Top Sports shares hover near HK$1 as Nike ends online license, challenging distributor model

By Jiang Zheng, China Business Journal

Topsports (06110.HK), widely recognized as the "king of channel distributors" in China's sportswear market, is currently grappling with a severe market value crisis.

The China Business Journal has observed that since its intraday share price fell below HK$1 on September 11, Topsports has seen its stock close below the HK$1 mark for four consecutive trading days. In Hong Kong's stock market, such stocks are commonly referred to as "penny stocks." On the operational front, the company faces significant headwinds as its key client Nike intensifies its direct-to-consumer (DTC) strategy, with online channel authorization set to be revoked—a move that will impact both revenue and profitability.

Currently, Topsports acts as a distributor for nearly 20 global brands, earning it the industry monikers "channel king" and "distributor king." However, this distributor-centric business model becomes vulnerable when core clients tighten control over their distribution channels.

Multiple industry insiders told reporters that channel distributors' operations are heavily dependent on brand owners' overall strategies and timelines. The transition from channel distributor to brand operator involves a significant gap, and companies like Topsports must seek new growth engines.

Valuation Crisis Behind the "Penny Stock" Status

As of the close on September 23, Topsports shares were trading at HK$1.015, giving the company a total market capitalization of HK$6.294 billion.

Topsports, spun off from Belle International, was listed in Hong Kong in 2019 with a market value of HK$57 billion. However, since around 2024, its share price has been on a continuous decline. On September 11, the stock fell below HK$1 intraday, and subsequently trended downward amid volatility. From September 15 to September 18, Topsports traded below HK$1 for four consecutive sessions. As of September 23, the stock was at HK$1.015, hovering on the edge of penny stock territory.

Meanwhile, several institutions have downgraded Topsports' valuation. Daiwa released a research report slashing its target price for Topsports by 40.8%, from HK$1.79 to HK$1.06 per share, while maintaining a "Hold" rating.

Sun Wei, a top-level design expert and strategic marketing consultant at Tsinghua University's Breakthrough Point Strategy, told reporters that the core reason for the recent share price volatility is Nike's decision to terminate its online operational partnership with Topsports.

Topsports recently confirmed in an official announcement that its online platform sales of Nike products in mainland China will be fully terminated effective January 1, 2027. In Topsports' fiscal year 2025/2026 (March 1, 2025, to February 28, 2026), revenue from Nike product online platform sales accounted for 22% of total revenue.

"This change will impact Topsports' revenue and profits over the next few years. Overall, the company's revenue growth rate and profit margins are expected to trend downward. Since stock prices typically reflect the discounted value of a company's future net cash flows, logically, the share price is also on a downward trajectory," Sun Wei said.

Topsports is Nike's largest distributor in mainland China, and its business is highly dependent on the growth momentum of the Nike brand. Internally, revenue from Nike and Adidas products has consistently accounted for over 85% of Topsports' total revenue.

SPDB International noted in a research report that Topsports' revenue decline in May–June was slightly narrower than in the first quarter of fiscal 2027, but the overall trend remains weak. Additionally, Nike's termination of Topsports' online sales may raise market doubts about the bargaining power of distributors like Topsports and Pou Sheng when dealing with first-tier brands such as Nike and Adidas. Given significant uncertainty in medium-to-long-term performance and growing skepticism about the long-term investment thesis, market sentiment toward Topsports is unlikely to improve substantially for some time, and its valuation may remain under pressure.

However, Yang Dajun, President of UTA International Brand Investment Management Co., Ltd., believes that Nike's move is merely a trigger for Topsports' declining share price. "Capital markets focus more on long-term value, and Topsports' business model is not favored by investors."

"Topsports is a brand distributor. In the Chinese market, many brands are moving toward the DTC model. In other words, brands are gradually reclaiming distribution and franchise rights in key cities. Distributors like Topsports are inevitably affected," Yang Dajun said.

The reporter noted that Pou Sheng, another distributor for Nike and Adidas, now has a market value of less than HK$2 billion and has seen its share price remain below HK$1 for over four years.

The China Business Journal sent an interview request to Topsports regarding these issues but had not received a response by the time of publication.

Brand "Decentralization" Creates Challenges for Distributors

Topsports has been distributing sports products for nearly 30 years.

As early as 1999, Topsports' predecessor entered this business and established a partnership with Nike. In 2004, Topsports began cooperating with Adidas and became Nike's largest retail partner in China. Later, it added brands such as Puma. In 2012, Topsports became Adidas' largest retail partner globally.

To date, Topsports distributes nearly 20 brands, including core brands Nike and Adidas, as well as Puma, Converse, VF Corporation brands (Vans, The North Face, and Timberland), ASICS, Onitsuka Tiger, Skechers, NBA, Li-Ning, HOKA ONE ONE, Kailas, and norda®.

However, Nike and Adidas have always been the foundation of Topsports' revenue. Data shows that sales revenue from these two brands accounted for 85.8%, 86.3%, and 86.7% of total revenue in fiscal years 2024, 2025, and 2026, respectively. The remaining dozen or so brands have consistently contributed only about 15% of total revenue.

But Nike and Adidas are now adjusting their operational strategies in China, most notably by strengthening their direct retail models.

As early as the end of 2025, Nike executives acknowledged during an earnings call: "Our brand, especially in digital channels, has been engaging in frequent discount sales, which has weakened our brand influence across the market. This has led to wider discount rates and higher return rates, significantly impacting profitability in Greater China."

Nike Group Vice President and General Manager for Greater China, Shen Kaixi, also admitted that Nike's market presence in China has become "too fragmented," and that some previous initiatives failed to deliver consistent and credible consumer experiences or achieve expected growth.

Yang Dajun noted that top sports brands have many distributors in China, resulting in stores in the same shopping mall being managed by different distributors. This competition can lead to confusion in pricing, service, and brand perception. As customer acquisition costs rise, such relatively crude competitive methods cannot support refined services. Therefore, top sports brands are attempting to adopt DTC models, casting a shadow over the development prospects of distributors and agents.

As for Adidas, it is exploring partnerships with distributors outside the traditional sportswear sector. In 2023, Heilan Home established a long-term partnership with Adidas, securing exclusive retail distribution rights for the Adidas FCC series in mainland China.

Multiple industry insiders suggested that Adidas aims to leverage Heilan Home's channel network to expand into lower-tier markets. "Using resources from casual wear to do sportswear can unlock new market growth," Yang Dajun told reporters.

Cheng Weixiong, a footwear and apparel industry brand strategy expert and founder of Shanghai Liangqi Brand Management Co., Ltd., believes that when brand owners fail to adapt to changes in the domestic market, sales inevitably decline. Channel distributors like Topsports cannot influence brand promotion, product development, or product localization, making them vulnerable to adjustments.

Sun Wei also noted that strong brands typically handle brand operations themselves, while partners act as distributors rather than exclusive operators. "Essentially, it's outsourcing the heavy lifting."

Transitioning to Brand Operator?

In fact, Topsports has long been dissatisfied with its role as a mere distributor and is pursuing a larger strategic vision.

The reporter noted that in its partnerships with brands such as norda®, Norrøna, and Sierra Designs, Topsports has adopted an exclusive operational model, taking full control of brand communication, market promotion, omni-channel sales, and consumer operations across the entire value chain.

In Cheng Weixiong's view, Topsports is seeking to transform from a channel distributor into a brand operator. This means Topsports needs to build an operational team to reposition brands, handle product development, and integrate supply chains. However, this process takes time—at least two to three years before results become visible.

Data shows that in fiscal year 2026, revenue from Topsports' core brands (Nike and Adidas) accounted for 86.7% of total revenue, little changed from 87.3% five years ago. This indicates that the other brands Topsports operates exclusively have yet to achieve explosive growth or become major revenue contributors.

Sun Wei believes Topsports' core competency lies in online and offline channel operations. "Channel operations focus on deep distribution—density, depth, and breadth—while also achieving sales efficiency (operating costs, revenue, and profits). Brand operations, on the other hand, aim to win target customers' trust and loyalty through brand positioning, strategy, and communication (e.g., brand exposure, fan engagement, and relationship building)."

"Topsports is attempting to upgrade from brand distribution to exclusive brand operations and is trying to incubate its own brands. Personally, I think it could take bigger steps. By acquiring exclusive rights to overseas sports brands in China, its business model could see significant improvement, which would greatly help enhance corporate valuation and brand value," Sun Wei said.

Sun Wei cited the case of Jiaman Garments to support his view. The company started as a footwear and apparel distributor, later acquired all trademarks and IP of Hush Puppies in Greater China, and completely transformed from a channel distributor into a brand operator. "By moving from operating others' brands to owning brand assets, the company's top-level design and business model improved significantly, and its valuation increased."

"To transform into a brand operator, Topsports needs to restructure its organizational system and product portfolio to meet the basic requirements of this category transition. This requires determination and sustained financial investment," Cheng Weixiong said.