German sporting goods giant banks on continued buoyant demand for branded, luxury products

German sportswear company adidas AG is banking on the strong demand in China for branded and trendy apparel to push revenues, even as it looks to expand retail presence in the second- and third-tier cities.

The German company plans to open outlets in cities such as Juxian in Shandong province, Lanxi in Heilongjiang province and Pingtan in Fujian province.

"Expansion in the lower-tier cities will be the key to our continued success in China. Our goal is to have stores in 1,400 cities by 2015, up from the 550 cities in 2010," says Colin Currie, managing director of adidas Group Greater China.

"Much of China's economic growth is being driven by the rise in disposable incomes of consumers in these lower-tier cities. These consumers are also becoming more brand and quality conscious. Most of them are now eager to purchase premium international brands," he says.

The company, China's No 2 sportswear brand after Nike in terms of market share, says it opened more than 1,000 new stores in China last year, with nearly half of them in lower-tier cities.

Currie says the company currently has 6,800 retail stores in China and the target is to add at least 500 stores every year.

At the same time, there has also been a change in customer preferences that has contributed to increased sales, he says. Sportswear is perceived not only as a practical product, but also as a fashion symbol. To cash in on this, adidas has changed its branding strategy globally to "adidas is all in" from "Nothing is impossible".

"In English, 'all in' means that if you put 100 percent heart into it, you are all in. It really makes sense because it describes basically what we do as a company, from sports all the way into fashion," Currie says.

He says the branding change was also necessary as adidas has its own fashion division alongside sporting goods.

The brand's style division, which creates fashion brands for different age groups, currently accounts for 25 percent of the total sales, he says.

Collections, such as Y-3 by Japanese fashion designer Yohji Yamamoto and Porsche Design Sport, a crossover collection between adidas and the accessory and apparel unit of luxury carmaker Porsche, are managed under the style division.

Currie says there is immense potential for the company to further improve its position in China, as the market is still growing. Establishing the adidas brand as a fashion icon will be the main thrust of the overall China strategy.

To make inroads into the lower-tier cities, adidas has launched the NEO collection in China for the younger generation of customers aged between 14 and 19.

The company has also roped in famous Hong Kong model and actress Angelababy and Taiwanese actor Eddie Peng to promote the NEO range.

"NEO is competitively priced. The price gap between NEO and Chinese local brands is within 100 yuan ($16, 12 euros). We think Chinese consumers in lower-tier cities with (relatively) higher disposable income will prefer to buy international brands with high quality," Currie says.

The NEO products are priced between 120 yuan and 500 yuan. The German sportswear major has more than 1,000 NEO outlets in China, with as many as 900 of them opened in the past few years.

"In lower-tier cities, we will open more Sports Performance stores. But NEO will still be the big ticket for us as it provides an excellent branding opportunity in smaller cities," Currie says.

Though it is focusing on boosting its presence in smaller cities, it does not mean that it has given up on the first and second-tier cities. "The focus in these destinations will continue to be on our Originals collection, a streetwear collection featuring vintage dresses and retro shoes. Products in the Originals collection are priced nearly 20 percent more than those available in the NEO collection."

Apparel products in the Originals collection fall under the Y-3 brand and are priced between 250 yuan and 1,200 yuan.

In January, adidas opened its second brand center in Shanghai. It is the company's second such center in China and the fifth in the world that sells and displays all adidas' products and collections.

"The increased presence in China clearly shows the importance attached to the nation in our overall global strategy. We chose to open these stores in Shanghai and Beijing because we wanted to strengthen our presence in China's top-tier cities," Currie says.

To cater to Chinese styles, the sportswear brand has also opened a local design center to create customized products for Chinese consumers.

Adidas Group had earlier said its Greater China sales rose by 26 percent to 385 million euros during the January-March period this year, the highest growth among all its major regions. It was also higher than the overall global sales growth of 14 percent.

Adidas Group CEO Herbert Hainer had remarked while releasing the earnings numbers that China would continue to be a major growth engine for the group. "I am confident that we can grow our business at a double-digit rate in China," he said.

Currie expects China to soon displace US as the top selling market for adidas. Much of that comes from the anticipation of more sportswear sales alongside major global sporting events.

One of its big-ticket events is the forthcoming European Football Championship, where adidas is sponsoring six teams, including the defending champions Spain and tournament favorite Germany, and co-host Ukraine.

"We believe that we will achieve record sales of 1.5 billion euros from the football category this year," Currie says. "We are also confident that China will be a major contributor in this segment."

Like the 2008 Beijing Olympic Games, adidas has also invested considerably on the 2012 London Olympic Games. It is the Official Sportswear Partner of the British national team, with David Beckham as its spokesman.

In 2008, although adidas was the Official Sportswear Partner of the Beijing Olympic Games, Li Ning, the chief executive officer of China's top sportswear brand, grabbed more attention while holding the torch that lit the Olympic flame.

After the Olympic Games, adidas' high expectations for the Chinese market resulted in excess inventory. In 2009, the company was forced to take drastic action to rid itself of the excess inventory and had to shut down more than 100 shops nationwide.

In the same year, Li Ning outperformed adidas in sales, and became the second largest sporting goods brand in the Chinese mainland.

However, this excess inventory problem and temporary disadvantage did not deter adidas, Currie says. On the contrary, it helped the German sporting goods brand to explore new frontiers amid fierce competition in China.

yangyangs@chinadaily.com.cn

(China Daily 05/25/2012 page16)