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Adidas Investment in China is Paying Off

Adidas huge investment to sponsor the Beijing Olympics, coupled with a vast and rapid retail expansion across the country, is paying off

BEIJING – Adidas’ huge investment to sponsor the Beijing Olympics, coupled with a vast and rapid retail expansion across the country, is paying off with higher profits and a larger share of the domestic market, Herbert Hainer the chairman and CEO of Adidas Group said.

“We are quite happy with our business here in China,” Hainer told reporters in Beijing one day before the opening of the Summer Games, where the company will outfit athletes off-the-field and at medal ceremonies. The company is also outfitting technical officials, Beijing Olympic committee staff and more than 100,000 volunteers stationed around the city.

Though Hainer refused to reveal how much his company has spent on sponsoring the Beijing Games, he said reports of a $100 million investment must be taken in consideration with the massive investment the company has placed all around China in new stores and operations as well. With its big pre-Olympics push, he said, Adidas became the fastest growing sports brand in China in the first half of the year and China has become the company’s second-largest consumer market.

“Overall, I see a lot of positive momentum here in China,” said Hainer.

Hainer also said Adidas has passed Nike as the number one sports brand in China, revealing figures showing Adidas with a 22 percent share to Nike’s 21 percent. Chinese sports brand Li Ning is in third place with 16 percent of the market, according to Adidas’ figures. Earlier this summer, as part of its domestic China push, Adidas unveiled a Beijing brand center that is the company’s largest anywhere, and a package of slick Olympics-related advertising began in China earlier this year.

Hainer also dismissed earlier reports that Adidas would move production out of China because of rising labor costs. He said the company is not closing any factories here and will in fact build some new production facilities. Still, he said, Adidas is opening new factories in Cambodia and India where costs remain low compared with China. The company plans to keep 50 percent of its shoe production lines in China, down just slightly from the amount it has now.

Rather than shutting down production, Hainer said, Adidas will look at increasing factory and logistics efficiency, re-engineering products to be less costly and raising prices on certain higher-end products. Adidas is among the scores of international firms belt-tightening in China to make up for rising costs of raw materials and increased labor costs on the heels of a labor contract law that took effect in January.

For now, the focus remains on expanding the brand’s name and presence within China, for both Adidas and Reebok. Adidas plans to have 4,000 stores in China by the end of this year and 6,100 stores by 2010, while it has 800 Reebok stores throughout the country and plans 1,100 by 2010. The company’s Olympics sponsorship and brand presence are key components to its strategy to reaching out to more Chinese consumers and global consumers, Hainer said.

“What the Olympics do for us is (provide) a showcase to the world that we are the Olympics sports brand,” he said.