TOKYO -- Japanese sporting goods maker Asics is shifting its business focus to China, as sales in Japan and the U.S. have slowed due to the company's failure to keep up with the rapid growth of e-commerce.
In July 2016, Asics opened a flagship store on the major Shanghai shopping street of Huaihai Road. Some of the world's leading sporting goods brands, including Nike, Adidas and Under Armour, also have large flagship stores there.
Much of Asics' past growth was driven by the boom in jogging in the world's leading economies. Yet Asics commands less than 1% of the Chinese running-shoe market, a much smaller share than the approximately 20% held each by Nike and Adidas, according to U.K. research company Euromonitor International.
In the fiscal year from January 2015, Asics recorded 428.4 billion yen in group sales ($3.82 billion), nearly double the 235.3 billion yen in fiscal 2010, as demand for jogging equipment in the U.S. and Europe drove the market for high-performance running shoes.
But in fiscal 2017, sales slumped to 400.1 billion yen. Operating profit fell 23% to 19.5 billion yen.
Business results for the first quarter of 2018 released on May 8 showed scant signs of recovery, causing the stock price to plunge more than 10% the following day. The company's shares have languished roughly 15% lower than the year-to-date high.
"We performed poorly in some aspects of both product development and sales activities," said CEO Motoi Oyama.
Asics attributes its soft earnings to changes in the U.S. market, which led the company's growth until recently. With U.S. consumers putting a higher premium on fashion in running shoes, demand for Asics' high-performance products has waned.
For two consecutive years, Asics continued to offer shoes with the same designs in an effort to prevent the loss of existing customers. "We were reluctant to make bold design changes," Oyama said.
Nike, meanwhile, introduced shoes with more casual designs incorporating knitted fabrics.
"We were caught off guard by new designs and dealt with our principal customers -- namely, hard-core running enthusiasts -- in a halfhearted manner," Oyama said.
The growing presence of Amazon.com and other e-commerce companies forced physical stores to close, which squeezed Asics' existing sales channels.
With sales in the U.S., Europe and other advanced economies unlikely to recover anytime soon, China is the key to whether Asics can stage a rebound.
Although its sales lag behind rivals in China, Asics managed to chalk up sales of more than 30 billion yen in the fiscal year from April 2017, a 50% jump from the previous year. The company now targets sales of over 55 billion yen in fiscal 2020.
"We have 100 billion yen in mind as a goal to strive for," Oyama said, without giving a time frame for such an ambitious target.
Asics is set to forge ahead with localizing its operations in China, and will set up a regional head office there by 2020. It will facilitate the transfer of power to its local unit to support the recruitment of talented workers for product development, marketing and other operations.
Asics also plans to increase investment in improving ts brand image in China, including establishing a second flagship store in Shanghai in 2019 under the company's former name, Onitsuka Tiger.
Asics will return to the "basics" of offering shoes for athletes in sports that are popular in China, such as football, basketball and others, Oyama said.
The company will promote shoes designed to improve athletes' performance, including those with high cushioning and others that aid quick running turns.
Asics seeks to capitalize on the momentum generated by Chinese President Xi Jinping's campaign of "Sports for All," launched in June 2016 to promote better national health. One of the elements of the plan is establishing football teams at 100 universities.
Oyama called the plan a "a big move in which 600 million people enjoy sports once per week."
Online sales will be another key to growth in China. Asics plans to not only promote online sales, but also use purchase history and other customer data gathered from online shopping. It will also introduce sophisticated features to its online shopping platform, such as rapid product display features that will present colors and designs favored by individual customers to increase their buying appetite.
Online sales currently account for only 10% of the company's total in China. But Oyama said he expects the ratio to top 50% by the time sales reach 100 billion yen.
Potentially, he said, the company's group sales could reach 1 trillion yen in 15 years.