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Adidas in China

Adidas in China: will the brand bounce back?

Adidas is currently one of the biggest sportswear manufacturers, with a worldwide revenue of USD23.8 billion in 2022. Adidas entered the Chinese market in the early 90s without setting up its own store. The imported products were sold through bigger franchises until Adidas opened its first headquarters in Shanghai in 1997. China has played a key role in Adidas’ production line and profitability since the brand established factories in the country. However, since 2022, Adidas has been losing market share due to a series of events and scandals which seriously endangered the brand’s credibility.

The strategic importance of China for Adidas

Adidas is one of the largest sportswear brands in China, holding nearly 15% of China’s sportswear market share in 2021. In the first half of 2022, Adidas registered an estimated revenue of more than USD1.72 billion from the Chinese market.

Biggest sportswear brands in China by market share
Source: Statista, designed by Daxue Consulting, 2021 biggest sportswear brands in China by market share

One of the keys to the success of Adidas in China is the intricate supply chain distributed across the country. Indeed, due to the low costs of production and cheaper cost of living, China represents a goldmine for the brand. In their 2022 primary supplier list, 78 out of more than 440 suppliers are located there.

However, over the past year, Adidas has registered a drop in profitability. In the first quarter of 2022, the brand registered revenue of USD 327 million, which was a 38% drop as compared to the same quarter in the previous year. The situation is alarming for the brand as up to 20% of the company’s worldwide sales came from China since 2021.

The reasons why Adidas is losing market share in China: Guochao, zero-Covid policy, and the cotton crisis

In the second half of 2022, Adidas CEO Kasper Rorsted estimated losses of revenue of more than 35% in the Chinese market. He declared that such a steep drop was caused by the brand’s mistakes. For instance, the struggle of keeping up with the local brands, the failed recovery after the zero-covid policy, and the scandal of Xinjiang cotton.

The Guochao trend is especially evident in the sportswear industry, as young Chinese consumers prefer buying local brands rather than western sportswear brands. In August 2022, the local firm, Anta, overtook Nike and became the biggest sportswear brand in China with a revenue of more than USD 3.79 billion. Li-Ning, another Chinese firm, also registered revenue of USD 1.76 billion against Adidas’ USD 1.72 billion, pushing the German brand out of the podium.

Zero-Covid Policy and the Xinjiang cotton crisis dragged Adidas’ sales

The zero-Covid policy has been a big problem for Adidas. In 2022, the company had to deal with closed shops and rising costs. In particular, the general lockdown which paralyzed China for the last few years resulted in the desegregation of the complex system of supply chains built up by the German brand. The disrupted supply chains cost Adidas a loss of USD 427 million in the first quarter of 2022.

The brand also had to face severe consequences concerning its stand in Xinjiang cotton. Adidas acknowledged its international markets that their cotton supply chains will be revised due to the alleged forced labor claims. Meanwhile, the Xinjiang region represents a key factor in the development of Adidas and other sportswear brands in China since it is responsible for more than 80% of the total Chinese cotton production. In May 2022, researchers still found traces of Xinjiang cotton in Adidas’ products. The Xinjiang cotton crisis caused a continued boycott of Adidas in China, and the brand’s market share was dragged down by 24% in Q4 2022.

Adidas collaborates to redeem the brand image

After the incidents that caused the downfall of Adidas in China, the brand is looking for redemption. By the end of 2022, the brand tried to relaunch its products on the Chinese market through a series of marketing maneuvers.

Speech given by the managing director of Adidas China
Source: China Daily, Adrian Siu, managing director of Adidas in China since 2022, gave a speech at Beijing’s Literature and Art Foundation

On November 4th, Adidas stipulated a strategic operation agreement with the Chinese Literature And Art Foundation. The date of the deal was memorable, it marked the 50th anniversary of the beginning of the diplomatic relations between Germany and China, and the 25th anniversary of Adidas’ entry into the Chinese market.

The German group aims to expand its shops, especially in lower-tier cities, following the growing demand for sports products from young Chinese consumers. These markets represent a big part of the Chinese economy since 68% of the total Chinese population lived in these cities. Through these strategies, Adidas hopes to redeem itself from the cotton scandal and reclaim its Chinese market share after the crashes due to Covid and the rising trend of Guochao.

Adidas relaunches the brand following China’s football fever

Adidas' “New Year Buff” campaign
Source: Weibo, Adidas “New Year Buff” campaign, launched in collaboration with the biggest Western football clubs

Starting in 2023, Adidas tried to regain popularity among Chinese consumers and announced some collaborations concerning football and the Chinese New Year. In January 2023, following the wave of football fever in China caused by the world cup in Qatar, the brand announced the “New Year Buff” campaign. Adidas collaborated with the biggest western football clubs, such as Bayern Munich, Manchester United, and Juventus, and launched a new collection of sportswear. The initiative consisted of commercializing t-shirts with the name of the football clubs rewritten in Chinese characters.

Index of Adidas' hashtag “New Year Buff”
Source: Weibo, index of the Hashtag “New Year Buff” from January 1st to February 1st, 2023 

The official hashtag of the New Year Buff (#新年加霸服#) campaign gained immediate popularity. As of 2023, the announcement post has more than 19 million views. During Chinese New Year, the hashtag became popular again, registering a peak at almost 1.5 million searches. Yet, the popularity of the hashtag flattened immediately after the spring festival.

Adidas and the Chinese New Year collaboration

To celebrate Chinese New Year 2023, Adidas collaborated with Melting Sadness, a brand created in 2013 by the artist Zhang Quan. At the end of 2022, the two brands launched the “2023 CNY” series, a collection of sportswear shoes designed for the Chinese New Year.

collaboration between Adidas and Melting Sadness for the Chinese New Year
Source: Sole Retriever, a collaboration between Adidas and Melting Sadness for Chinese New Year 2023

This special edition of the classic Adidas Superstars came in 2 different versions, inspired by the traditional Chinese dragon and lion dance as well as the zodiac animal of the year – the rabbit. Melting Sadness launched the official hashtag “#2023CNY” for the occasion. However, the Chinese market is not new to these collaborations between brands. Indeed, Adidas started to collaborate with Melting Sadness back in 2017 and became one of the top Chinese collaborators for the German brand. Therefore, the collaboration did not bring much novelty value and its official post registered less than 3,000 views. Adidas’ recent collaboration campaigns in China highlighted the complexity of regaining interest and trust among Chinese consumers. 

Adidas in China: a brand seeking its redemption

  • Adidas is one of the biggest sportswear companies in China, registering more than USD 1.7 billion in revenue each year.
  • China represents a key factor for Adidas due to the enormous supply chain system which the brand has created in the country over the years.
  • Starting in the year 2022, Chinese sportswear consumers lost interest in Adidas due to the Guochao trend and the Xinjiang cotton crisis. Hence, Adidas lost its market share and profitability in the Chinese market.
  • At the end of 2022, Adidas tried new marketing methods to reaffirm the brand in China, starting with the agreement with the Chinese Literature and Art Foundation along with the collaboration with local brands.
  • Riding the wave of the new trends in the country, Adidas in China launched a series of collaborations concerning the World Cup and Chinese New Year 2023. While the first one gained popularity in Chinese social media, the official hashtag of the second didn’t reach the same level of success.

Author: Lorenzo Linguerri

Read about China’s youth sports market