Nike was once China's sneaker king. Here's why its sales have fallen 30%

Sports-related products are the fastest growing consumer category in China and participation in sports and exercise is at its highest level in decades. The overall sportswear market has ballooned 51% in the past five years, fueled by a new focus on healthy living, according to GlobalData.

But instead of thriving during China's sports renaissance, Nike's business in the region is languishing. Sales have fallen from the prior year eight quarters in a row, and the overall business has shrunk 30% since 2021, with annual revenue hitting its lowest level in eight years at the end of May.

China was once Nike's fastest-growing region, beloved by investors for its high margins and potential for sustained growth. Now, it's the company's smallest market and has become a drain on a global turnaround that some on Wall Street believe is taking too long.

Some U.S. analysts expect Nike's China business to recover once its North America operations stabilize, but experts on the ground told CNBC its challenges in the region are deeper, and far different, from what it faces at home. Young Chinese shoppers are increasingly choosing domestic brands over expensive foreign names as part of a larger "China Chic" movement, and consumers are hungry for a localized assortment — not the same product that's being replicated from Utah to Shanghai. Nike is also working to overhaul its distribution model in China, which critics say has become messy, overly complex and driven by discounts.

"In a way, Nike has just become irrelevant," said Yaling Jiang, the founder of consumer research firm ApertureChina and an expert on the Chinese consumer. "I don't think young people can remember what's the last new thing they've done. But if you mention Adidas to them, they will tell you about … their pet clothes, pet jerseys, or their China jackets."

During its most recent earnings call, Nike's outgoing finance chief Matt Friend couldn't say when the China business would return to growth, telling analysts that revenue trends in the near term "will be in line" with recent performance and "profitability will bottom before sales."

In January, Nike CEO Elliott Hill announced Cathy Sparks, a 25-year Nike veteran, would become the next vice president and general manager of Greater China, reporting directly to him.

In an interview with CNBC, she said Nike is taking the steps it needs to reconnect with Chinese consumers.

"The one thing that I have certainly learned over the last six months is that the Chinese consumer has changed and they have high standards for what they want through product connections, engagement with the brand," said Sparks. "We know that if we can design footwear and apparel, lifestyle or performance, that's specifically targeted towards the unique needs of Chinese consumers, we'll drive full price revenue."

A Nike spokesperson pushed back on the idea that the company has lost relevance in the region and said what's changed is younger shoppers are looking for "hyperlocal connections," including through events and broader cultural moments.

"Nike has been in China for more than 40 years, and from day one, our approach has been to start with local consumer insight and turn that insight into inspiration, innovation and storytelling that can spark movement," the spokesperson said.

When Nike turned to China as its next major growth market in the mid-2000s, it won by largely replicating its global strategy and betting that popular clothes and shoes in the Western world would also land with Chinese shoppers.