Adidas AG is expanding its business in China in an attempt to overtake rivals that have gained market share in recent years.
The German sporting-goods company announced Tuesday plans to open 500 new stores in China by next year, and to widen distribution to 2,500 cities by 2015 from its current 500. New outlets, featuring Adidas' upscale fashion lines, are planned for larger cities, where many consumers favor its biggest global competitor, Nike Inc.
Adidas is eager to reach China's more sophisticated shoppers, who live in cities like Beijing and Shanghai and are accustomed to spending more on clothing than those in the lower-tier cities. It will also try new tactics in markets already saturated with sporting-goods stores, designing shops that target consumers by the sports that interest them, according to Colin Currie, Adidas' senior vice president of marketing and sales.
'China is an important market for us and consumers want access to our products,' Adidas Chief Executive Herbert Hainer said in an interview.
The big push for China growth comes as Adidas has been working to regain its popularity with Chinese consumers after a year-and-a-half slump in the nation's market. In the run-up to the Beijing Olympics, the Herzogenaurach, Germany, company oversupplied its retailers and was forced to take back inventory. In the meantime, rivals Nike and Li Ning Co., China's leading sports-apparel maker by revenue, gained ground.
In 2009, Nike had 10.2% of China's 93 billion yuan ($14 billion) sportswear market, according to research firm Frost & Sullivan. Li Ning held 10% of the market, while Adidas had 9.6%.
'We're building a plan to become number one,' said Mr. Hainer
Adidas' revenue rose 20% in the three months ended Sept. 30 to ?3.47 billion from ?2.88 billion a year earlier, due in part to the World Cup. Sales in China increased by 9%. The company's net profit jumped 25% in the period to ?266 million from ?213 million.
To gain broader popularity in China, Adidas also plans to boost its presence in basketball, a sport it typically emphasizes less than its competitors. The sport, rather than individual players, will be incorporated in marketing and product design, Adidas executives said. Some analysts say this is a tactic to encroach on turf that Nike normally owns with its myriad NBA-star endorsements, including Miami Heat star LeBron James. Li Ning is using the play too, having recently signed a multi-million dollar endorsement contract with Philadelphia 76ers' Evan Turner, adding to its existing deals with Shaquille O'Neal of the Boston Celtics and other players.
'You may argue that it's a 'me too' approach, but if you want to thrive in sporting goods in China, you have to be big in basketball,' said Erwan Rambourg, an analyst at HSBC.
Adidas is also attempting to make itself known with China's emerging recreational athletes. In October, it sponsored the Beijing Marathon, its first running competition in China. More running sponsorships are in the works, according to Adidas. The company is also partnering with fitness chains, giving clothing to fitness instructors and buying ad space in locker rooms and over treadmills. Selling clothing at the shops is also in consideration.
Small cities are still important to Adidas, as their populations are newcomers to China's expanding middle class. In those markets, Adidas plans to further roll out its brand NEO, a teen-targeted casual line. With prices around half those of other Adidas brands, NEO is intended to be the gateway line that will lead consumers to higher-end products.
E-commerce will also be a bigger part of the company's growth strategy. In August, it opened a store with China's biggest Web retailer, Taobao.com, a unit of Alibaba Group. Sales on the site are still tiny at this point, but Internet shopping is booming in China, making the Web a critical sales channel, Adidas said. Globally, the company aims to pull in 500 million euro, or $681 million, in Internet sales by 2015.
North America, with retail growth of 14% in the third quarter of 2010, remains Adidas' largest market. China will not likely overtake the U.S. in the next five years, Mr. Hainer said.
'What you have seen is that we are growing fast in China. Don't worry about where we will be in the future,' said Mr. Hainer.
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