Adidas Group, the German footwear and sports apparel firm that also owns Reebok, plans to increase the number of its self-owned and branded retail shops on the mainland to 5,000 by 2010 from 3,000 today, according to Asia-Pacific chief executive for marketing and sales Christophe Bezu.

The company is targeting 30 per cent annual growth from China sales and expects turnover to hit 1 billion euros (HK$10.57 billion) in three years.
 
The ambitious goals would put China on par with Japan as the group's second-largest global sales market after the US.

"We are walking with two legs in Asia - China and Japan," Mr Bezu said. "By 2009 or 2010, China will be even bigger than Japan."

Adidas' aggressive introduction of retail locations in the rapidly expanding mainland market aims to strengthen its position against larger rival Nike and local competitors like Li Ning.

Asia accounts for about 24 per cent of the group's sales and profit, and that figure is expected to rise as the company broadens its mainland retail network at a rate of one to two new stores per day.

"The impact of China when it grows so fast is enormous for the region," Mr Bezu said. "We want to be No 1 in China before the Olympics."

Following the completion of its US$3.8 billion acquisition of Reebok in January last year, Adidas now plans to launch a big push for the US brand. The company aims to expand the network of Reebok-branded stores on the mainland to 2,200 outlets by 2010, up from 550 today.

Rivals are also expanding. Adidas and Li Ning each has about 13 per cent of the mainland's sportswear market, against Nike's 30 per cent share, according to estimates by Merrill Lynch.

Li Ning, which relies heavily on retail franchise partnerships, plans to add 500 stores this year, bringing its total to 4,800 locations.

The homegrown player is planning to have 5,700 stores in operation by 2009, most of which will be franchised outlets.

Rising costs and more attractive profit margins are also attracting contract manufacturers into the retail market.

Sportswear manufacturer Win Hanverky Holdings, which derives almost half its revenue from sales to Adidas, plans to expand its mainland retail business by adding 400 franchised Umbro-brand outlets this year for a total of 1,200.

The Hong Kong-listed firm aims to negotiate mainland distribution contracts for foreign labels such as Adidas, Nike and Diadora, according to chairman Roy Li Kwok-tung.

Like other manufacturers such as shoemaker Yue Yuen Industrial, Win Hanverky is widening its exposure to retailing as profit margins in manufacturing shrink due to climbing labour and materials costs.

However, as foreign brands such as Adidas seek to expand their retail footprints through self-owned stores, barriers to entry are likely to increase for local distribution agents and franchise partners, especially in first-tier mainland cities.

"The formats are changing," Mr Bezu said. "There is new competition coming in, not only in the sports industry but also in clothing and apparel, and that definitely changes patterns of consumer attitudes."

"That's our challenge," he said. "It's maintaining the capacity to follow the pace of change and to adapt without diluting your brand." [South China Morning Post]

Editor: Yan