Adidas, Reebok vie against Nike for China market
(Bloomberg)
Updated: 2005-08-09 10:31

Retail Contacts

Nike and Herzogenaurach, Germany-based Adidas both have subsidiaries in China and operate stores with local partners. Canton, Massachusetts-based Reebok sells its wares through distributors, which means it doesn't have direct control of its business.

``Reebok will be introduced to these retailers that are now selling Adidas products,'' said Mark Josefson, a Frankfurt, Germany-based analyst at Kepler Equities who rates Adidas ``buy.'' ``With Adidas behind them, they get a better chance of accelerating.''

The $3.8 billion purchase of Reebok may also allow Adidas to reduce costs and consolidate buying between the two brands. Adidas said it expects to save $150 million over the next three years after the completion of the transaction. If Adidas is successful in achieving cost efficiencies, it'll be in a better position to compete with Nike, said Bob Rodriguez of First Pacific Advisors, Reebok's sixth-largest shareholder.

``Sourcing is a natural combination,'' Reebok CEO Paul Fireman said in an interview in New York yesterday. It doesn't mean there will be less factories for shoes, it just means less administrative stuff.''

400 Million Youths

Adidas shares fell 3.43 euros to 151.45 euros in Frankfurt. Shares of Reebok dropped 18 cents to $56.51 yesterday in New York Stock Exchange composite trading. Shares of Nike declined 72 cents to $84.31.

Annual footwear and apparel spending by the ``urban wealthy'' in China is expected to surge 58 percent to $24.2 billion in 2008 from $15.3 billion last year, Merrill Lynch analyst Virginia Genereux wrote in an October report to clients.

In China, there are 400 million youths or five times the number in the U.S., Nike said. China's 50 million middle-class households are expected to surge to 150 million in 10 years, said Roland Wolfram, Nike's head of Asia Pacific in a June meeting with investors and analysts.

``This is where the growth in the top line and bottom line for these companies would come from,'' Harvard Business School Professor Tarun Khanna said. ``The demographic of Europe and U.S. are further along. It's a place where a lot of young people are coming to the buying population.''

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