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Last Updated: Monday, 17 November, 2003, 00:18 GMT
Sports brands score v style thieves

Mary Hennock
BBC News Online business reporter in Dongguan

"Some things are commercial secrets. I cannot tell you," says Terry Ip as we drive round a vast factory complex belonging to shoe maker Yue Yuen in South China.

"There are so many brands, we have to careful," he says, apologising for yet another refusal.

Nike, Adidas, Reebok are among the world's most valuable brands. But how many shoppers have heard of Yue Yuen (YY)?

Adidas Miami originals store, copyright Adidas
Sports shoes are dance floor fashion
YY likes its low profile, and so do the brand owners.

For it is YY who is really the world's biggest maker of sports shoes.

The Taiwanese firm serves 40 brands, producing styles ranging from high performance to high fashion.

Last year, its factories in China, Indonesia and Vietnam poured out 130 million pairs of sneakers.

Treading softly

No brand gives out total sales volumes so it is hard to gauge what proportion are YY's, but it is acknowledged as a top contract supplier.

Shoes made in Asia
Factories at Yue Yuen's Huang Jiang complex, Guangdong, China
Nike own brand - 99% in 12 mths to May 2002
Adidas own brand - 95% currently
Source: Adidas; Nike SEC filing
Its customers include Nike, Reebok, Adidas, New Balance and Timberland.

Maybe you've bought this season's coolest sneakers. The chances are your top choice and its rejected rival both came from here.

Protecting brand secrets is one of YY's biggest headaches.

"We try to make sure there's no leaking of the secret. Nobody can have full knowledge about anything," says Mr Ip, the firm's investor relations director.

Total US retail sneaker sales 2002
Total retail sales $15.7bn
Top 5 categories
Running shoes $4.5bn
Basketball $3.2bn
Crosstraining $2bn
Walking $1.1bn
Low performance/retro $863m
Source: Sports Goods Manufacturing Association
Jackson Lee, who runs the research and design (R&D) centre say he never puts Adidas and Nike teams in the same place, a precaution brands insist on.

Photography near production lines is banned.

"You see the security - even I can't go in," says Mr Ip as a guard rejects his pass.

YY employs a quarter of a million people of whom the majority - 160,000 - work at three sites a few dozen kilometres apart in South China.

This one, Huang Jiang is medium sized, with 50,000 staff and more than 20 factories.

Asian footprint

That allows YY to dedicate separate facilities to each part of each shoe for each brand.

Mould shop, Yue Yuen
Crisp footwear designs start here
Built on a former lychee plantation, it has its own reservoir, power plant, telephone exchange, distilled water plant, fire station, dormitories, post office and shops.

And it boasts Asia's biggest tannery. Prime Asia consumes 8,000 cow hides a day, taking about six minutes to apply dye and finishes, jobs that once took hours of soaking in vats.

By contrast, Nike has only 22,000 directly employed staff, hardly any of whom make shoes; Adidas has 15,000 and one shoe factory in Germany.

Sports brands have branched out into clothing and equipment but shoes remain their top selling goods, making Asian contract workers vital to their profits.

The firm says it abides by the minimum wage of 450 yuan ($54.3; £32) a month, pays overtime at time and a half and does not force it on workers.

Cultural revolution

Sports shoes are iconic style purchases, which long ago ceased to be purely about performance or comfort.

Air Jordan 1, copyright Nike
Air Jordans: shoes that changed the world

Arguments abound about exactly when sneakers jumped from the athletics track to the catwalk.

Some say it was Nike's landmark sponsorship of basketball legend Michael Jordan, which created Air Jordans in 1985.

Stories of people being robbed for their trainers emerged with those red and black high-tops.

"It just grew exponentially in the 80s with the growth of casual dressing, men's' fashion, urban dressing as a fashion," says Kathy Deane, President of US trend bible The Tobé Report.

Training shoes achieved all pervasive appeal through links with basketball, hip-hop, street fashion and football and became design classics. Restyles of past designs sell well.

"It's no secret that people buy performance shoes but they want to wear them on the street," says Adidas' spokeswoman Anne Putz.

High performance designs remain the biggest sellers, but as they are top fashion items too it is impossible to sift practical purchases from style buys.

T-MAC 3 shoe, copyright adidas
Basket ball star Tracy McGrady's 2003 T-Macs: leaner, meaner
Ms Putz says 82% of Adidas brand sales last year were sports performance shoes, but that would include some of the brand's sharpest new looks.

US market leader Nike's shoe sales were slightly down last year but sports fashion shows no sign of evaporating.

"Particularly with the urban youth...they're really making an effort to wear (brands) head to toe. It's a fashion marketers' dream," says Ms Deane.

Inspiration or perspiration?

So is the success of trainers the result of technology, design, or advertising?

The latest style trends promote simpler, leaner looks, rather like "a scuba shoe or sock...streamlined, very thin" with wrap-round elastic rather than laces.

Ms Deane sees new technology in fabrics driving sales almost indefinitely.

Technological innovations start with sport but reshape fashion fast. "The fashion customers wants to wear what's new," says Ms Deane.

Wave Spring has shock reducing springs, Merrell uses computer chips to vary the cushioning of joints, while Nike's anti-shock technology sales are "terrific", she says.

Staying ahead

In the R&D unit, Mr Lee shows me two plastic spheres. When he drops them, one bounces to waist height, the other hits the floor and does not even roll - anti-shock technology for heels and bounce for toes.

Pressure to innovate fast is strong as brands are doing more collections each year, says Mike May of the US Sports Goods Manufacturing Association. (SGMA).

Costs are higher in China than Indonesia or Vietnam, but nothing beats the fast highways and big ports of the Pearl River Delta north of Hong Kong, says Mr Ip.

Yue Yuen, 12 mths to Sept 2002
Man outside shops at Yue Yuen's Huang Jiang site, Guangdong, China
Sales $1.3bn
Net profit $229m
Margins: stable at 11-12% for 3 years
Source Yue Yuen
But cheap manual labour is in evidence too. YY estimates leather is 60% of the cost of a shoe.

In the mould shop, young men use dental tools to smooth rough metal edges so the crisp chevron patterns on soles are perfect.

Elsewhere, women polish the edges of soles by hand. These are mid-soles, invisible in the finished shoe but important for comfort.

As to security paranoia, it makes sense says Sam Porteous, China manager of risk control firm Kroll.

There is a "huge attempt" to steal designs from contract manufacturers in the Pearl River Delta, which has led firms in industries like toy making to abandon trade fairs.

"The best way to protect your property is through business controls because you will not get the help you want from the legal system," he says.

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