Since the football World Cup is over all eyes are turning to China, a fast-growing market that will host the next Olympic Games in Beijing. The market’s size was recently estimated at about $3 billion, and whatever its actual size, it is generally expected to triple by 2010.
Mark Parker, Nike’s chief executive, couldn’t contain his enthusiasm about the Chinese market at the company’s most recent presentation to the analysts, revealing that it had reached sales of about $600 million in China for the financial year ended in May 2006. This tally was achieved just over a decade after Nike executives began to study the market in earnest, but the growth recently accelerated at dizzying speed, enabling Nike to double its sales in two years.
Nike’s expansion has gone hand in hand with the stunning transformation of Chinese sports culture. In the early ‘nineties the company sent out Terry Rhoads, a sports marketing employee, to introduce Nike and the American sports culture to the Chinese. When he organized basketball games in those days he had to raise enthusiasm among the lethargic crowds by blasting cheers into the bleachers. Nowadays Rhoads regularly comes across Chinese youngsters who wear baggy pants, address each other in basketball slang and put cornrows in their hair.
The Swoosh has begun to adjust its tack in special markets like China, but it remains most strongly associated there with American culture, as epitomized by the huge popularity of NBA stars in the Middle Kingdom. This was highlighted earlier this year by the fact that Nike’s LeBron James basketball shoe sold out in less than two hours in China.
Headed by a Dutchman, Willem Haitink, Nike China remains the market leader in the country, but Adidas hopes to zoom past its American competitor to reach sales of $1 billion by 2010 in China, aided in part by its partnership with the organizers of the Beijing Olympics, including the endorsement of the Chinese Olympic Committee.
Set up in 1995 by a remarkable Frenchwoman, Sandrine Zerbib, a former teacher and banker, Adidas China has been growing at breath-taking speed over the last years to reach estimated sales of over $500 million this year.
Predictably, Nike and Adidas have differing views on the state of their contest in China. Parker claimed that brand tracking studies were pointing to Nike’s advances and that it was widening the gap with Adidas. Yet during a recent trip to Beijing, Adidas’ chief executive, Herbert Hainer, claimed precisely the opposite and reiterated the brand’s target to snatch the leadership by 2008.
Li-Ning remains close behind these two usual suspects. The listed company reported sales of about $300 million at the end of last year, nearly all of them in China, and judging by market growth rates it should reach sales of around $400 million this year.
As a gymnast, Li-Ning won a neckful of medals and eternal gratitude from the Chinese people at the Los Angeles Olympics donning an Arena suit. The brand which he set up after his retirement competes head-on with its international rivals in terms of products and marketing, but it mostly appeals to consumers in second-tier cities, which international brands have begun to attack on a large scale.
At less than $100 million, Reebok’s Chinese sales remain relatively small, despite its endorsement by the most famous Chinese sportsman, the basketball player Yao Ming. However, that was precisely one of the greatest opportunities spotted by Adidas when it purchased Reebok last year, and the new owners quickly proceeded to buy out Reebok’s Chinese distributors to set up a full-fledged subsidiary for the brand by the beginning of next year.
Reebok China will be headed by James Zhang, current head of sales for Adidas China, with a target to double Reebok’s Chinese sales by 2008. Zerbib will run the entire Chinese operation of the Adidas Group, with integrated back office functions but separate sales and marketing for Adidas and Reebok.
As for Puma, the brand has been gaining much ground since distribution was entrusted to Swire Pacific, a mighty Hong-Kong conglomerate that has already established a flurry of brands in China, from Champion to Diesel – not to mention Swire’s own sports retail chains, Marathon and Gigasports.
When she took charge of the Puma business in 2003, Laiman Tam began by cleaning up distribution much as Jochen Zeitz had done at the international level in the early ‘nineties. Puma’s Chinese turnover reached roughly $5 million at the time. Puma boots sold in China then were largely outdated. They were often flogged in discount stores and even more widely counterfeited.
Swire Pacific has invested in large billboard campaigns and more subtle magazine features and road-shows to tell the Puma story and introduce the concept of sports lifestyle to the Chinese consumers. The task turned out to be easier than expected, because by then Chinese youth easily picked up on international trends through interactive media.
The distributor felt that it had achieved a breakthrough in 2004, when China obtained its very own Formula One circuit in Shanghai. Since Formula One boots were among the hottest-selling Puma shoes in China, Swire Pacific invested heavily in the opening of the circuit and Zeitz personally attended the event. Puma has since re-launched its apparel in China, allowing the brand to reach total sales of about $30 million this year (provided by Swire Pacific, this figure is much lower than industry estimates, which tend to place Puma ahead of Reebok).
For nearly all of these brands, vast company-owned retail operations remain an essential marketing tool in China, due to the dearth of high-quality retail space. Nike China currently boasts 2,300 stores against 2,500 for Adidas but Li-Ning trumps them both with more than 3,500 stores, spread more widely across the country. Reebok currently has 500 stores but the brand’s new owners intend to open at least 200 each year starting from 2007.
Another part of the battle is being fought on mobile phone and computer screens, which are favored by the international sports brands because the coverage of the traditional media remains very scattered. Adidas was most successful with a viral campaign that it launched after the Three Stripes obtained the endorsement of the Chinese volleyball federation. Featuring youngsters who attempted to imitate a volleyball, like hurling themselves over a net in the style of Jackass, the witty clips were promptly disseminated through mobile phones and the internet. Nike also scored highly with an internet campaign in which youngsters were asked to outline their dreams in sport, with some of them to be featured in swish Nike commercials, making them kind of stars.
The sports brands’ voracious appetite for the Chinese sports market has dramatically raised prices for sports endorsements. The deal that epitomized the explosion of the market came about in 2003: disappointed by a perceived lack of support from Nike when he joined the Houston Rockets one year earlier, Yao Ming signed a 10-year deal with Reebok that could be worth up to $100 million, including a share in Reebok’s Chinese growth and other incentives.
Adidas immediately felt the consequences as it was negotiating a deal with the Chinese football federation. The relationship between Adidas and the CFA had been steady for about two decades, but the Yao deal raised the stakes to such an extent that in 2003 Adidas had to agree to fork out an estimated $10 million each year for the endorsement – a multiple of the sum it had paid a few years earlier.
The price was equally steep for Adidas’ partnership with the organizers of the Beijing Olympics, which will cost the company an estimated $80 million, including well over 2 million pieces of apparel and footwear. Adidas is convinced that the repercussions will be invaluable, due to the Chinese pride associated with the Games: if Adidas could be regarded as an instrument of the expected triumph, it would gain huge goodwill among Chinese consumers. Furthermore, the stamp of officialdom continues to yield some advantages in China.
Adidas China has already begun to take advantage of the tie-up by selling sweatshirts with the Three Stripes and the official Beijing Olympics logo. All of the company’s business cards and store fronts have been redesigned to feature the same logo. Just for the official launch of the Olympics partnership in China, the company’s advertising pay-off was changed into “There Is No Impossible Gold,” linking the Three Stripes with a nationalistic quest for medals. Hainer himself dropped by in August to check on the progress of the partnership. To underline the weight of it all, the company’s general marketing meeting next year will be held in China.
On the other hand, Nike is quick to point out that it may still shine brighter than Adidas at the Beijing Olympics. While the Three Stripes are the official partner, which gives them the right to use the Olympic logo and to outfit all officials and the Chinese athletes at the opening and medal ceremonies, Nike has obtained separate deals with all but five of the Chinese sports federations that will be taking part in the Olympics. Adidas only has endorsements from the Chinese football, judo and volleyball teams, while Li-Ning retained the diving and gymnastics federations. In other words, Chinese athletes may well wear Adidas on the podium, but during the actual competition most of them will wear Nike.
