China's Real Sports Contest
For shoppers who wear out their soles pounding the cobblestones of Beijing's busy Wangfujing Street in search of bargains, there's no shortage of options for getting reshod. A cartoon image of the Brazilian soccer star Ronaldinho peers out from posters in the windows of the two-story Nike Inc. store, while nearby another big Nike shop dominates the ground floor of the Sun Dong An Department Store. Just down the street, stores of the homegrown champion Li-Ning face each other across the crowded pedestrian mall, both emblazoned with the company slogan, "Anything is Possible." A bit farther, signs at the Adidas outlet shout its slogan, "Impossible is Nothing." And on it goes: Converse, New Balance, Puma, Reebok, and Chinese upstarts Double Star and Anta all have either stand-alone shops or prominent displays in department stores on the street.
As Beijing gears up for the 2008 Olympics and the Chinese get richer -- giving them more leisure time and sparking greater interest in sports -- the country is in the throes of a battle for supremacy in athletic shoes and apparel. Nike, Li-Ning, and Adidas are neck-and-neck at the top of the market, while a host of pretenders nips at their heels. They're all fighting to outfit the 2.6 billion feet in China with shoes bearing their logos. And they wouldn't mind selling a few jogging suits, windbreakers, headbands, and other gear while they're at it.
It's a prize worth fighting for. The market for sports shoes and apparel in China last year was worth some $3 billion. That's small compared with the $30 billion Americans spend annually on athletic shoes, clothing, and equipment, according to Sporting Goods Intelligence, an industry newsletter. But the Chinese market has seen double-digit growth since 2000 and will likely hit $6.2 billion by 2008, according to Shanghai sports branding agency Zou Marketing. And the demographics are spectacular. "Because of China's one-child policy, parents are willing to spend lots on their one child," says Ma Jilong, vice-president of the China Sporting Goods Federation, an industry group. There's also plenty of room for growth simply by stealing share. The top three players control less than a third of the market, with more than 200 small fry splitting the balance.
That potential has the players scrambling for advantage like urban teens in a pickup game of hoops. Nike heads the pack, with 10% of the market, and has 1,200 stores across the country, adding about 10 new shops a week. The company doesn't release its sales for China, but Zou Marketing estimates that they'll be about $300 million for the year ending April 30. Adidas last year doubled its sales to some $280 million, according to Zou. That allowed the German company to creep into the No. 2 spot with 9.3% of the market. Adidas has 1,300 stores in 250 cities and plans to have 4,000 stores in 400 cities by 2008. Li-Ning has slipped to No. 3, with an 8.7% share and sales of about $260 million for the year ending in April, according to Zou. The Chinese company has 2,500 stores covering every province in China, with plans to open 1,500 more by 2008.
The big event will be the Olympics -- and Adidas has already won gold in the competition to profit from the Games. In January, the Beijing Olympic organizers awarded Adidas the moniker "Official Sportswear Partner," meaning that all athletes who win medals will have to wear Adidas clothing when receiving the award -- regardless of what other sponsorship deals they have. The price for such a privilege: an estimated $80 million. "You really have the entire nation behind the Games," says Sandrine Zerbib, head of Greater China for Adidas.
Others, though, have also found places on the Olympic marketing podium. Nike is sponsoring 21 of China's 28 Olympic squads, including tennis, track-and-field, and basketball, while Li-Ning is backing four teams -- diving, table tennis, shooting, and gymnastics. Li-Ning knows the importance of the Olympic Games: It was founded by a gymnast of the same name who won three gold medals at the 1984 Los Angeles Olympics. Even some marketers that have been shut out of the Beijing Games have found ways to profit from them. Reebok International Ltd. (RBK ), for instance, has signed a sponsorship deal with Yao Ming, the 226-cm star of the U.S. National Basketball Assn.'s Houston Rockets and a likely Olympic starter.
Li-Ning has two key advantages in reaching the all-important youth market: Its products are about half as expensive as those of its foreign rivals, and its network of stores dwarfs that of any other player. To date, though, Li-Ning has been most successful in smaller cities and towns. To really take on the foreign brands, it needs to make a renewed push into the likes of Beijing, Shanghai, and Guangdong. "Li-Ning is using the Mao Zedong strategy: build expertise in second- and third-tier cities," says Zou Marketing General Manager Terry Rhoads, an industry veteran who spent nine years with Nike China before founding Zou two years ago. "Now they have to gain legitimacy in China's biggest cities" -- no small task, he says.
To pull it off, Li-Ning needs to hone its image. The company budgets about 15% of revenues for advertising, up from 10% five years ago. A year ago, Li-Ning hired Wu Xianyong, an eight-year veteran of Procter & Gamble Co. (P&G ), as its vice-president for marketing. Among Wu's first initiatives is a partnership with the NBA that allows the company to use the U.S. league's logo to promote shoes and apparel and gives it the right to sponsor NBA players. "In this industry marketing is the No. 1 way to grow one's business," says Wu.
A looming challenge for all the market leaders is likely to be fast-developing Chinese upstarts. Many of these companies have, until recently, made shoes on contract for the market leaders. And while the vast majority still make unhip, low-quality shoes and clothing, a handful are coming on strong. Anta, based in Fujian Province, and Qingdao-based Double Star both outsell Nike, Adidas, and Li-Ning in volume, though their prices are a fraction of what the leaders charge. Anta is also sponsoring the China Basketball Assn. for the second year running, which will raise its profile.
For now, though, these brands aren't close to competing directly with the top dogs in the market -- which leaves Li-Ning to carry the Chinese banner in the competition for shoe supremacy. "Li-Ning is a very competitive, very powerful brand," says Shen Min, a manager at Beijing market researcher Horizon Key. "We think it already is as competitive as Nike and Adidas" in China. Back on Wangfujing Street on a gusty winter day, 18-year-old Wu Dizhou would agree. Skipping the Nike and Adidas outlets, Wu makes a beeline for Li-Ning, where he drops $45 on a windbreaker and a sweatshirt and says he'll return soon for a pair of basketball shoes. "Li-Ning should spend more on advertising so the whole world can know about this high-quality brand," says the student. You can be sure Li-Ning -- as well as the other combatants in the Chinese shoe wars -- won't disappoint him.
By Dexter Roberts in Beijing, with Stanley Holmes in Seattle