Following Nike’s sharp drop in revenue in China in the second quarter of its fiscal year 2022, Adidas released its 2021 financial results showing a 24% drop in sales in China in the fourth quarter. China is an important strategic market for them, what measures have they taken? What will be the trend of the international sports giants’ performance in China against the background of the prevailing national trend of China (Guochao)?
Adidas’ growth in China is in trouble, with negative sales growth for three consecutive quarters
Adidas recently announced its 2021 financial results. Despite the continued impact of the pandemic and the challenges of supply chain shortages in some markets, Adidas revenue grew 15% year-on-year to 21.234 billion euros during the period, but while revenue in both the European and North American markets maintained double-digit growth, Adidas’ other important market, China, saw revenue growth of only 3%.
In fact, in the past year, in addition to the first-quarter sales growth of triple digits, the other three quarters of Adidas in the Chinese market performance are relatively sluggish, including the second and third-quarter sales fell 16%, 15%, the fourth-quarter sales fell 24%.
It is no coincidence that Nike’s fiscal year 2022 second-quarter results showed that its China market performance declined significantly in the three months ended November 30, 2021, with revenue plunging 20% year-over-year to $1.844 billion and pre-tax profit plunging 36% year-over-year to $569 million.
The two major international sports brands did not explain much in their earnings reports, mostly attributing their performance to the impact of the pandemic and supply shortages. According to Yang Daqun, a strategic expert in China’s apparel industry, there are two reasons for the decline in the performance of Adidas and Nike in China. On the one hand, although the Chinese sporting goods market demand showed a certain rebound for a period of time after the pandemic outbreak, but from the overall performance of the past two years, the market demand tends to saturate, specifically in terms of brand performance, that is, the original growth volume and market share accounted for a relatively high growth trend of Nike and Adidas showed a decline.
On the other hand, it is affected by the rise of domestic sports brands in the Chinese consumer market. He pointed out that the previously accumulated advantages of Nike and Adidas were gradually compressed as the local Chinese companies’ design ability and level as well as brand promotion ability improved to drive their performance growth.
From the operating performance disclosed by Anta Sports and Xtep, during the same period of decline in Nike and Adidas’ performance in China, retail sales of Anta brand products recorded positive growth in the mid-range of 10%-20% year-on-year in the fourth quarter of 2021, and Xtep brand retail sales grew 20%-25% year-on-year.
“Change of command” for its China market, the return of veterans can restore the decline?
Adidas, which has made China one of its three strategic priority markets, is not willing to lose the advantages it has accumulated over the past two decades. According to foreign media reports, on the eve of the release of its 2021 financial results, Adidas appointed Adrian Siu (Xiao Jiale) as the new head of the Chinese market, replacing Jason Thomas, who took office in 2019 and will be transferred to senior vice president of global franchising.
For Adidas, the newly-appointed Adrian Siu is a familiar face. Xiao, 51, joined Adidas Hong Kong in 2002 as general manager. After being promoted to senior vice president of commercial for Adidas China, Adrian Siu is responsible for all Adidas operations in China. Under his leadership, Adidas reportedly recorded significant annual growth in revenue and profit in China. 2019, Adrian Siu left Adidas to serve as CEO at lingerie brand Urban Beauty. 2021, at the end of November, Adrian Siu left Urban Beauty, but did not disclose his destination.
From April this year, Adrian Siu will officially become the managing director of the Adidas China market. For the above personnel changes, Adidas did not disclose the reason. In Yang Daqun’s opinion, this is just a regular action of a listed company in case of unsatisfactory performance, “changing what it thinks is ‘a Chinese person who understands the Chinese market better’ or ‘someone who can change the status quo of the Chinese market’, to a new head of the Chinese market, is a means for Adidas to address the current state of the Chinese market.”
As to whether the veteran can lead Adidas out of the doldrums in China, time is still needed to verify.
Market competition will enter a white heat, China’s local brand comprehensive strength is improving
In addition to the management changes, Adidas also recently said it plans to increase the number of products specifically for the Chinese market and strengthen local marketing. But Yang Daqun believes that, overall, Adidas’ business strategies and development plans in China’s online and offline markets are not much of a mistake. Even if the increased marketing and promotion efforts can only slow down its decline in the Chinese market, the overall downward trend is inevitable. “From a macro point of view, it’s not that its not working hard, but that its rivals are working too hard.”
Yang Daqun said, in addition to the above means, international sports brands need a more objective understanding of the current situation of the Chinese consumer market. “For these international sports brands with their own aura, the previously accumulated influence of international brands is being eroded with the rise of local Chinese companies, and Nike and Adidas should face up to the fact that their Chinese market share will further shrink in the future and seriously deal with the competition from local Chinese brands such as Anta and Li Ning.”
The analysis report released by Guoyuan Securities points out that Li Ning, Anta, Xtep and other Chinese domestic brands have completed their initial catch-up with international brands in terms of cutting-edge technology in the midsole, as reflected in the breakthrough in mass production application of high-end mainstream shoe materials (such as PEBA, the shoe material for Nike Zoom X midsole) and the improvement of shoe performance, etc. The successful upward price adjustment of domestic high-end sports shoes reflects consumers’ recognition of the strength of local brands in midsole technology. The successful price increase of domestic high-end sports shoes reflects consumers’ recognition of the strength of local brands’ midsole technology.
Overall, local sports brands have the strength to compete with international brands in terms of product power, control of leading marketing resources and channel management capabilities. At the same time, Guoyuan Securities also pointed out that, compared to Nike, which has a mature and systematic product matrix and focuses on professional performance and storytelling, Adidas’ product matrix is relatively less serialized, and compared to the gradually shortening midsole technology catch-up time of domestic local brands, Adidas’ main technology is still the Boost platform launched in 2013, and the recognition of the latest technology 4D midsole and Lightstrike midsole is weak.
Yang Daqun believes that the competition in China’s sporting goods market share will enter a white-hot stage. As the comprehensive strength of Chinese local brands (including product development, design and marketing capabilities) continues to strengthen, the gap between them and international brands will become smaller and smaller, and eventually, the share of Chinese local brands in the Chinese sporting goods market will become larger and larger. Source