Who Controls the Street? Nike and Adidas Escalate Their Fight Over Streetwear Stores

Each of these stores is a world of its own. They used to be mere distributors; now Adidas and Nike are turning them into battlegrounds.

Juice, the multi-brand store Edison Chen founded fourteen years ago, has been open in Shanghai for almost eight years. It is famous in the streetwear world, practically a tourist stop. Young people wander through this townhouse on Julu Road, from the first floor all the way up to the third.

"You touch it, you look at it, you get to know it, and then you leave. You might buy nothing in the end, but it still feels good."

Sixty percent of the stock is CLOT, Chen's own label. The rest is rare pieces from six sportswear brands — Nike, Adidas, Vans, Reebok, New Balance and Puma — plus imported streetwear labels: Fear of God, ALYX, Hollywood Trading Company, names most people have never heard of. To some of Juice's customers, they are "like gold."

"I think of Juice as a kind of library of street culture, or maybe a school, a classroom," says Ginny, who manages the Shanghai store and wears her hair dyed pink. Before she moved to Shanghai in 2004 she was a kindergarten teacher in Hong Kong, and worked in restaurants too. Recently she redid Juice's storefront as a Hong Kong cha chaan teng, pasting the characters for "dry-fried beef ho fun" and "beef rice with a raw egg" across the windows. That sudden sense of being somewhere else entirely, out of place and out of time — maybe that is what "trendy" means.

Catching trends, and to some degree setting them, is the daily business of stores like Juice.

Womenswear is run by a handful of luxury conglomerates. Multi-brand streetwear stores, which sell mostly to men, are ranked differently: the unspoken pecking order inside the scene is usually set by the big sportswear brands. When Nike agrees to put its newest, most limited releases in a store on the same day they hit its own channels, that means something. In Ginny's words, it is a badge of identity: "Juice doesn't need a hundred or two hundred pairs like other stores. We just need ten pairs sitting there."

Only two years ago, Nike alone decided that pecking order. Now 60 percent of the shoes Juice Shanghai sells are Adidas — double what it was before.

Over the past year, QDaily interviewed five streetwear stores, two sneaker stores and two Taobao shops that sell sneakers. Nearly all of them said Adidas is selling better. Some now treat release events for hits like the Yeezy and the NMD as a way to pull in more customers.

On the surface, the most direct cause is Nike's Direct to Consumer strategy, launched in 2015. The company planned to raise revenue from its own channels — roughly 1,000 directly operated stores worldwide plus Nike.com — 2.5 times over five years, lifting their share of total revenue from 21 percent to 32 percent.

In June 2014, Nike opened six NikeLab concept stores, in London, New York, Shanghai, Hong Kong, Milan and Paris. The Shanghai one sits at 158 Xinle Road, seven hundred meters from Juice.

"After NikeLab opened, a lot of the limited editions went there. Before that, we were the only ones who had them," Ginny says.

Spending more on its own stores lets Nike present itself to the world exactly as it wishes. It also gives the company tighter control and fatter margins at a time when brick-and-mortar retail is struggling.

Most of Nike's stores in China are opened through Belle International. Nike controls every detail — the paint on the shelving, staff training, the displays — but it can never be as attentive as it would be in a store of its own. Investing in flagships and putting up a landmark example became the obvious next step. Last November the company opened a five-story building in SoHo, New York's streetwear district; people in the industry see it as a teaching model for retail.

The strategy has not paid off overall. The threat from Adidas reaches well beyond streetwear stores. The latest figures from the retail research firm NPD show Adidas's share of the U.S. sneaker market rising to 11.3 percent this May, nearly double the 6.3 percent of a year earlier, while Nike fell from 35.9 percent to 34.7 percent — and earnings, share price and the volume of social-media chatter all point the same way.

Before the wider public understood how much market share Adidas had taken, multi-brand streetwear stores felt it first.

OVERKILL GmbH, a 14-year-old shop on a street corner in Berlin's Kreuzberg district, is where the city's graffiti, sneaker and street culture gathers. Three years ago it joined adidas Consortium, the highest rank Adidas grants streetwear stores worldwide.

Starting in 2016, Adidas ran a global collaboration program: every month it made one shoe with one Consortium store — the SEEULATER hiking shoe with mita sneakers in Japan, a limited Ultra Boost Uncaged with the German shoe store Solebox, and so on. By 2017 the program had grown to 84 stores, with collaborations involving single stores and groups of stores. Juice was the only Chinese store in it.

The defining rule of this circle: only Consortium-certified stores can sell the collaborations made by other stores at the same rank. Anyone outside cannot get them. Nike has a similar arrangement called "Tier Zero"; at Reebok it is called "Network."

"Over the past few years we've built strong growth in Adidas product sales, and Berlin has quickly become a focus city for every sneaker brand," Marc Leuschner and Thomas P., the CEOs of OVERKILL GmbH, told QDaily. The biggest gain from joining the program, they said, was wider international recognition for the store, along with more exposure for their own house label.

Any shoe from the program lands on the news pages of every major streetwear site the moment it is announced. Not long ago OVERKILL x adidas Consortium put out a run of Berlin-themed running shoes at US$150, a little above the price of regular models. And of course there was an ad campaign shot in a Berlin subway station.

A person familiar with how sportswear brands manage multi-brand stores, who asked not to be named, said Nike's strategy over the past two years has been to pull its best products back into its own stores. Streetwear stores can still get the newest releases each season, but not the best ones.

"And what does that cost them? These stores carry real weight on the street and in street culture. If Nike won't give them the best product and Adidas will, the logic is simple. Even if the owner is a Nike fan — Nike only gives me the Sock Dart, Adidas gives me the Yeezy. Who am I going to work for?"

Next to other channels, the sales a streetwear store delivers to a sportswear brand are barely worth mentioning. What makes these stores special is that they also carry the brand's message. Now that the whole sportswear market has caught the athleisure wave, that job matters more, and stores that can genuinely project taste have gained both a bigger say and more freedom to choose.

DOE, on Tongren Road in Shanghai, and Soulgoods, in Beijing's Sanlitun, both want that business. They have a lot in common: in under three years each won senior dealer status from several sportswear brands, each has its own eponymous clothing line, and both sets of founders have connections in the scene. Himm (Wang Bingyi), one of DOE's co-founders, started the Shanghai street-culture magazine Urban; Ji Ming and Tang Zhizhong, who own Soulgoods, are each close to a number of brands and celebrities.

Terry, DOE's other co-founder, came out of a sportswear company and now runs product development and operations. The first sneaker brand to move into DOE, he told us, was Vans. When the store opened a little over two years ago, Nike also sponsored a batch of white Air Force 1s — "enough, at least, to fill a whole wall for display."

Almost everyone on DOE's team is from Shanghai, and telling stories is their strength. Sale posters carry Shanghainese slang like "sha gen jia," roughly "dirt-cheap price," and the scratch cards for a recent Yeezy release were designed around mahjong tiles. "Simple, clear, and it comes out of Chinese culture," Terry says. What the brands really want, he thinks, is DOE's customers: "They want a store like ours to move the influential customers first, and the mass market follows. Our customers aren't that mass — they're a cut above."

"Personally, I think the multi-brand channel is one link in a brand's selling and marketing chain," says Tudou (Yang Chunyu), Soulgoods's marketing director. "If you use a market model as a metaphor, the multi-brand store market is shaped like an hourglass: the top holds the brand's individual products, the bottom takes in the huge, undifferentiated flow of shoppers, and the narrowest point in the middle is the multi-brand store market. Seen that way, a multi-brand store is a filter on a brand's broad market, selling a particular product to a more precisely targeted set of users." Sneakers currently make up 60 to 70 percent of what Soulgoods carries, and Adidas is the largest brand among them.

Adidas right now, Tudou says, is like a singer on a hip-hop label who suddenly blows up: every other artist on the roster gets more attention too.

Streetwear stores in China were not always authorized dealers for the sportswear brands. Ten years ago most shoe stores on the market were so-called gray-market shops, where the owner bought shoes abroad at full price and shipped them home to sell.

"Back then the brands didn't have the bandwidth for this channel either." Unik — Jueban Kongjian in Chinese — is a Dalian store that began as a gray-market shop in 2003. Seven years ago it gradually won official dealer status from one sportswear brand after another; the wholesale prices that came with it let the company survive as Chinese e-commerce took off. In 2015 the owner brought in Hu Hai as merchandising director to run the whole team, essentially as a professional manager.

Unik now has stores in Dalian, Shenyang, Changchun, Harbin and Chengdu. The sixth opens in Shanghai on July 15 this year, and it will bring in "more lifestyle elements" as well — over 300 square meters, with colored floor tiles, a gallery and a big projection screen.

Hu Hai describes Unik as "the only store in a second-tier city that sells Yeezys." He walked us through a textbook case of a streetwear store working with a sportswear brand to hype a shoe:

"We just did a black-and-white Iverson colorway with Reebok. Five hundred pairs, custom packaging, with a card and a wristband. After it went out, a lot of media covered it, including media abroad. The shoe sold out in a day. It took another week to reach the regular stores. Right now the special-packaging version goes for over 2,000 yuan on the market, and even the standard packaging fetches 300 or 400 yuan above retail." As much as a third of Unik's monthly revenue, Hu Hai says, may come from limited-edition releases.

The model is in fact quite traditional. Thomas Peiser, CEO of OVERKILL, argues that against the old retail experience, the big brands' attempt to build a direct relationship with each consumer has failed: "When a brand forces everyone to buy an ultra-limited release on its own website, it can't give them a direct experience. A story told with knowledge and passion, out of the mouth of a sincere sneaker salesperson — that is what makes the moment of buying come alive."

If 28 streetwear stores release the Yeezy Zebra on the same day, each will have its own game and its own story: smashing golden eggs, throwing darts, shooting hoops, drawing passport numbers for a raffle. Xsneaker, a Hangzhou shoe store that just won the right to release Yeezys, wrapped its whole storefront in zebra stripes and swapped its sign for the Adidas trefoil. The stores design all of it themselves. The brand does not pay a cent.

Hit products now carry more weight in the sportswear market than ever. Nike clearly sees it: the company recently announced a 2 percent cut to its global workforce and a reduction of a quarter of the styles across all its product lines. According to Nike brand president Trevor Edwards, it will concentrate from here on core products such as ZoomX, Air VaporMax and Nike React.

"Five years ago young people still liked CLOT's stuff. Now young people think wearing the most expensive, hardest-to-get thing is what trendy means," Ginny said in an interview. "Some longtime customers ask why our CLOT clothes got more expensive. It's because they're all made in Japan now. Made-in-China things seem to have stopped satisfying people who are really serious about what they wear. These days a lot of foreigners like our brand, especially the designs with Chinese characteristics."

"We have to spot the micro trends and the longer ones right away," OVERKILL's CEO said when asked how the store is handling sharper competition in the sportswear market. "That matters enormously for how we deal with consumers, and it keeps us ahead financially."

To lift results by a single percentage point in a traditional channel, Nike can rearrange the displays, fire salespeople, run promotions. In a streetwear store the only lever a brand has is the product itself. E-commerce works the same way.

The whole supply chain is speeding up.

Morgan Stanley forecasts that by 2023, as Nike and Adidas turn toward e-commerce, 20 percent of their production will shift to more automated factories to keep up with changing demand. As e-commerce inevitably becomes a major sales channel, brands will have to rethink what each channel does and how the channels relate to one another.

Adidas only made Amazon an official dealer in 2014. Nike was later still. On June 30 this year it announced that it would start selling some products on Amazon, in exchange for Amazon cracking down harder on the third-party sellers hawking Nike shoes on the site.

CEO Mark Parker also announced that Nike intends to sell shoes on Instagram.

But count Kanye West and his tens of millions of followers, plus the adidas Originals endorsers who turn up by the dozen, and Adidas has been "selling shoes on Instagram" for a long time already.

There is risk in this, of course. It stokes enthusiasm, and it also speeds up the moment people tire of a hit. Adidas's U.S. market share may have reached its highest point in a decade, but Dick Johnson, CEO of Foot Locker, the largest sneaker retail chain in the country, told an earnings call this May that Adidas's growth was slowing, with the Superstar and the Stan Smith entering a plateau.

Against that background, streetwear stores matter more than ever.

Terry, DOE's co-founder, puts it this way: "In a city like Shanghai, consumers are gradually getting more sophisticated. A lot of them now know what they want and know what to wear, so a 'multi-brand store' becomes very valuable to them. They walk into one store and walk out with a whole outfit."

On June 16, DOE opened a new store in Shanghai's Xintiandi. This time it hired Shuhei Aoyama for the interior. Unlike the original store, Sneaker Lab, the new location reaches a more varied set of shoppers, and since Taiping Lake across the street hosts Shanghai Fashion Week, DOE has brought in more fashion labels. Adidas's German executives have already come to see the store, Terry says, and he believes DOE will soon be upgraded to adidas Consortium — on opening day Adidas sent over a flower basket decorated entirely with sneakers.