SHANGHAI, March 30 (Reuters) - Nike's troubles in China are being laid bare as operational missteps collide with fierce domestic competition and a cooling consumer, revealing execution flaws at the U.S. sportswear giant beyond just a backlash against foreign brands.

Greater China accounts for around 15% of Nike's global revenue and is the sportswear brand's second-largest market outside North America. This makes a turnaround particularly urgent but an economic slowdown and a prolonged property crisis are limiting Chinese shoppers' spending power.

At the same time, Nike is losing ground to fast-rising domestic rivals Anta and Li Ning ( LNNGF ), which have capitalised on agile supply chains and vast store networks to push competitively priced products deep into China's heartland.

The pressure point is clear: The earnings drag in China exposes weaknesses in execution just as the market grows less forgiving. The combination of softer demand and sharper local competition has turned strategic missteps into a material risk for the world's largest sportswear brand.

Nike has now logged six straight quarters of decline in the China market. After a 17% drop in the latest quarter reported in December, Chief Executive Elliott Hill described China as the "longest road" in the company's global turnaround, conceding the need to "reset" its approach.

The sportswear giant earlier this year appointed 25-year company veteran Cathy Sparks as Vice President and General Manager of Greater China, succeeding long-time executive Angela Dong, charged with improving retail ties, clearing stale stock and speeding its digital push.

Industry insiders say the problems run deeper than a growing rejection of foreign brands. Instead, they point to eroding premium positioning, sluggish inventory management and operational inefficiencies that have left Nike trailing more nimble local competitors.

"The global brands that are struggling in China - Nike, Starbucks, Häagen-Dazs - are not losing ground just because Chinese consumers don't want to buy foreign brands," said Yaling Jiang, founder of research and strategy consultancy ApertureChina. "They are struggling because they are selling at a premium without giving people a good reason why they should pay a premium for their products."

Nike declined to comment as it enters its quiet period ahead of Tuesday's third-quarter earnings report. Analysts expect the company's gross profit margin to contract for the sixth straight quarter, while revenue is expected to decline 0.3%, according to data compiled by LSEG.

The Middle East war also adds fresh uncertainty as businesses brace for higher material costs from a surge in oil prices.

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Nike's difficulties stand in contrast to several foreign competitors that have continued to grow in China. Brands such as On and Hoka have posted strong double-digit growth by capitalising on a surge in sports participation, particularly running.

Even long-time rival Adidas has staged a comeback. After suffering five straight quarters of decline in China in 2023, Adidas returned to growth and by 2025 had posted ten consecutive quarters of expansion.

That revival was fuelled by a sharper local focus, with faster product cycles and designs tailored to Chinese consumers' appetite for novelty. Locally designed products now make up about 60% of Adidas' China range, up from just 10% before the shift.

"Adidas is really trying to change the fit of the apparel, change the model of the sneaker, trying to respect our culture. But Nike is just changing the pattern, colour palette, or graphic - it's not deep enough," said one concept store owner and Nike wholesale partner, who declined to be named in order to speak more freely about the brand.

"As a big Nike fan, I don't want to say Adidas is doing a better job than Nike, but I think sometimes you have to learn from your competitor."

Structural issues have compounded Nike's brand problems, according to two former and one current Nike China employees who spoke on condition of anonymity. A top-down decision-making culture blunted responsiveness to local demand, while repeated efforts to push poorly received products onto retail partners intensified inventory strains at a time of slowing consumer spending.

Frequent discounting to clear excess inventory hurt Nike's brand image and its wholesale relationships, they added.

According to Morningstar analyst David Swartz, Adidas' turnaround shows a Nike China comeback is possible. "It doesn't have to be a death spiral," he said.

Wei Kan, founder of consultancy Conduit Asia and a former brand director at Nike Greater China, said recent marketing moves suggested the company is beginning to adjust. He cited a Chinese New Year campaign that struck a chord with consumers by leaning into local humour.

"When everything is booming, the 'Just Do It' message fits with the mood, but the past few years, it hasn't been a good fit for how people in China are feeling."