Nike And Adidas Fought The Idea Of The Two Or Three Line Market.

Last month, at Nike's 2010 fiscal year conference call, Nike brand President Charlie Denson (Charlie Denson) said that the company did plan to enter China's second tier, three line or even four line cities, and will launch the NIKE series of different low price products at the same time, consider buying or introducing some other brands.

Previously, Nike has just announced a "Five Year Plan". It is estimated that the revenue of Greater China will grow by more than 10% annually.

Such an industry as a radical development plan is considered to be the symbol of Nike's upcoming two or three line market in China.

In fact, Adidas, after the crisis of last year's Olympic inventory crisis, has taken a more substantive action on the two or three tier market.

"Before September 2010, all the Adidas teams that have been put in various regional markets to work closely with distributors will be in place."

Du Bairui (Christophe Bezu), the new managing director of Greater China in January 2010 of Adidas group, said in an exclusive interview with the domestic media that Adidas would be more concerned about the potential market of the two or three tier cities in the next 3 to 5 years than the expansion of the first tier cities.

It is understood that most of Adidas used to hand over the operation of these cities to distributors.

Now, Du Bairui decided to let Adidas's team control these markets in person.

At the same time, the management method needs to be "more Chinese". In his understanding, Adidas's localization is not only faster and deeper, but also needs more dimensions: for example, recruiting more local staff, interacting with the government more closely, sending more managers to actively communicate with local distributors.

Local brands such as Lining and Anta, while consolidating the two or three tier city market, also hit the first tier cities that were originally part of the foreign investment front. In the streets of Beijing, the flagship stores of Lining and Anta have exerting their strength.

This is exactly one of the reasons why Du Bairui continues to open shop in China's three or four line cities: the advantages of the first tier cities are being diluted. If there is no expansion, Adidas will lose the opportunity to enter the two or three line market.

Narrowing the price gap between Chinese and foreign brands

Price is still the decisive factor that affects the big two or three domestic market.

Analysis of the industry, at present, the two or three line market can best adapt to the price of 170~250 yuan, while Nike's domestic sales price in the range of 400~1000 yuan, there is a certain distance.

He Ruibo, executive director and chief financial officer of XTEP, said that Nike has been developing in the mainland for more than 10 years, and is well aware of the demand for high-end products by mainland consumers. It is also clear that low-end products are not the source of Nike's profits. Therefore, it is not considered that the two or three tier cities are the main direction of Nike's future. At the same time, it is estimated that Nike will not launch too many products mentioned above.

For brands, price cuts can be regarded as an adventure: If profits are thinner, they will also damage the image of high-end positioning of foreign giants.

Nike's low price strategy faces at least three hurdles.

First, Nike's suppliers must produce cheaper shoes, but at the same time maintain profitability. Two, how to mobilize Nike dealers in two or three line cities to increase the enthusiasm of the distribution shop, three is how to launch low-priced products at the same time, does not affect its high-end image in China.

Previously, the contradiction between Adidas and the dealer came from the issue of price reduction: the backlog of Olympic product inventory, the dealer to reduce empty inventory, at all costs, but Adidas afraid to hurt the brand, had to intervene in force.

But Du Bairui, the new president of Adidas China, seems that Adidas must first solve the root cause of the two or three line cities.

In this arrangement, he decided to take a risk in reducing prices, sacrificing some interests first, and undertaking the pressure that the company could hardly make profits in the short term.

"This sacrifice is temporary."

Du Bairui said, "we do not mind changing the brand image of Adidas in China."

He Ruibo said that local brands have more advantages in the two or three tier cities. On the one hand, the market is more familiar with local brands, and on the other hand, the relevant brands have already had a sound distribution network in related markets.

The XTEP group has more than 6000 outlets in the mainland, covering two or three cities across the country. About 80% of them are exclusive sales group products, and the group gives dealers a larger discount price, so they have considerable competitive advantages.

Together with Lining, XTEP, Anta and other local brands, the total number of dealers in the mainland may reach 20 thousand ~3 10000, plus the discount from international brands to dealers will not be very high. I believe there will not be many dealers who are interested in selling Nike's low price products, while Nike has to find excellent dealers on its own. It is also not easy to do so. In addition, consumers of two or three tier cities are more accepting of local brands. Even if Nike enters the two or three line market, it will not have much impact on local brands.

Domestic brand advantage is still in existence.

According to the relevant data, in the fourth quarter of 2010, the biggest increase of the average orders for XTEP's international sporting goods brands reached 23%, while China's trend ranked second, reaching 20%, Anta 19%, and Lining also had two digit growth.

However, influenced by the US sports brand Nike's recent intention to enter the mainland two or three line market with the help of low price products, the price of Chinese sports apparel manufacturers listed in Hong Kong has fluctuated in recent days.

After the news came out in late June, Chinese sports apparel stocks fell for two consecutive weeks. From June 22nd to July 6th, Lining (02331.HK) fell 14.4%, Anta (02020.HK) fell 10.5%, China's trend (03818.HK) fell 12.7%, PEAK sports (01968.HK) fell 15.5%, XTEP (01368.HK) fell 14.3%.

Until mid July, the above stocks had stabilized.

Nanhua data research predicts that the impact of Nike's price war on domestic first-line brands is far greater than that of domestic two or three line brands. Two or three line brands such as 360 degrees, XTEP and PEAK still have a big price difference compared with Nike. But the competition faced by Lining, Anta and China's Kappa brand will be direct and cruel.

In the future, Nike's low-end products will affect the sales of these brands to a large extent.

However, there are also a number of agencies' analysis reports that the distribution system will become a bottleneck restricting Nike's low price offensive. "In view of the higher initial investment requirements and the lower profit margins of foreign brands, some mainland distributors may not be willing to take risks. Nike and Adidas will find it very difficult to find local distributors in the two or three tier market in the mainland".

With the growth of mainland labor income, the sales of domestic sports goods and clothing will be promoted, so the prospect of domestic sector is not pessimistic.

"In some small cities in China, you only have to see a Nike store, and there will be 2~3 Anta and XTEP around."

Analysts believe that the two or three tier cities are the main battleground of domestic brands and the cornerstone of enterprises.

If you feel that the international brand has the meaning of channel sinking, the price and marketing resistance of domestic brands will be quite fierce.

International brands may not be cheap enough to compete.