After Admitting To Mistakes In China, Can Adidas Make A Comeback? | Jing Daily
While many global companies blame store shutdowns for plummeting sales in China, Adidas admits its problems run deeper than COVID-19. In the second quarter, the German sportswear giant saw revenue drop 35 percent in the market, dragging operating profit down 28 percent and marking a fifth consecutive quarter of losses in the world’s second-largest economy.
In an interview, CEO Kasper Rørsted acknowledged that Adidas had made mistakes there: “We don’t understand consumers well enough, so we left room for Chinese competitors who are better off.” Rørsted then announced a premature departure from his post on August 22, adding to concerns over the group’s future.
However, Adidas remains one of the top five most valuable apparel players in the world, with its brand value rising 2 percent to $14.6 billion (100 billion RMB) in 2022 according to Brand Finance. In fact, its DTC channel actually grew 12 percent in Greater China in the three months ended June 30, which, although not enough to offset brick-and-mortar declines, points to sustained demand. Its No. 2 ranking on Tmall for sports sales during the recent 618 Festival adds more color to this complicated picture.
With a strong e-commerce business, where is the sneaker maker missing the mark? And is there any hope for a comeback?
Bigger problems than the pandemic
In an earnings call, Rørsted noted that as a result of 80 Chinese cities being partially impacted by lockdowns earlier this year, the brand was seeing “cautious consumer behavior.” In July, store traffic fell 21 percent year-over-year and continues to be “well below normal levels.” Inventory build-up, coupled with rising supply chain costs, further hindered the corporation’s profit rebound.
But while these challenges weighed heavily on many industries, sportswear faced some unique setbacks. Like Nike (which recorded its third consecutive quarter of falling revenue in the country), Adidas was hit by consumer backlash from the Xinjiang cotton incident and lost key celebrity ambassadors. Amid heightened nationalism, Chinese rivals quickly gained ground; in the first half of 2022, Li-Ning’s revenue jumped 21 percent to $1.8 billion (12.4 billion RMB).
Elsbeth van Paridon, founder of The China Temper, a website exploring the mainland through fashion and urban culture, explained that the Xinjiang debacle may not deter longtime fans, but “small local brands have a lot more designs to offer, they are cheaper, and their quality is definitely on the up.” Allison Malmsten, Marketing Director at Daxue Consulting, echoed this sentiment, adding that “Adidas is known to have decent quality, but for the price point being so much higher than local brands, there’s really not much room to let quality slide.”
Even within the sportswear category, there are difficulties that come with being known for athleisure versus professional sportswear. “Adidas stepped away from their ‘Impossible Is Nothing’ award-winning branding when they placed a high weight on their athleisure lines by venturing into sub-brands specifically created to capture the athleisure category, and focused heavily on celebrity-driven influence,” said Humphrey Ho, Managing Partner at Hylink Digital Solutions USA.
“The consumers that Adidas attracted love athleisure wear and are part of the younger demographic, but are difficult to retain. They are often located in lower-tier cities with less income and are perceptible to public opinion,” he continued.
Building upon a solid foundation
But it’s not like Adidas is a rookie in the market. Since opening its headquarters in Shanghai back in 1997, it has expanded to 12,000 outlets and managed to achieve a remarkable 23 consecutive quarters of double-digit growth until the end of fiscal 2019. If anything, the brand has gone the extra mile to reach Gen Z communities, from dropping new products for China to hosting cutting-edge digital events.
Just look at its localization. Though it may not be as immersed in guochao (national trend) as its Chinese counterparts, Adidas has sought out a range of homegrown partners, from streetwear outfit Melting Sadness to ceramic studio Yeenjoy Studio. When asked about his experience collaborating with the Three Stripes, Yeenjoy Studio’s founder YiRan remarked that Adidas gave him plenty of room to play. “The added ceramic style is a strong traditional Chinese element, and through the Adidas Originals platform more people could see Chinese creativity and design.”
The 73-year-old company has also stayed ahead of digital trends. In May, Adidas Originals teamed up with Tencent Music Entertainment to host a virtual avatar rap concert featuring Jay Park and MC Jin that attracted over 7 million views. It then ventured into virtual clothing for Tmall Super Brand Day in August and attracted a record high proportion of membership sales. Emphasizing double-digit growth online, a brand spokesperson told Jing Daily, “We are accelerating our efforts to build local and direct connections with the Chinese consumer.”
Rising to the challenge
As Adidas continues to invest in the region, it is clear the brand is playing the long game. “By now, a third of the products we sell in China are created in our local creation center in China,” the label stated. “We are committed to further developing its presence in the China market to…make a real difference in their Game, Life, and World.”
In the meantime, there are areas for improvement. According to Ho, “[Adidas] should consider sub-culture branching (with one brand), up-marketing with their existing license agreements, or simply work on collaborations with genre influencers.” Malmsten suggested distinguishing itself from domestic names — who “have a leg-up with the casual athletes and streetwear consumers for being ‘cool’ national symbols and being more affordable” — by positioning itself as being for more serious athletes.
Adidas has its own plans for growth, too. For one, a new CEO could help pave the way for a restart in 2023 and work with the Greater China managing director Adrian Siu to bring new energy to the region. In the earnings call, Rørsted also mentioned elevating the firm’s lifestyle offerings via high-end collaborations; rebuilding its brand portfolio with small-scale cultural partners; leveraging hype around the Fifa World Cup and other big commercial moments; as well as setting up additional temporary outlets in lower-tier cities to meet demand there.
Expected to take a 400-million-euro (2.7 billion RMB) hit this year to clear excess inventory, Adidas is cognizant of the uphill battle ahead in China. But with localized strategies at play, a slew of shopping festivals and events to come, and new leadership being sought, perhaps a turning point is just up ahead. Whether it will simply survive or thrive is up to the brand.
Source Credit: This article originally appeared on Jing Daily by Jing Daily. Read the original article - https://jingdaily.com/adidas-china-kasper-rorsted-comeback-strategy/