Shares of sportswear retailer TOPSPORTS (6110.HK) drew significant market attention on July 22 after the company announced a major shift in its partnership with Nike. Following the trading session on July 21, TOPSPORTS received official notice from Nike that its online platform sales of Nike products in mainland China will be fully terminated effective January 1, 2027. On the same day, another key Nike distributor, Pou Sheng International, issued a nearly identical announcement. This move is not an isolated adjustment targeting a single distributor but part of Nike's broader plan to eliminate thousands of its online distributors in China starting January 2027, consolidating its online sales channels to its official Tmall, JD.com, and Douyin flagship stores, alongside its own website and app.
According to Securities Star, Nike's recently released fiscal 2026 fourth-quarter earnings report showed a 17% year-over-year decline in revenue from Greater China, marking the eighth consecutive quarter of negative revenue growth in the region. Against this backdrop, Nike is implementing multiple reforms, with reclaiming control over its online distribution channels being a key strategy to reshape its digital market ecosystem in China. For TOPSPORTS, the impact of this separation is far-reaching, as losing the Nike online business, which accounts for approximately 22% of its total revenue or about 56 billion yuan, effectively removes its most critical growth engine. As a prominent "channel king" in the sportswear retail sector, TOPSPORTS now faces a severe survival test.
Where to start
TOPSPORTS is grappling with significant challenges as its primary partner, Nike, restructures its operations. The company's stock price fell by over 24% on the day of the announcement, wiping out approximately 28.5 billion Hong Kong dollars in market value.
Why focus on the 22% revenue share?
Nike's sustained weak performance in Greater China is a key catalyst for its accelerated push toward a direct-to-consumer (DTC) strategy, ultimately leading to the decision to phase out online distributors. Nike's recently released fiscal 2026 data shows total company revenue reached $46.4 billion, flat on a reported basis but down 2% on a currency-neutral basis. By region, Nike's Greater China business remained weak, with full-year revenue of $5.847 billion, down 11% year-over-year, or 13% on a currency-neutral basis. In the fourth quarter, Greater China revenue was $1.297 billion, down 12% year-over-year, or 17% on a currency-neutral basis, marking the eighth consecutive quarter of negative revenue growth in the region, making it Nike's only core market with persistent declines.
Notably, within the fourth quarter's channel breakdown, Nike's direct-to-consumer (DTC) channel in Greater China fell 14% overall, driven by a 25% plunge in digital platforms, while physical stores saw a 9% decline. Wholesale shipments also recorded a double-digit drop of 19%. Securities Star notes that Nike's brand premium in China has weakened in recent years, becoming a significant drag on its Greater China performance. Company management previously indicated in a fiscal 2026 second-quarter earnings call that Nike should be driven by sports expertise, but in China, it increasingly resembles a lifestyle brand relying on trends and discounts. The core issue is that excessive fragmentation of online channels has diluted brand value. Management stated that frequent discounting on digital channels has weakened the brand's influence across the market. By ending online distributor partnerships, Nike aims to fully implement its DTC strategy, seeking to regain control over pricing and new product launches to repair price integrity and brand trust disrupted by discount wars. However, Nike's DTC channel performance is currently underwhelming. In fiscal 2026, Nike's brand digital business revenue fell 12%, and its own store revenue declined 4%, leading to a 6% drop in global DTC revenue to $17.7 billion, or an 8% decline on a currency-neutral basis.
If Nike's decision is an offensive move, then TOPSPORTS is under passive pressure. In the fiscal year 2025/2026, Nike and Adidas together contributed 86.7% of TOPSPORTS' revenue. Given the termination of the online partnership, TOPSPORTS' board expects that, based on the fiscal year ending February 28, 2026, revenue from online sales of Nike products accounted for about 22% of the group's total revenue, the termination will have a significant negative impact on the company's business in the short term. Based on total revenue of 257.4 billion yuan for fiscal 2026, the amount involved is approximately 56 billion yuan. On the day of the announcement, TOPSPORTS shares opened 14.66% lower, hitting a year-to-date low of 1.34 Hong Kong dollars per share, before closing down 24.08%, with a market value loss of 28.5 billion Hong Kong dollars in a single day. Morgan Stanley noted in a July 23 research report that Nike's reclaiming of online distribution rights introduces significant uncertainty for retail partners. The bank lowered its target price for TOPSPORTS from 3.6 Hong Kong dollars to 1.67 Hong Kong dollars, predicting a 14% year-over-year decline in both revenue and net profit for fiscal 2027 and 2028.
TOPSPORTS has already been under significant performance pressure in recent years. In fiscal 2024/2025 and 2025/2026, the company's revenue decreased by 6.6% and 4.71% year-over-year, respectively, with corresponding net profit declines of 41.89% and 1.49%. Securities Star observes that the continuous contraction in store count has narrowed TOPSPORTS' overall revenue scale. Data shows that over the four fiscal years from 2023 to 2026, the company closed a net total of 3,335 stores. By the end of fiscal 2026, TOPSPORTS' direct-operated stores had shrunk to 4,360, a 13.1% year-over-year decline. While store optimization has improved per-store efficiency, it has also placed significant pressure on total revenue. Weak consumer spending and shrinking offline foot traffic are the most direct external causes of store closures, while the ongoing DTC strategy of brands like Nike has fundamentally undermined TOPSPORTS' "channel-centric" business model. Facing these internal and external pressures, TOPSPORTS is not only shifting from focusing on store count to improving per-store efficiency but also seeking new growth drivers to reduce reliance on major brands like Nike and Adidas. For example, in the 2025/2026 fiscal year, the company is focusing on high-growth segments like running and outdoor sports, diversifying its brand portfolio and product offerings. Additionally, the company has exclusively introduced several international niche brands, including Canadian trail running brand norda, Norwegian high-end outdoor brand Norrøna, and British running brand Soar, serving as their exclusive operating partner in mainland China. However, these new agency brands are still in the market cultivation phase and are unlikely to fill the 56 billion yuan revenue gap in the short term. TOPSPORTS stated in the announcement that despite the short-term negative impact, it will maintain close cooperation with Nike on offline sales arrangements based on mutual benefit. However, it's important to note that in the fiscal year 2025/2026, growth from TOPSPORTS' online channels had effectively offset losses from shrinking offline foot traffic. Now, with this multi-billion yuan "anchor" suddenly removed, whether TOPSPORTS can create a new growth engine in the gaps left by the brand's rights reclaiming remains a major question mark hanging over its future.
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