Nike and Adidas Suffer Depression in China

Li Ning, Nike and Adidas are playing a new “Romance of Three Kingdoms” in sports goods industry in China. Although the two international giants see recession in their performance in China, their competition with Li Ning is still quite furious. It is hard to tell who will be the last winner.

Recently, the largest Chinese domestic sports goods manufacturer Li Ning said to the public that it would attempt an overall entry into the market of Southeast Asia. At the beginning of July, Li Ning spent 165 million yuan (USD 24.1 million) acquiring the famous domestic badminton brand Kason.

Compared with the fast development of Li Ning, the international giants, represented by Nike and Adidas, seem to be having trouble in China after several years’ fast expansion. According to the latest financial report of Adidas, the company’s net profit decreased by 95% to 130 million euros in the fist half of this year. The sales revenue decreased by 2% to 5.03 billion euros. Many analysts thought that Li Ning could surpass Adidas in the sales amount in China this year if it keeps its two-digital growth rate in this year. The Chinese sports goods market situation may be changed.

Nike: Reform Sales Channels

“The orders, as well as the number of distributors, were reduced. From last year Nike began to eliminate the distributors with bad performance,” said a source knowing Nike. In the coming future, Nike will make big movements in its distribution operations. The former dispersive distribution pattern will be given up and more businesses will be in the hand of the large-sized distributors.

It is known that Nike adopted the multiple-level agent system in order to take a larger market share as quickly as possible when it firstly got into China. At that time, Nike hoped to foster some distributors with certain strength in each area, through which the competitive power and brand image can be both available. Unfortunately, excessive competition was resulted from this system. “Many Nike’s distributors came to us, hoping that we can buy all their inventories. The prices they offered were too low to be believable,” said a franchiser of various brands.

Therefore, Nike hopes for changes in China, which is one of its most important markets. It encourages the large distributors in China to acquire the small ones. It is known that Belle Group and Pou Sheng International are Nike’s two largest distributors in China. In addition, some local distributors have accumulated certain strength. The source said that Nike plans to help those distributors to further spread their businesses.

In February, Nike began to build its largest logistics center in Asia in Jiangsu Nike China Logistics Center. This center, once finished, will reduce 15% of delivery time for Nike. In March, Nike declared to close four factories in the world, including its only exclusively-invested shoemaking factory in Mainland China. Meanwhile, Nike simplified the process of giving and receiving orders.

Adidas: Take the Franchise Back

In the first half year of 2009, Germany-based Adidas nearly got trapped in trouble in everywhere of the world. Apart from the influence of the exchange rate, it saw 8% year-on-year decrease in sales amount of European market and 10% year-on-year decrease in the North American market. In Asia including Japan and China, Adidas’ sales amount reduced by 9% from last year. Only the Latin American market saw 24% increase, making the sales amount there reach 443 million euros. But it can not change the general losing situation.

“From the third quarter of last year, the distributors of Adidas in China were busy dealing with the excessive inventories,” said an insider of Adidas China. The excessive inventories lengthen the renewal process of goods for the distributors from once a week to once two weeks. The lengthened renewal process of goods leads to the limited growth of the distributors’ sales amount. The financial report of Adidas said that the total value of its inventories in the first half year increased by 13% year on year, or up 8% without considering the influence of exchange rate.

Adidas has to review its strategies in the Chinese market after seeing eight straight years’ double-digit increase of the net profit in this country. In China, Adidas would prefer to bet on the improvement of marketing and construction of self-owned distribution channels. In 2008, there were 1332 Adidas’ direct stores in China and 18% of the sales amount in China came from them. In 2007, the number of direct stores in China was 1003 and the proportion of sales amount was 17%.

Actually, Adidas began to take back the franchise of its subordinate brand Adidas Trefoil after Beijing Olympic Games. According to the plan, all the stores selling Trefoil products in China will become the direct stores of Adidas by the end of 2009. In addition, Adidas is trying to reduce the production cost. It was said that it plans to move its world largest ball maker in Dongguan to the inland areas of China by the end of 2009.

When Nike and Adidas are struggling to lose weight in China, the largest sports brand in Japan Mizuno also declared to close the 200 retail stores in China in July.

Li Ning: Develop the Overseas Market

The recession of Nike and Adidas gave way to Li Ning’s expansion. According to the plan, Li Ning will open about 100 stores in Southeast Asia. Those stores will be established in Singapore, Malaysia, Indonesia and so on. Most of the products are related with badminton.

Early in 1999, Li Ning listed the “internationalization of brand” into its development agenda. The company changed its corporate structure and began to develop the overseas market. In the past few years, the market share of Li Ning in the foreign countries was not very big. Therefore, this expansion plan can be said to be a milestone for Li Ning’s overseas expansion.

Following this expansion project in Southeast Asia, Li Ning will establish businesses in Europe and America, trying to get into the birthplace of Adidas and Nike.

In China, Li Ning is always making progress. According to its financial report, Li Ning has opened 6917 stores in Mainland China by December 31, 2008, 1241 more than the year of 2007. Li Ning also considered the second- and third-tier cities in China as the key places for development. Half of its new storefronts are opened there. Till 2010, the number of Li Ning’s storefronts will increase to 7700.