Nike Accused of False Marketing by Chinese TV Show

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Nike faced scrutiny on China's state television about the soles of some basketball shoes.
Nike faced scrutiny on China's state television about the soles of some basketball shoes. Credit: China Central Television
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Nike Inc. was chided by a consumer-protection show on state-run television in China, giving a black eye to the athletic brand in its second-biggest market.

The annual program, a "name-and-shame" show that aims to uncover abuses by companies, said Nike had falsely advertised basketball shoes. The sporting-goods giant claimed the sneakers had Zoom Air sole cushions inside when they did not, according to the broadcast.

The unwelcome publicity comes at a time when Nike needs China more than ever for growth. The company is facing heavier competition in the U.S., weighing on its plans to reach $50 billion in revenue by 2020. Sales in China, in contrast, have been soaring: Excluding currency effects, they jumped 17% in the most recently reported quarter.

The fallout from the name-and-shame show may depend on whether the criticism spreads, said Brian Yarbrough, an analyst for Edward Jones.

"One report is probably not a lot to be concerned about," he said. "But that could change if it becomes bigger and you see more press about it."

Nike said Wednesday that it learned in April of last year that 300 pairs of its Hyperdunk 2008 FTB were sold in China that inaccurately stated the shoe contained airbags. The consumers were contacted and offered compensation and an apology, the company said.

"Nike is committed to providing consumers with the highest product quality and service, and we will fully cooperate with the government regulators regarding their inquiries," the Beaverton, Oregon-based company said in a statement.

Muji

The program, which aired Wednesday, also accused the Japanese retailer of Muji-brand products of selling food from areas that showed signs of radioactive contamination. The products were mislabeled and didn't reveal that some came from Japanese areas that were affected by radiation, according to the show.

Representatives for Ryohin Keikaku, which owns the Muji chain, couldn't be reached after regular office hours.

The China Central Television broadcast, which coincides with World Consumer Rights Day, is a reflection of the growing clout of China's 1.4 billion consumers, who have transformed the country into an essential market for foreign companies in the fast-food, retailing and automotive industries. The show has targeted some of the world's biggest brands in the past, including Apple, McDonald's and Volkswagen.

Foreign companies haven't adjusted to the higher scrutiny they're facing in China, said Congcong Zheng, an associate professor of management at San Diego State University.

Nike claimed the sneakers had Zoom Air sole cushions inside when they did not, according to CCTV.
Nike claimed the sneakers had Zoom Air sole cushions inside when they did not, according to CCTV. Credit: China Central Television

"What used to be tolerated is no longer tolerated," she said. "Chinese consumers are empowered by the information available on the internet and they have higher expectations and standards now. Foreign companies should be extra careful when operating in China."

Quick reaction

Reaction was swift to the "3.15 Gala" show, which relied in part on hidden cameras and reporters disguised as shoppers. Immediately after the program, the state-run broadcaster aired a live televised segment at Nike's office in Shanghai, where authorities questioned the staff.

A trade official said the government has started an investigation after finding that the company sold the 300 pairs of falsely advertised sneakers.

Shortly after the program, Chinese e-commerce giant Alibaba Group Holding Ltd. said it has been tracking and blocking "abnormal" Japanese nuclear-contaminated products since 2011, according to a Weibo post from the company. Alibaba has deleted 22,000 links to suspected products and has taken actions against 4,108 businesses in 2016, it said.

The show also targeted two e-commerce sites that sold Japanese products ranging from rice to milk powder from radiation-contaminated areas in violation of Chinese customs rules, it alleged. One of the sites was backed by By-Health Co., a local maker of nutritional supplements.

Consumer complaint

In Nike's case, the broadcast featured a customer who complained to the company but was not properly compensated by the shoemaker, which the broadcaster said violated China's consumer-protection law.

In 2012, Nike was fined $704,000 by Chinese authorities for a similar offense, state media reported at the time. The shoe company reportedly advertised shoes as having two double air cushions when they in fact had only one.

The show attracts eyeballs and results. Apple's Tim Cook apologized in 2013 and McDonald's retrained some workers in 2012 after the companies were put in the hot seat. In recent years, the program has shifted to become less hostile toward foreign companies and also turned the spotlight on domestic brands. Ele.me, a local food-delivery website that was a target last year, recently launched a food-safety campaign.

The highlight on consumer protections comes as the government plans to generate more growth through consumer spending, with the economy transitioning away from a reliance on heavy industry and exports.

Chinese consumers are gaining in clout, with the average urban household income tripling in the past decade. The country's shoppers are expected to push online retail sales to as much as 14 trillion yuan, or $2 trillion, in 2021 from about 5 trillion yuan last year, according to market researcher Mintel Group.

Previous shows targeted homegrown powers Alibaba and China Mobile. The e-commerce giant has struggled to keep counterfeit products off its websites. China Mobile, the country's largest wireless carrier, was targeted in 2015 for enabling fraudsters who impersonated banks and the police to obtain money.

--Bloomberg News