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Bigger is better for Adidas in Beijing

Fri., July 4, 2008

BEIJING – When it comes to China, sportswear giant Adidas AG thinks bigger is better.

At midnight Friday, the company will open its biggest store in the world here. The long, glass-clad rectangular building reflects Adidas’s ambition to use China as a battleground to overtake rival Nike Inc.

Measuring about 34,100 square feet, the shop is about 1 1/2 times the size of Adidas’s previous largest outlet, on Paris’ swanky Champs-Elysees. The new store, in Sanlitun, the capital’s main entertainment district, also serves to promote Adidas’ role as the official sportswear provider for the Beijing Games, a privilege that cost an estimated $80 million to $100 million in cash and kind, according to people familiar with the matter. The store is just a few steps from a popular market that sells $20 knockoffs bearing Adidas’s stripes and trefoil.

But counterfeit items aside, Adidas’ business in China is booming, its executives say. Christophe Bezu, who heads Adidas Asia, says China will be the company’s second-largest market by the end of this year, overtaking Japan and coming after the U.S. China is already Adidas’ most profitable market, having passed Japan and some other European markets at the end of 2007.

While the company won’t disclose per-country sales, Chief Executive Herbert Hainer has said that Adidas’ China sales will surpass $1.58 billion by 2010. Bezu hinted this week that the company is “likely to do that much earlier. We hope to make an announcement during the Olympics.” The company is due to announce its first-half earnings on Aug. 5, three days before the Olympics opening ceremony.

Adidas isn’t the only sportswear company that’s thriving here. China became Nike’s second-largest market in 2007, and the company hit $1 billion 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 markets like the U.S. Thanks in part to the frenzy surrounding the Olympics, China’s sportswear market in 2009 is projected to increase 90 percent from 2006, to $7.2 billion, according to Shanghai-based sports consultancy ZOU Marketing.

Given China’s huge population and relatively low retail rents, several retailers besides Adidas are betting on megastores in China. In 2006, Swedish home-furnishings giant Ikea built its largest retail store outside of Stockholm in Beijing. This year the Louis Vuitton brand opened its biggest Asian flagship store in Hong Kong. “Big is beautiful in China because it is still an unsophisticated market,” says David Hand, the managing director of property company Jones Lang LaSalle Inc. in Beijing. “Customers are dazzled by size.”


 

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