Adidas to tap rising middle class in China

German sportswear giant Adidas announced on Monday that it would open more than 2,500 stores in smaller Chinese cities by 2015, aiming to tap the middle class market as rising incomes are expected to boost the company’s growth in the region.

The company is aiming a double-digit growth in China over the next five years.

We have laid out an ambitious five-year plan and expect to grow our business in Greater China by double digits each year. This will lay the foundation to regain market leadership in China by 2015, Christophe Bezu, managing director for Greater China, said in a statement.

With the new expansion plans, Adidas wants to increase to its presence to 1,400 cities from the current 550.

Spending by middle-class consumers in smaller cities of China is likely to pick up on par with their counterparts in top tier cities, said a recent study by the Boston Consulting Group (BCG).

Companies that fail to venture into China’s small cities will miss out on a significant portion of the middle-class growth explosion and leave an opening for their competitors to fill, the study noted.

In the next decades, the population of China's middle-class and affluent consumers, whose annual household incomes exceed 60,000 yuan ($9,016) will nearly triple, from 150 million to more than 400 million, and two-thirds of them will reside in small cities, said Carol Liao, Hong Kong-based partner and managing director of BCG.

The Chinese clothing and footwear market almost doubled in the past five years. Retail sales averaged a growth of 18.3 percent in the first ten months in 2010.

Adidas last week announced a new strategic plan, named 'Route 2015', targeting a compound annual earnings growth rate of 15 percent and grow sales to 17 billion euros ($24 billion) by 2015. The company earned revenue of 10.4 billion euros ($14.6 billion) in 2009.

“Since we launched our first growth initiative back in 2001, we have fundamentally redefined the competitive landscape of our industry and have now created what is universally acknowledged as a global two-horse race. From 2001 to 2010, our sales will have doubled to well over € 11 billion,” said Herbert Hainer, CEO of the Adidas Group.

Half of the sales growth would come from just three of these markets - the United States, China and Russia, Hainer said.

Nike, Adidas, and domestic company Li Ning Co are currently the major players in the Chinese sportswear market.

Nike also made similar plans of increasing its sales to $27 billion by 2015. In the first five months of 2010, it posted sales of $19 billion.