How US brands in China are being impacted by the trade war

00:00 Speaker A

that Chinese shoppers are really gravitating much toward section brands. A caller study from TD Cowen highlighting that lone 9% of those surveyed said overseas brands became much appealing implicit the past year. That's down 33% compared to 2024. For more, we're bringing successful John Kernan, managing manager of retail and user brands astatine TD Cowen. John, um, this study could not beryllium amended timed due to the fact that this is thing I've really been asking a batch of folks that are coming connected the show. What is the cognition of US brands successful China? And are we seeing immoderate benignant of this request erosion? So, what's your work done from this survey and the existent benignant of income effect on, connected galore of the, the companies that you cover?

01:24 John Kernan

Yes, see, conscionable a level acceptable our survey, our proprietary survey partnered with a Beijing based advisory who conducted in-person interviews of 2,000 Chinese consumers crossed a cohort of ages, debased to precocious income and tier one, tier two, 3 cities. So we, we covered a good, bully information of the wide China user basal and I deliberation erstwhile you look astatine the survey, 28% of the respondents this twelvemonth recovered Western brands little appealing. That's up from 25% past year. So that's a, that's a meaningful uptick. Uh, the top increases successful the little entreaty effect complaint and that was up 450 ground points twelvemonth implicit twelvemonth was among precocious income consumers and it was besides up astir the aforesaid magnitude for the 18 to 34 twelvemonth aged demographic, which is evidently a precise important demographic for the Western brands there.

03:17 Speaker A

What bash you think, uh, would marque this spell away, John? Uh, is it going to instrumentality astir 2 to 3 years from what I've heard to person immoderate benignant of meaningful dialog with the Chinese and effort to travel to presumption with, with these tariffs. I mean, is determination thing we tin bash to flight a recession in, successful your view, uh, given, you know, your recent, uh, what you've learned?

04:03 John Kernan

Well, yeah, the survey dealt much with, uh, you know, China and I think, you know, surely if the commercialized warfare and the tariffs basal wherever they are now, China would, our strategists spot their, their GDP maturation getting chopped successful fractional this twelvemonth to astir 2 and a fractional percent. I'm not, I'm reasonably optimistic for the US economy. I deliberation determination volition beryllium commercialized deals announced, possibly not with China, but I'm, we're beauteous optimistic connected the authorities of the consumer, the consumer's equilibrium sheet. Uh, if markets stabilize, that's a large boost to the precocious income user and 10% of the US colonisation accounts for 50% of full PCE spend. So, I deliberation that consumer's successful decent shape. Again, assurance has decidedly been damaged, but I'm optimistic arsenic we get into twelvemonth end, there's going to beryllium tariff deals and, you know, the US user and the occupation marketplace volition transportation america through.

05:44 Speaker A

I privation to excavation into immoderate of the companies that you screen that were covered successful this survey also. And by the way, I had not heard of immoderate of these Chinese-based brands, footwear and apparel brands, Lining, for example. But you speech astir Nike successful the study that it's inactive successful the lead, but it has been decreasing successful presumption of benignant of its marque equity successful presumption successful China. So, for a marque that's already benignant of embattled successful the US arsenic well, what does this mean for a institution similar Nike and, and, you know, controlling what it tin control, is determination thing that it tin bash astir it?

06:58 John Kernan

Sure. But I mean, let's commencement with the information they're inactive fig 1 successful each footwear and apparel class we surveyed. In astir cases by a comfy amount, but they are decidedly losing penchant successful each azygous 1 of those categories. The large stock gainers are Lining, Anta, and Fila. Fila's really connected tally by Anta Sports. Um, and those 3 person been gaining share. They're evidently section brands. They've got localized absorption teams. They're making amended product. Lining adjacent sells shoes successful the United States now. So, they're inactive overmuch smaller than Nike successful scale, but they are gaining share. Nike didn't suffer stock to their Western peers successful the survey. It was all, each the stock they donated was fundamentally to the, the upstart China section brands.