What’s at Stake for Nike & Other Top Brands as the NBA’s China Controversy Continues
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As months of pro-democracy protests continue in Hong Kong, American athletic brands have found themselves swept up in several debates around free speech and censorship by the Chinese government.
Most prominent is the ongoing dispute between the NBA and China, which began on Friday when Houston Rockets general manager Daryl Morey tweeted his support for the demonstrators, sparking outcry from Chinese officials and fans. While the tweet — which included the words, “Fight for freedom, stand with Hong Kong” — has since been deleted, the rift with China has only widened in the days since as the league and team have attempted to mitigate the damage without issuing an outright apology.
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The controversy has highlighted the importance of China to the NBA: The country accounts for 10% of the league’s revenue, a share that could increase to 20% by 2030, according to some projections. As of Wednesday, all of the NBA’s official Chinese partners — including electronics, financial, and food and beverage firms — had suspended business with the league, according to news reports. China’s state broadcaster also announced that it would not show or stream two preseason games scheduled to be played in Shanghai and Shenzhen this week.
At home, meanwhile, the NBA has ignited bipartisan backlash for appearing to cow to Chinese censorship, with lawmakers on both sides of the aisle condemning the league’s response.
Many western companies are likely watching the situation as a playbook for what to avoid, but few have as close ties to it as Nike, which is both the leading athletic company in China (with a 22.1% market share, according to a 2016 Euromonitor report) and the exclusive on-court uniform provider for the NBA. On the company’s most recent earnings call last month, CEO Mark Parker called Nike “a brand of China for China” — words he has used often in the past when outlining the company’s growth plans in the region.
Greater China — which includes mainland China, Hong Kong, Macao and Taiwan — has driven double-digit revenue growth for the brand for 21 consecutive quarters, including 27% growth last quarter, and executives are looking to strengthen its position even further with the rollout of the Nike app later this year.
“We believe we’re extending the Nike brand’s leadership in China by remaining authentically focused on serving the Chinese consumer while fueling their passion for sport and a broader movement toward a more active lifestyle,” Andy Campion, Nike’s EVP and CFO, said on the call.
Could the fallout from China’s scuffle with the NBA put a damper on these plans? While the stock lost some ground on Tuesday, it recovered on Wednesday. And analysts think any worries are overblown, at least for now.
“Based on what we know, I do not see much danger to western brands’ sales,” said Matt Powell, senior sports industry advisor at The NPD Group. “But if the situation gets worse, they could be pulled into the fight and see sales impacted.”
“Concerns surrounding the impact of China’s spat with the NBA on Nike’s business in China are overblown,” Susquehanna analyst Sam Poser wrote in a note to clients Tuesday. “Proprietary checks indicate that the Nike brand in China remains exceptionally strong; Chinese consumers perceive Nike as a global athletic brand, not associated with any country or part of the world.”
Nike, though, has cultivated a reputation as a defender of free speech, casting former NFL quarterback Colin Kaepernick in a 30th-anniversary campaign with the message: “Believe in something, even if it means sacrificing everything.” Kaepernick, who rose to national prominence for his decision to kneel during the national anthem at games to protest police brutality and racism, was a polarizing choice for the brand, and the Emmy Award-winning ad was met with boycotts when it was released last September.
The NBA has also garnered a reputation for being more progressive than the NFL. In 2014, players like LeBron James warmed up in “I Can’t Breathe” T-shirts at a Brooklyn game to protest the death of Eric Garner at the hands of an NYPD officer, and in 2017, the Golden State Warriors declined a visit to the Trump White House after winning the NBA championship. “By acting and not going, hopefully that will inspire some change when it comes to what we tolerate in this country and what is accepted and what we turn a blind eye to,” Stephen Curry, the team’s star player, told reporters at the time.
If the situation with China continues, it could reveal the limits of Nike’s outspokenness much like it has the NBA’s. Already the brand pulled a sneaker collaboration with the Japanese streetwear label Undercover from shelves in China after the Jun Takahashi-led brand posted an image in support of the protests — which began as mostly peaceful demonstrations against a proposed extradition bill but have since evolved to include demands for greater democratic freedoms and the resignation of Hong Kong leader Carrie Lam.
“Based on feedback from Chinese consumers, we have withdrawn from China a small number of products that were designed by a collaborator,” Nike said a statement.
It’s hardly the only brand navigating the tensions: Vans last week pulled a sneaker design themed around the protests from its annual customization contest. The design — which featured figures in gas masks and hard hats — was submitted by a Canadian artist under the name “Naomiso,” and reportedly racked up more than 140,000 votes before being pulled from the site on Oct. 5. (The current first-place design has just over 30,000 votes.)
In a statement posted to its Hong Kong Facebook page Saturday, Vans confirmed that “a small number of artistic submissions have been removed” due to contest guidelines.
“We have never taken a political position and therefore review designs to ensure they are in line with our company’s long-held values of respect and tolerance, as well as with our clearly communicated guidelines for this competition,” it wrote, garnering more than 20,000 comments, many of them calling the move “disappointing” and “shameful” for a brand like Vans with roots in rebellious subcultures. Some Hong Kong fans have called for boycotts, and according to Reuters, one of the territory’s top sneaker stores, Search Sneaker Shop, said it would suspend sales of the brand’s products.
The outcry illustrates how difficult it is for brands today to sidestep political discourse, even if it does risk their reputation with certain consumers.
“Brands have to take visible stands on social issues,” said Powell. “Some of their customers will be alienated, but they have no choice.”
With China, though, some experts say neutrality is imperative. “Nearly all American brands that are doing business in China are going to come under pressure from many directions to pick a side,” said David Wolf, managing director of Allison Advisory at Allison+Partners, a global corporate communications firm. “The safest approach for such brands is to remain strictly neutral in all public statements and efforts.”
Still, he said, Nike is better positioned than other companies might be: “Of all industries, athletic brands have the best opportunity to take the middle ground. At its face, sport is about health, exercise, and entertainment. At its root, sport is about the friendly resolution of conflict on the field of play. If there is any stance to be taken, it is for the end of conflict and the expressed hope that all sides will find a way to resolve disputes that best reflect the most evolved aspirations of our cultures.”
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