Nike, Adidas and Li Ning in three-way race

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SHANGHAI--China’s sportswear market is a three-way race between two of the industry’s largest global rivals, Nike and Adidas, and Li Ning, which has the home court advantage. So far, no clear winner has emerged, due to the size and diversity of the market landscape, as well as the mercurial nature of teen fashion trends.

Nike’s global dominance and marketing firepower helped it secure the No. 1 position in China several years ago. Exact market share figures are difficult to come by in China, but industry experts believe Nike controls about 30% of the market today, followed by Adidas with 25% and Li Ning in third place with 18%.

Although Nike has less fashion credibility among Chinese teens than brands like Adidas, its brand is aspirational, according to P.T. Black, a partner at Jigsaw International, a youth trend consultancy in Shanghai. “It encourages kids to be strong in character and have the courage to be an individual,” not entirely Confucian ideals.

Like favorite pop stars and actresses in China who are admired for having a strong personality, Nike nearly always comes across as a favorite brand in research surveys--even though many times, Adidas is the brand that young adults end up buying when they go into a store.

Nike is rejuvenating its brand with new advertising that interacts with young Chinese on their own terms, bringing more of its rebellious image to China in a way it hopes will appeal to the rising sense of individualism and personal exploration. The campaign, launched last month, is Nike's first since moving its creative account in Shanghai to Wieden + Kennedy from JWT last year. (See News story, “Nike talks to Chinese kids on their terms,” AdAgeChina, March 15, 2006)

“At its core, the new advertising is on the right track, it speaks to a very real desire by kids to have their own say and style. It’s not individual vs. collectivism, it’s more about having a space for yourself and your own voice in a social context. The campaign speaks to that need very strongly,” said Mr. Black.

Rising incomes help foreign players
The new approach was vital for Nike, because its lead has been slipping as the market matures. Geographically, Nike and Adidas have a stronger position in China’s largest tier one and tier two cities but they trail Li Ning in the smaller cities where the Chinese company has more comprehensive distribution. Also, the price of Li Ning’s shoes and apparel is about half that of foreign brands, a fact appreciated by consumers in smaller cities where disposable income remains low.

This scenario is changing quickly, however, as incomes rise and foreigners become savvier about moving into China’s third and fourth tier cities. At the same time, Li Ning, and even Anta, a smaller Chinese sportswear brand, have become better at appealing to trendsetters in Beijing and Shanghai.

“Li Ning, Nike and Adidas' level of competition in the China market will dramatically heat up this year. These major brands are growing much faster than the industry average,” said Shanghai-based Matt Fish, head of business consulting at Synovate, an Aegis-owned research company.

In the past, Li Ning and Nike's growth plans in China “really employed very different tactics and, for the most part, non-overlapping targets [with] strengths in different customer and geographic segments,” he added, but that’s no longer the case. Also, Adidas "has comparatively more aggressive expansion plans” than its rivals.

To further complicate the market, this battle for market share is set against a ticking clock--the lead-up to the 2008 Olympic Games in Beijing. Not only will the event turn the world’s attention to sports in China, Beijing's successful bid for the Games has been followed by a national fitness plan that will boost consumption of sportswear. There is also an industry-wide prediction that the sportswear market will stabilize by 2010, prompting advertisers to cement their market share stronghold before that date.

Home team player
Among China’s homegrown brands across all categories, Li Ning has a unique position. Most major Chinese companies started out, and often remain, state-owned enterprises. But Li Ning was founded by its namesake, a charismatic Olympic gymnast in 1990, following his 19-year career as China’s first celebrity athlete.

Even though its initial growth spurt relied on its strong distribution network, Li Ning had the foresight to invest in its brand and products as well. It appointed a rising star at Procter & Gamble, Abel Wu, as marketing director and also forged a long term relationship wth Leo Burnett. Both are unusual moves in China, where local companies tend to view marketing as a function of the sales department and work with agencies on short-term project arrangements.

In 2004, following its IPO on Hong Kong’s stock exchange, Li Ning made a clear decision to compete head-to-head with the international players and "has implemented a surprisingly aggressive plan to get there," said Mr. Fish. For example, it has opened concept stores in China's tier one cities, opened an R&D center in Hong Kong to develop products tailored to Asian feet and launched a high-end, expensive range of products.

“Li Ning has proven they have clear intentions to compete directly with Nike and Adidas in their key markets and geographies,” said Mr. Fish.

Earlier this year, Li Ning even inked a deal with the National Basketball Association’s Damon Jones to promote a new shoe series, Fei Jia (Flying Armor), marking the first time a current NBA player has been sponsored by any Chinese sports brand. The ad campaign for the new line, illustrated with a stylized form of Chinese calligraphy that trace the movements of a basketball player, helped Li Ning in one of the trickiest areas of its growth plan.

“Li Ning has been known as a value brand, but recently it has started to move towards global standards in its marketing, product and retail efforts. It's working, kids really like the new Li Ning ads, they are very cool and speak to where they think Li Ning should be, a top-quality international brand rooted in China,” said Mr. Black. The brand still lags behind Nike and Adidas, he added, but it’s becoming “hip. Feelings towards that brand are positive and growing, now that it’s amping up its front edge to be more than just a cheap alternative."

Using Yao Ming differently
Adidas, meanwhile, has captured ground among trendsetters in the top cities by giving a strong fashion element to its product line, including some retro models, as well as innovative marketing from TBWA, Shanghai and the prestige of its Olympic sponsorship. Sales grew 90% in China last year, according to Christophe Bezu, the Hong Kong-based CEO of Adidas's marketing & sales division in Asia/Pacific. (See Player Profile in this issue.)

Starting next month, Adidas will have access to one of China’s biggest celebrities, Houston Rockets’ Yao Ming, following its merger with Reebok. Although the Shanghai native is famous in China, Reebok has not had the marketing muscle to capitalize on its Yao Ming sponsorship within China, where Reebok is nearly invisible.

"We'll find ways to use Yao Ming differently," said Mr. Bezu, "and perhaps put him wth other athletes in ways that will engage him more." He also envisions marketing scenarios in which Adidas and Reebok could literally play each other, as brands.

Alongside the sliding market share and cool factor of the top three players, China could see new brands coming into the market. Besides the expected increase in Reebok's market share, through the merger with Adidas, some smaller brands barely in the market have picked up speed.

“The industry is cyclical because it’s fashion," said Bangkok-based Ian Stewart, founding CEO of a regional research consultancy, Filter Group, now owned by Synovate. Puma and Converse "are dancing around on the fringes. They have potential in China, because the market is getting so sophisticated about trends. The cream-of-the-crop trendsetters have identical sources for content, information and influences as youth in Tokyo, Sydney and London for the first time, through the Internet and better English. They are not six months behind anymore...they know everything now."

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