watched several groups of young women come in together to buy “panda shoes” in under an hour. On the other side of the store a different set of customers was buying Go Walk walking shoes — older, some with a daughter along, some pushing a stroller, and they barely glanced at the D'lites, as if the space had been divided into two separate shoe stores. The D'lites panda shoe and the Go Walk line currently account for 20-25% and about 30% of Skechers China's sales respectively.

In the United States, according to Matt Powell, an analyst at NPD Group, most of Skechers's growth comes from the walking-shoe and casual-shoe categories. “‘Walking’ had been relatively dormant for years, and they [Skechers] reignited that demand.” It is indeed a field companies like Nike pay little attention to.

Yet Skechers does not now sell itself on older customers. It is doing everything it can to get closer to young ones.

Zhang Ruiyan, vice president of marketing and store development at Skechers China, told QDaily that its marketing spending in China has grown 30% a year over the past three years, and that it expects to spend 200 million yuan on advertising and marketing in 2017. Last September it signed EXO as endorsers. All of it is aimed at the youngest generation of consumers.

The panda shoe has not cooled off. When QDaily asked D'lites buyers why they bought them, the answer was usually, “I saw these shoes on someone else's feet,” or, “A friend recommended them to me.”

Tan now thinks the moment has come for Skechers to move into third- and fourth-tier cities: “Incomes have still gone up these past two years. The government's plan is to get everyone [from third- and fourth-tier cities] to go back.” The current pace of 1,000 new stores a year, he says, has actually been “held back.”

Much of that depends on how hard distributors push. Skechers has more than 20 distributors across the country. The bigger ones include Pou Sheng, Aokang and Belle. The latter two have footwear brands of their own but also work in sporting-goods retail. Aokang will open standalone Skechers stores, while Pou Sheng and Belle sell mainly through their own multi-brand sporting-goods chains, YYsports and Topsports.

Skechers carries almost no risk in the process. Three years ago it moved into lower-tier city markets too early, opening more than 100 stores that produced almost nothing.

The only problem left, it seems, is the brand itself. Tan thinks “Skechers” is not a friendly name; plenty of consumers cannot pronounce the word. But the three Chinese characters for the brand will never appear on the outside wall of the Chengdu flagship. It still needs to say that it comes from America.

(Chen Jiabao and Zhou Yu are pseudonyms, at the interviewees' request.)

Cover image from Skechers's Weibo