Adidas – growth challenges in China

Adidas faces short-term challenges in Chinese market

COVID-19 and the recent Uyghur scandal have contributed to Adidas’ recent negative top-line results. But far more fundamental has been a blend of stagnant product mix and stagnant storytelling, the specialist said, that hasn’t connected with Chinese consumers. “Sometimes, with some of these global western brands, you’ve got these global initiatives or focus areas that a lot of the local team might feel aren’t as commercially relevant and that’s where you see conflicts.”

International and domestic brands such as Nike, Li-Ning, Peaks and Antas are likely to take market share  from Adidas as a result. The specialist highlighted domestic brands as a particular threat to Adidas, with their ability to gather share of wallet for consumers “increasing by the day”. 

Adidas’ Q4 and early 2022 performance are therefore likely to continue to trend downward, we’re told, but should return to growth soon after – albeit at a slower pace than the market. Cutting SKUs and focusing on “fewer, better products” would help Adidas long term, the specialist said, as would increasing its focus on lifestyle, running, basketball and products for women. 

Women’s apparel and custom fitted products are a “massive opportunity” in Asia, but to appeal to more female customers, the specialist said Adidas would need to make “subtle changes” such as promoting more shopping services and creating a better in-store experience.

In-store experiences are still important for Chinese consumers, and the specialist expects both franchise and direct-operated stores to expand, albeit at a smaller scale than before. A high percentage of Adidas’ sales come from these avenues, and while they are important, the specialist said “digital footprint is everything”. Adidas has still “got a way to go” to improve its online penetration, and the specialist said expanding its relationship with Alibaba, Tmall and WeChat would be a good place to start. 

Long term, the specialist expects Adidas to “right the ship” by cutting SKUs and producing more innovative products that connect with Chinese consumers. The specialist speculated that Adidas would need to spend more on marketing to stimulate its position, but that high operating margins are within its reach. However, the specialist warned that the biggest task for Adidas is to find a balance between being “a western-driven brand and a local brand”, something all international labels must reconcile with when doing business in China.

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