Adidas using Olympics in race against Nike

Giant Beijing store reflects importance of China's consumers
BY MET FONG

WHEN it comes to China, is bigger better? Sportswear giant Adidas AG thinks so.


At midnight Friday, the German- based company will open here its biggest store anywhere. The reflec tive-glass-clad building, with panels at different angles creating a cm- Med effect, is a marker of Adidas's ambition to use China as a battle- ground to overtake U.S.-based rival Nike Inc.
Measuring about 3,170 square meters, the shop is about 1% times the size of Adidas's previous largest outlet, on Paris's swanky Champs- Elysies. The new store, in Sanlitun, the main entertainment district in the capital, also serves as a celebra tion of Adidas's role as the official sportswear provider for the Beijing Games, a privilege that cost an esti mated $80 million to $100 million in cash and kind, according to people familiar with the matter. And it's just a few steps from a popular mar- ket that sells $20 knockoffs bearing the Adidas three-stripe and trefoil.
But counterfeit items aside, Adi das's business in China is booming, its executives say. Christophe Bezu, who heads Adidas Asia, says China will be the company's second-larg est market by sales by the end of this year, after the U.S., overtaking Japan. China is already Adidas's most profitable market, having passedJa pan and some other European mar- kets on that measure at the end of 2007.
While the company won't dis close per-country sales, Chief Execu tive Herbert Hainer has said that Adi das's Chma sales will surpass ,1 bil lion ($1.6 billion) by 2010. Mr. Bezu hinted in an interview this week that the company is "already lilely to do that much earlier. We hope to make an announcement during the Olym pies." The company is due to an- nounce its first-half earnings on Aug. 5, three days before the Olym pics' opening ceremony.
Adidas isn't the only sportswear company thriving here. China be- came Nike's second-largest market in 2007, and the company hit $1 bil lion in Chinese sales in fiscal 2008, a year ahead of schedule.
Growth in developing markets, including China, is vital to both sportswear titans because their sales are flattening in primary mar- kets such as the U.S. Thanks in part to the frenzy surrounding the Olympics, China's sportswear mar- ketin 2009 is projected to increase 90% from 2006, to $7.2 billion from $3.8 billion, according to Shanghai-based sports consultancy ZOU Marketing.
By contrast, investors' fears about slowing growth in the U.S. caused Nike's shares to sink 9.8% last Thursday, to their lowest level in almost seven years, after Nike posted its quarterly earnings. Adi das's shares fell 3% the same day amid investor concerns as the U.S. is the maj or market for both countries. Wednesday in Frankfurt, Adidas's shares edged down nine European cents to ,38.81 ($61.25), while Ni- ke's shares were up six cents at $59.05 midday on the New York stock exchange. (Please see related story on Page 29.)
Given China's huge population and relatively low retail rents, sev eral retailers besides Adidas are bet- ting on megastores. In 2006, for ex ample, Swedish home-furnishings gi ant Ikea built its largest retail store outside its Stockholm headquarters in Beijing, which draws thousands of shoppers on weekends. This year, the Louis Vuitton brand opened its biggest Asian flagship store in Hong Kong, largely because of the lure of Chinese consumers.
"Big is beautiful in China because it is still an unsophisticated market. Customers are dazzled by size," says David Hand, Beijing managing dire c tor of property company Jones Lang LaSalle Inc.
Also, given the strong sense of pa- triotism in China, consumers are flattered that retailers are choosing their country to estabilsh their big- gest stores, particularly in the na tion's capital, he says. According to Jones Lang, average annual rent in the Beijing retail market is $986 per square meter, far below Shanghai's $2,265 and Hong Kong's $3,059. The Adidas store is part of a huge retail and boutique-hotel complex in Beijing's central entertainment dis trict that was chiefly designed by Japanese architect Kengo Kuma, who designed the Louis Vuitton brand's flagship store in Tokyo. The Adidas store was designed by New York-based ShoP Architects as a boxy edifice with strips of mirror and glass that protrude to reflect passing pedestrians and cars, creat tag a sense of movement and energy, according to ShoP's architects.
Adidas hopes to draw Chinese consumers with the promise of a healthy lifestyle, including free fea tures such as an interactive zone in which shoppers will be able to test their skills in balancing, running and jumping on various machines devel oped by sports researchers at Ger many's University of Freiburg.
A service called "sports con- cierge" will provide training and nu trition advice. Other services will of- fer customized football jerseys and sneakers, even allowing customers to choose different sizes for their left and right feet.
Adidas also plans to use the store as a way to proclaim its dominance over Nike in the Olympic arena. That's particularly important be- cause many Chinese consumers stifi think that Nike, rather than Adidas, is the Olympic sponsor, especially be- cause of Nike's contracts with a host of sports stars such as Chinese hur dier Liu Xiang and its development of a range of shoes for Olympic ath letes. According to a recent Nielsen survey, "Adidas faces a significant challenge from nonsponsors" Li Ning, a Chinese sportswear maker, and Nike, says Richard Basil-Jones, Nielsen's Asian-Pacific media man- agLng director.
Locating its biggest store in the world's biggest counterfeit market also could be a challenge for Adidas, but it isn't one that its executives ac knowledge. The company has said hi the past that piracy isn't a big issue for it globally. Nonetheless, the company successfully sued Payless Shoe- source Inc. of the U.S. for trademark infringement this year, and a pend ing trademark-infringement suit against Wal-Mart Stores inc. is scheduled to go to trial this fall.
In China, Mr. Bezu says, Adidas's status as an official Olympic spon sor has helped the company clamp down on copyright infringements be- cause Beijing authorities are eager to protect the Olympic logo. The strong arm of the government has also helped curb the kind of ambush marketing typically found at every Olympic Games, when nonsponsors seek to associate themselves with the Olympic brand. Last week, Li Ning took the unprecedented step of bowing out of a deal to outfit sports presenters on China's main TV sports channel after pressure from authorities.
"Whatever we paid for, we pretty much made back, and the Olympics hasn't even begun yet. I'm happy with that," said Mr. Bezu.
Pleasing the Chinese has paid off in other ways, too. This year, the Shanghai-based ad agency TBWA China, a unit of Omnicom Group Inc., won China's first gold award at the Caimes International Advertising Festival for an Adidas campaign. Us- ing a combination of computer graphics and live action, the ads ap pealed to Chinese consumers' patrio tism by showing China's sports stars scoring goals and breaking records on the backs and shoulders of the Chinese public.