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Athletes competing at this summer’s Olympics are fighting for a trip to the medal stand. For Nike and Adidas, the Beijing games are a brawl for 21st century dominance of the sneaker world.
While every Olympics is a dogfight for the longtime rivals, this year’s games are a bigger deal. Beijing’s the doorway into a vast new market. There are 2.6 billion feet in China, most of them without sneakers. Both companies expect the country to be its second-largest market, after the U.S., within a few years. “It’s the ultimate land grab,” says Swangard. “There’s been no other Olympic year in this kind of growing market.”
For Adidas (other-otc: ADDDY.PK - news - people ), it’s especially important. After an ill-fated 2005 deal for Reebok failed to juice Adidas’ results, the three stripes finds itself increasingly marginalized by the swoosh. Adidas sees this summer’s Beijing Olympics as a way to make up ground.
Adidas will supply apparel to athletes, staff volunteers and technical officials, plus sponsor interactive Internet gaming featuring several Chinese athletes, to place its brand in front of the crowd. Nike’s (nyse: NKE - news - people )gone another way, focusing, as usual, on sponsoring specific athletes. “Nike has never had to be an ‘official sponsor’ to make inroads,” says Paul Swangard, managing director of the Warsaw Sports Marketing Center at the University of Oregon. Adidas paid approximately $100 million in cash and merchandise donations for the partnership rights, according to various reports.
Despite the relative strength of Germany-based Adidas in Europe and weakness in Nike’s flagship U.S. market, Nike has expanded its global lead over its rival over the past three years. Nike’s 36% worldwide market share dwarfs the 21.8% share for Adidas, according to Sporting Goods Intelligence. Adidas has been consistently dragged down by the once-mighty Reebok brand, which contributes about 6% to its parent’s total.
Yes, the deal brought some volume savings by letting Reebok piggyback on Adidas’ production infrastructure. The company has also successfully pruned its distribution network, getting out of discount stores that slashed the brand’s image along with its prices. But, notes industry expert Barbara Smit, author of The Sneaker Wars, there’s still the matter of re-launching the brand and growing sales. “So far, we haven’t seen any results,” she says.
By the time the games begin in August, Adidas plans to have 4,000 exclusive stores in the country, including a 10,000-square-foot palace in Beijing. Nike has close to that number of stores as well, in a country where a dearth of general sportswear chains like Foot Locker (nyse: FL - news - people ) make building your own outlets necessary.
The problem for Adidas is that,while it’s staked out its turf as an official sportswear partner, Nike has more top athletes. They include Swiss tennis ace Roger Federer and Australian track star Craig Mottram, along with old standby basketball legends Kobe Bryant and LeBron James.
The fact that Nike’s athlete’s aren’t guaranteed to win at the games means there’s risk in going the performance route but also bigger payoff if they do. And to make local inroads, the company has signed up 22 of China’s 28 sports federations to outfit most of its athletes. That means even Yao Ming, the Chinese marketing sensation who plays for the NBA’s Houston Rockets, will be outfitted in a Nike basketball uniform despite a personal deal with Adidas’ Reebok unit.
The deal is just one of 40 that Nike signed with various national federations, including the U.S, Germany and Russia, ensuring that team members will be decked out in Nike gear during play regardless of where they have their individual endorsements.
So for many of 3,000 athletes in the Adidas stable who will compete in Beijing [about a third of the total], donning the three stripes will be limited to the medal stand. During play, they’ll be in Nike gear. Major Adidas endorsers include U.S. basketball star Dwight Howard and Chinese soccer star Ma Xiaoxu.
On the plus side for Adidas, the company’s status as an official Olympic partner shouldn’t subject it to too much risk from the volatile political climate that has protesters shouting down China’s human rights record, Swangard thinks. Because Adidas’ primary objective is building business in China, it can actually benefit from being seen by the locals as supportive of the country.
As Smit puts it: “A high jumper will have a Nike shirt on while jumping, then an Adidas shirt when receiving a medal on the stand. Which would you rather have?”
