Sports goods maker takes on battle by beefing up its designer clothing

After years of fighting the big-name endorsements game with Nike and other budding local brands in the Chinese sports goods market, adidas AG has turned to fashion as its trump card to woo young, cash-rich consumers.

The company's annual report for 2010 showed that its global revenues hit 11.99 billion euros with an increase of 15 percent year-on-year, but they only grew by 3 percent to 1 billion euros in China.

Adidas CEO Herbert Hainer speaks at a news conference in Herzogenaurach, Germany, last month. The company's revenue hit 11.99 billion euros in 2010. [Guenter Schiffmann/Bloomberg]

Instead of competing purely on technical matters and street credibility, adidas has been trying something different.

Colin Currie, managing director of adidas Group Greater China, says that China is a unique market in which the level of sports participation is relatively lower than in the US or European countries. However, Chinese consumers are very passionate about fashion.

"We have decided to put a big emphasis on the development of the adidas product line Sport Style to satisfy the fashion appetite of Chinese consumers," he says.

The company offers products from two different divisions across the globe: Sport Performance and fashion-driven Sport Style, with sub-brands of Originals, NEO, Y-3 and SLVR.

The market competition in China has become more complicated and broader, not only with old international rivals and local players, but also new fashion brands have created more pressure by squeezing market share, says Currie.

"I think that adidas' diverse product portfolio with professional sports technologies and experience would be our major advantage to maintain leadership." he says.

The post-80s generation has become a major force driving consumption in China's urban areas, according to a survey by market research firm CTR.

A report by Bergstrom Consulting found that 15- to 25-year-olds in China want to be more individual and are far more fashion-conscious than their parents.

Currie says: "I think we are already a premium sports brand with a strong sense of fashion and taste to handle competition for young consumers in China, while adidas Sport Style is now a significant contributor to the group's development."

A seven-year cooperation with English fashion designer Stella McCartney has been well received by Chinese fashion-savvy consumers.

Adidas is also prepared to battle local sportswear brands, which offer consumers considerably lower prices.

Established in 2007, adidas' sub-brand NEO is a sport-inspired brand for fashion-conscious youth. On average the products cost half of the Sport Performance line and about 100 yuan (10.5 euros) more than local brands.

NEO has opened more than 600 stores in China. Herbert Hainer, chief executive officer of adidas Group, said previously that he hopes to open 200 more in the near future.

Hainer predicted NEO along with the other brands of Sport Style would account for 30 percent of adidas' whole business in the coming five years.

Hainer also claimed that the revenue of adidas Sport Style line would achieve 21 percent growth in 2010, compared with the company's 15 percent rise in revenue globally.

Having changed its slogan to "adidas is all in", the company launched its largest marketing campaign in history in late March in a bid to showcase all its product lines and get closer to its consumers.

Currie said that its business outlook in China is very optimistic and the company is planning to open 2,500 new outlets with most of them located in third- or fourth-tier cities.

By the end of 2010, adidas had opened 6,712 stores in China compared with 5,650 in 2009.