Adidas plans major Chinese growth drive

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Adidas, the sportswear giant, is substantially enhancing its presence in China, targeting "middle affluent" shoppers and lower-tier cities.

The company will open 500 stores in the country next year, taking its total to 6,100, as sales hit €1bn ($1.4bn; £850m) by the close of 2011.

"We'll see double-digit growth in China over the coming years. It's a big population and a lot of people want their sneakers," Herbert Hainer, ceo, Adidas, told Bloomberg.

"China is an important market for us and consumers want access to our products."

One of the firm's primary goals is attracting increasingly wealthy customers from metropolitan hubs like Beijing and Shanghai, who typically boast above-average disposable incomes and spend more on apparel and footwear.

"Middle affluent" individuals enjoying discretionary expenditure of 5,000 yuan ($753) a month constitute the most interesting audience in such areas.

Adidas' techniques for ensnaring this demographic include developing shops focusing on premium offerings and creating stores based around certain sports.

The corporation also intends to move into conurbations containing at least 500,000 people and those possessing just 50,000 citizens, where entry-level products could be priced approximately 15% below Tier 1.

Although households in smaller regions generally have comparatively limited budgets, enthusiasm for quality - and foreign - goods is often high.

Christophe Bezu, managing director, Adidas Greater China, suggested residents of these urban centres would like "access to global brands", and predicted the organisation should be active in seventh tier cities in 2015.

"We have laid out an ambitious five-year plan and expect to grow our business in Greater China by double digits each year. This will lay the foundation to regain market leadership in China by 2015," he said.

In an effort to engage younger customers, Adidas is due to strengthen the role of its Neo range aimed specifically at teens, and featuring items priced at roughly half the rate of other lines.

The German multinational hopes buyers may then be persuaded to trade up within its portfolio.

Such strategies could yield significant benefits, according to Carol Liao, of the Boston Consulting Group.

"In the next decades, the population of China's middle-class and affluent consumers, whose annual household incomes exceed 60,000 yuan will nearly triple, from 150m to more than 400m," she said.

"Two-thirds of them will reside in small cities."

Frost & Sullivan estimated that Nike held 10.2% of China's 93bn yuan sportswear category in 2009, beating Li Ning on 10% and Adidas on 9.6%.

Hainer forecast that Adidas' investment in the country would enable it to retake second spot behind Nike, with the overall objective of surpassing its US rival.

"I'm pretty confident we will take back our original number two position next year … and we build a plan in the years to come to become number one in the market," he said.

One particular difficulty that impacted Adidas in China was overstocking in the 2008 Beijing Olympics, but Hainer argued it has now turned a corner.

Indeed, Adidas saw Chinese revenues rise 9% during the last quarter, measured against a 14% retail expansion in the US, which should remain ahead of China for the next five years at least.

"What you have seen is that we are growing fast in China," said Hainer. "Don't worry about where we will be in the future."


source: http://www.warc.com/News/TopNews.asp?ID=27518&Origin=WARCNewsEmail