Sports brand Adidas channel is king's quick counterattack

Why is Adidas, who has suffered a greater crisis than its rivals, getting out of the woods with no detail adjustments?

A year ago, the Spanish team (sponsored by Adidas) became the eighth World Cup champion in history. At this time, there were not only Spaniards but also German employees working at the Adidas headquarters—although the German team had just been Spain eliminated the game. This trophy shattered the possibility that Nike's team would achieve three consecutive championships in the World Cup (in 2002 and 2006, Nike sponsored Brazil and Italy won titles).

The financial crisis in 2008 slowed the growth of the global sporting goods market. At a low tide, Adidas needed such a landmark victory to fight against rival Nike. Its 2010 semi-annual report was also quite encouraging. In the first half of the year, it achieved a total revenue of 5.59 billion euros, an increase of 11% year-on-year. Almost all regional markets have achieved double-digit growth. With the World Cup, its football product sales reached a record 1.3 billion euros.

However, in the Chinese market, the news is frustrating. At that time, reports on the declining sales performance of Adidas Greater China were invariably heard, and the former star market was dragging its feet. In the first half of 2010, China’s market revenue decreased by 16% year-on-year, making it the only region with negative growth in its top six markets. Even worse, Adidas not only lags behind its old rival Nike in the Chinese market. Since 2009, it has even been replaced by another old rival, Li Ning, in the second place in China's mainland market share.

However, only six months later, Adidas equalized the score. According to the 2010 financial report, the sales volume of Adidas mainland China is about 1 billion euros, which is close to Li Ning's 2010 sales. At that time, Li Ning transformed itself into a “bad news clerk”: Closed 500 stores, and the sharp decline in orders in the first and second quarters of 2011, and other bad news continued to spread. Adidas is gaining momentum when its earnings report for the first half of 2011 was announced (Greater China's operating income for the first half of the year was 552 million Euros, a year-on-year increase of 38%, leading the rest of the world), Adidas Greater China Managing Director Gao Jiali emphasized that the increase in comparable sales revenue in Greater China has exceeded that of the "major competitor." The Li Ning Company issued a profit warning and said that in the first half of the year, the Group’s sales revenue was down 5% from the same period of last year, and the net profit rate would be reduced by half from 12.9% in the same period of last year.

The channel is king

For Adidas, it was only the start of a long nightmare in the summer of 2008 when Li Ning stared at the Olympic torch as a trapeze. Subsequently, news about the inventory of Adidas dealers began to accumulate. Afterwards, Adidas admitted that its estimate of China's "post-Olympic market" was too optimistic.

"This is not a problem for the Adidas family. Many of our colleagues have the same problem," said Gao Jiali, managing director of Adidas Greater China with a baby face. In fact, 2009 was a difficult year for many sportswear brands. Nike shut down its only factory in China to reduce production pressure. Due to a slight profit, Daphne, one of Nike and Adidas's main channels in China, made the decision to withdraw from the sporting goods agency. At the same time, Belle, the sports retailer representing the two major brands, had to close more than 300 stores.

The crisis is also the best reason to change. In 2009, Adidas made a fundamental adjustment to the global architecture. Changed the headquarters of the past continents, reduced the level of management, and re-divided the global market into six regions based on market characteristics: Western European market, European emerging market, North American market, Greater China market, other Asian markets, and Latin American markets. In addition, Adidas launched channel changes around the world and paid more attention to the establishment of self-operated stores. The reason is that in 2009 Adidas Wholesale (distribution) business gross margin was 41.6%, while the retail business gross margin was as high as 58.6%. Obviously, retail businesses that exist in self-operated stores should be vigorously developed.

However, change channels and increase self-operated stores - this common command for the global market is somewhat subtle in Greater China. “We hope it will grow at the same speed as our franchise,” Gao Jiali used cautious language to negate the possibility of “increasing the proportion of self-operated stores throughout the channel”.

The reason for his cautiousness is that Adidas China, which has just streamlined the channel relationship, does not want this relationship to be destroyed again.

In fact, looking at the adjustment made by Adidas China in the past two years in response to the crisis, there are actually only two things: contraction and price cuts. All this is related to the adjustment of channels and dealers.

First, adjust the dealer team, allow some dealers who have lost their cooperation enthusiasm to withdraw from the adidas system, and patiently help them with cumbersome exit procedures. Second, help dealers willing to work with Adidas to overcome difficulties. To this end, Adidas has finally changed its strategy of not reducing prices and discounts for its main brands, allowing distributors in certain regions to open discount stores to digest inventory. Even in some cities they are allowed to open discount stores a few hundred meters from their flagship stores. In Beijing, promotions have been done in some residential districts along the subway in Tongzhou District. “In the second half of 2010, we also made a strategic decision to reduce inventory levels to a more healthy and stable level by adopting an 'inventory exchange' approach that allows our channel partners to put their old Our stock has got our new stock."

In this way, the "sale rate" of products that Gao Jiali valued in the market has greatly increased. "So from the second half of 2010 to 2011, the comparable sales growth rate of our stores has greatly exceeded that of our competitors." It is self-evident who is the competitor.

Adidas paid the tuition fee and experienced the channel's rebound ability. Li Ning seems to be insufficiently prepared for this.

In June 2010, Li Ning launched a rebranding campaign and kept it highly confidential, leaving all dealers blindfolded and knowing that a large number of new LOGO-branded products will go undisclosed. Dealers will “fade out” the old Li Ning products that have placed orders, and they are neither psychologically nor financially prepared. This directly led to the distrust between channels and brands. At the end of 2010, the order volume of Li Ning's 2011 quarterly sales orders fell sharply.

In analyzing the reasons, Zhang Zhiyong, Li Ning's CEO, attributed to two points: First, the sluggish retail environment in the sporting goods industry led to more conservative dealers' expectations; second, it was due to the over-reliance on the pattern of dealers opening stores to promote growth. Is not sustainable.

Industry insiders believe that Zhang Zhiyong's analysis of the reasons is debatable. The reason is: The macroeconomic environment for the sale of sporting goods in 2010 has improved from 2009. Li Ning was able to surpass Adidas by growing in the most difficult year of 2009, but it started to fall behind when the market recovered. It is clear that there are market rules.

On the other hand, in the current sportswear market in China, dealers are still the most important market forces that cannot be ignored. Especially if you want to go deep into the third and fourth tier cities. According to industry insiders, Li Ning currently has more than 8,000 stores nationwide, of which 500 flagship stores operate from top to bottom, and the main function is to display products. The remaining stores are held in the hands of more than 2,000 dealers. These are large-scale professional stores. The distribution channel to the husband and wife shop is still the most important profit transmission belt of Li Ning.

In dependence on distribution channels, Adidas Greater China is no different from Li Ning. Therefore, even if the global headquarters repeatedly emphasizes the importance of self-operated stores, Adidas China is also consistent from top to bottom, not to mention "to increase the proportion of self-operated stores," but stressed that the two should be coordinated development. Taking a look at wisdom and wisdom, Adidas's respect for China's distribution channels is evident.

Adidas is not unaware that there is a risk of "over-reliance on" distribution channels. But this risk is not simply "shock therapy" can be resolved. Increasing the channel type is a solution. Adidas authorized Taobao to open an online store in August 2010, which is a way to enrich channels. The more central issue is how to cultivate channel loyalty and real control over the channels.