Third and fourth-tier cities will become the main battlefield for international shoe giants

At the recent Nike investor exchange meeting, how to develop the third and fourth-tier cities in mainland China is a hot topic frequently asked by Nike executives. About half of Nike’s Greater China region’s revenue comes from 20 top cities. In the broader third-tier cities and below, there are still quite a few places that are blank.

However, in developing specific strategies for third- and fourth-tier cities, Nike executives seem to be deliberately keeping a vague, often indefinable, and Nike's old rival Adidas is even more ambitious.

In November 2010, Gao Jiali, the newly appointed Managing Director of Adidas Greater China, disclosed to reporters the development strategy of Adidas' mainland market in the next five years. Small and medium-sized cities, that is, third-tier cities and below, will be the focus of Adidas' future business.

Gao Jiali said that by 2015, Adidas plans to open more than 2,500 stores, mainly in small and medium-sized cities in the Mainland. After the completion of the project, the number of cities covered by Adidas stores will increase from the current 550 to more than 1,400.

In December 2010, Nike brand president Charlie Denson said at Nike’s 2011 fiscal second quarter earnings conference call that Nike will further expand the mainland's third- and fourth-tier markets to maintain continued growth. However, Nike has denied entering the third-tier and fourth-tier cities by lowering the price of Nike brand products. The relatively low-priced brand "Converse" may become the "pioneer" in attacking the domestic third and fourth-tier cities.

The importance of Adidas and Nike in the third-tier and below cities of the mainland was clearly demonstrated after the outbreak of the international financial crisis in 2008. Adidas and Nike entered the mainland market and started testing water in first and second-tier cities. Through the development of the first-tier and second-tier markets, Adidas and Nike quickly surpassed Li Ning as the overlord of the mainland sporting goods market. The so-called “what if is also Xiao Xiao and Xiao Xi’s”, The international financial crisis that broke out in 2008 has had a great impact on the domestic first- and second-tier markets. However, after this wave of shock waves extended to the third-tier cities in the mainland and below, the shocks have gradually weakened and even fluctuate.

In 2009, Nike and Adidas, the main markets in the first and second-tier cities in the Mainland, were lackluster and even encountered Waterloo. In fiscal year 2010 (June 1, 2009 to May 31, 2010), Nike Greater China revenue was US$1.742 billion, which was a negative increase compared to US$1.743 billion in the previous fiscal year. Adidas’ revenue in the Greater China region in 2009 was 967 million euros, a decrease of 110 million euros compared to 1,077 million euros in 2008.

Li Ning, Anta, Xtep and other small and medium-sized cities in the Mainland are relatively fluent. Li Ning’s revenue in 2009 was RMB 8.4 billion, which represented a year-on-year growth of more than 20%. The industry estimates that in the Chinese market that year, Li Ning’s revenue has exceeded Adidas is about the same as Nike.

The small and medium-sized cities in the Mainland have always been the world of local sports brands such as Li Ning and Anta. Adidas, Nike and other transnational sports brands have long since entered the mid-sized cities and mainland Chinese sports brands in an attempt to compete. Their help is too high, and the purchasing power of small and medium-sized cities Limited, "there is more than enough energy", some opened stores can only close because of lack of interest.

Gao Jiali believes that with the advancement of urbanization in the mainland, the buying power of small and medium-sized cities will increase day by day. Adidas will adopt new strategies to return to small and medium-sized cities so that new stores can be established in these areas.

Supporting the confidence of Gao Jiali is the rapid expansion of adidas' new sports fashion brand “NEO”. Du Borui, former general manager of Adidas Greater China, said that since 2007, Adidas launched the "Adidas Sports Essential" series of "NEO," which is different from Adidas brand's main professional sporting goods. "NEO" or "Adidas Sports Essential" is a The series of sports fashion products caters to consumers in small and medium-sized cities in mainland China.