Adidas's "China Embarrassment" Reconstruction Is Imperative.

In the global economic recovery and the strong rebound in the world cup in South Africa, Adidas's China business has become the only regional market with negative growth in its top six markets.

The discordant sound of prosperity -- the decline of Chinese business seems to be a continuation of Adidas's "embarrassment" in China in the past two years.

Negative growth of China's performance

In the early August,

Adidas realized revenue of 5 billion 590 million euros in the first half of 2010, an increase of 11% over the same period last year. Almost all regional markets have achieved two digit year-on-year growth.

Its sales of soccer products are also expected to reach a record 1 billion 300 million euros this year.

However, the Chinese market, which is regarded as a profit depressions, has been retrogressive, and the income has decreased by 16% over the same period last year. It has become the only regional market with negative growth in the top six markets.

Adidas announced that this is because the Chinese market needs to be processed.

Obviously, the negative growth in the Chinese market is not a common phenomenon. As an emerging market, China has been the engine of many European and American brands for global growth for many years, maintaining double-digit growth ahead of the world and contributing a lot of profits.

Therefore, for Adidas, China is absent from the global market recovery, which indicates that the channel problem triggered by inventory Adidas two years ago has not been fundamentally solved.

Inventory dilemma

Adidas's "China embarrassment" began in 2008.

Before the 2008 Beijing Olympic Games, Adidas CEO Herbert Heiner said that after the Olympic Games, Adidas's target was to sell more than 1 billion euros in China in 2010.

China will also become Adidas's second largest market in the world.

Adidas has mistakenly amplified the market demand for the overly optimistic estimate of the Chinese market after the Olympic Games and the insufficient estimation of Lining's local brands' ability to "catch up" in the Beijing Olympic Games.

The resulting increase in inventory has a direct impact on Adidas's sales performance.

Herbert Haina's goal can not be realized. In fact, in the first half of 2010, China's market has slipped to the sixth place in Adidas global market.

By mid 2009, Herbert Heiner was trying to announce Beijing on the occasion of the first signs of recovery in the global economy.

However, information from Adidas agents shows that the problem is becoming more complicated.

In order to clean up the stock, agents want to reduce sales, while Adidas is more concerned about brand image and disagrees with price cuts.

The problem of inventory "rises" to the "conflict" with distributors and the "discussion" on the suitability of the agent mode, and then directly promotes Adidas's "merger" of China's channels.

Statistics show that in 2009, Adidas closed at least 200 stores.

In the end, the great changes in the channel directly affect Adidas's China performance.

It is reported that in 2009, Adidas's distribution business in China dropped by 20%, while retail sales soared by 57%. The decline and growth rate were the global top of Adidas in the same year.

Despite the gratifying growth of retail business, it is still difficult to fill the "decline" of Adidas's China business, which is dominated by agent distribution mode in a short time.

By 2010, Adidas did not achieve the goal of Herbert Haina's "resumption of growth momentum". At least from the first half of the year's performance, the Chinese market has become the only regional market with negative growth in the top six Adidas markets, with a year-on-year decrease of 16% in revenue.

Channel war

If the decline of Adidas's China business in 2009 is attributed to the inventory problem, then, by 2010, the negative growth of Adidas's business in China can be regarded as the price that must be paid for the reconstruction of the sales channel system.

"The reconstruction of the sales channel system has not yet been completed, which is one of the main reasons for the poor performance of Adidas China."

Relevant analysts said that in 2010, trapped in the reconstruction of the channel, Adidas did not create new stores in a big way, resulting in the failure to rapidly improve its performance. "Therefore, inventory may only be a catalyst for detonating Adidas channel problems, and the key to the development of Adidas's Chinese market is to effectively restructure the channel system."

In order to control the channel more effectively and gain higher profits, Adidas has been in the trend of direct operation after entering China for so many years.

For Adidas, in the past, agents became more and more powerful, so that they did not want to see that China's channel was finally controlled by several channel operators. "Thus, the emergence of inventory problems has become a" channel reform "fuse and one of the best reasons.

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At present, Adidas's agents such as BELLE and Daphne have grown into the leading force in the Chinese market. Adidas is hard to control them very well when they first entered China.

For example, after the inventory problem, Daphne had been negotiating with Adidas, hoping to bring down the volume of goods, Adidas felt the pressure from the large channel business.

In terms of price, Adidas's strict control over the past is even more difficult.

It is understood that for general suburbs or second tier cities Adidas does not allow discount stores, do not recognize dealers as soon as possible to get rid of the requirements of inventory pressure, at the same time, require second line wholesalers to take 40 percent off of the price.

In the past, dealers were relatively well controlled in the weak stage. However, the growth of dealers and the enhancement of bargaining power have made Adidas face greater pressure in related operations.

Adidas needs to weaken its reliance on growing channels.

The emergence of inventory problems exacerbated the game between Adidas and channel providers, and directly promoted the decision of Adidas to rebuild the retail channel system.

Since 2009, Adidas has embarked on the reconstruction of retail channels.

Some of the dealership's dealership has been recovered, including some of the distribution rights of BELLE, the first largest distributor.

BELLE has announced that in order to curb the declining trend of the brand performance of the agency, it will make a decision to close the store.

Daphne International reported last year that it will withdraw from Nike, Adidas's two brand clothing agency business.

In the six months of 2009, Daphne closed 21 agencies. At present, there are only 107 Daphne Adidas sales outlets.

The "right of acceptance" of agents directly impacted the retail system of Adidas's Chinese business in the short term. While a large number of shops were closed, new channels were still being rebuilt, which directly caused Adidas's continuous decline in China's business performance in the first half of 2010.

Thus, for Adidas, inventory is no longer the best explanation for the decline of China's performance. The effective integration of retail channels and the cycle of reconstruction will be the key to whether Adidas can get out of the mire.