In May, Top Sports released its financial report for the year 2023/24, announcing a total revenue of 28.933 billion and a profit of 2.213 billion. After two consecutive years of negative growth, Top Sports has finally turned around.

A significant portion, about 80%, of this impressive performance is attributed to Adidas and Nike.

As the two main brands of Top Sports, Adidas and Nike sold an astonishing 24.8 billion through nearly 8,000 directly operated stores.

It can be said that Top Sports' red-letter performance is inseparable from Adidas and Nike.

However, in reality, without Top Sports, Adidas and Nike would not have been able to earn so much from Chinese consumers.

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This is because the ubiquitous Adidas and Nike stores in China are almost all operated by Top Sports behind the scenes, and their cooperation can be considered a model of mutual achievement.

They have gone through a long honeymoon period together, benefiting each other, but they have also engaged in a game for a larger share of profits and control over more consumer data.

Their past and present are intertwined, sharing both glory and loss.

In China, Adidas and Nike retail stores are as numerous as hairs on a cow's back, and many people mistakenly believe that the operator is the manufacturer, not realizing that the driving force behind the scenes is the intermediary, Top Sports International.Few people may be aware of Top Sports International, but when it comes to the "Shoe King" Belle, it is likely a household name. Top Sports is indeed the sports business segment under Belle's umbrella. The ambitious statement made by Belle's CEO, Sheng Baijiao, that "Where there are women, there is Belle," eventually came true, with Top Sports becoming the "Shoe King of a Generation" with 20,000 directly operated stores.

At its peak, Belle's annual revenue reached over 50 billion, with a net profit exceeding 6 billion, and its presence was ubiquitous in any large shopping mall. Belle's women's shoes have genuinely found their way into the shoe cabinets of millions of women, capturing half of the Chinese women's shoe market.

However, despite the substantial market share and impressive profits in leather shoes, the astute Sheng Baijiao did not put all his eggs in one basket. As early as the 1990s, following the successful hosting of the Asian Games in China and the subsequent launch of the "National Fitness Program Outline" by the state, China experienced an unprecedented nationwide sports craze.

At that time, Sheng Baijiao foresaw that sports shoes would become the "second pair of shoes" in the Chinese people's shoe cabinets, in addition to leather shoes. It was this foresight that led to the birth of Top Sports International, which became Belle's sports business line, focusing on the retail of sportswear and footwear.

After its establishment, the first thing Top Sports did was to partner with the international sports brand giant, Nike. Although Nike was already a well-known international brand, expanding its presence in China by opening stores was not an easy task. Therefore, they decided to collaborate directly with domestic giants, and the thriving Belle became Nike's top choice for cooperation.Top Sports, which has been in the domestic footwear industry for several years, is well aware that international sports brands are more mature than domestic local brands. The domestic market is increasingly valuing the satisfaction brought by brand positioning, and the pursuit of famous brands has become a trend among the Chinese people. As a result, Nike successfully entered the Chinese market and became the first international sports brand to cooperate with Top Sports, quickly opening the first offline brand counter in the country. In terms of cooperation, Nike is only responsible for the brand, and the operation is entirely handed over to Top Sports. Therefore, when you walk into a Nike store and buy every pair of Nike shoes, Top Sports earns a considerable price difference. Subsequently, with the rise of international sports culture, young people highly admire international brands, and many young people take pride in owning a pair of Nike shoes. By 2004, Top Sports had become the largest Nike distributor in China. In the same year, Adidas also started a cooperation with Top Sports. With the ignition of the 2008 Beijing Olympic torch, China's sports market entered a fast track of rapid development, with major sports brands expanding by 3,000 stores in one year. Top Sports stood out with this dividend and became the largest retail operation partner of Adidas in China by 2012. Since then, Adidas and Nike have completely become two money-making trees for Top Sports. At the same time, Top Sports' parent company, Belle International, also ushered in its own high-profile moment. In 2013, its market value broke through 150 billion Hong Kong dollars, firmly occupying the first place in China's footwear industry and becoming the shoe king of the time.However, everything in the world must decline after reaching its peak.

At the end of 2013, Sheng Baijiao made a surprising statement: "Belle has fallen into a vicious cycle of revenue growth and net profit deficit due to its overly large scale."

In fact, at this time, the rise of e-commerce has greatly impacted the traditional retail industry, especially after the two e-commerce giants, Taobao and JD.com, entered the U.S. capital market, mobile e-commerce ushered in explosive development.

Belle International also tried e-commerce in 2011, but it didn't make a splash, and this retail revolution directly led to the decline of Belle International's performance.

From 2014 to 2016, profits fell from 6.01 billion Hong Kong dollars to 2.713 billion Hong Kong dollars, almost halved.

In July 2017, after leaving a sentence "Belle's fate has come to an end, and there is no more strength to stand," the founder of Belle, Deng Yao, and CEO Sheng Baijiao cashed out 13 billion Hong Kong dollars, and handed over the dying "King of Shoes" to Hillhouse Capital.

But even when the highly renowned Hillhouse Capital took over Belle International, others thought it was just taking over a hot potato, and it was not optimistic.

However, what people didn't expect was that two years later, Hillhouse Capital made a profit with interest on the money for privatizing Belle, and Taobo played a decisive role in this process.

It turned out that after Hillhouse Capital took over Belle International, it immediately carried out a major reorganization of Belle International.

It transferred all sportswear under the name of Taobo, and in addition to the two main brands Adidas and Nike, the distribution rights of sports brands such as North Face, Puma, and Converse in mainland China were also handed over to Taobo.Taobao achieved dazzling performance the following year, becoming the number one in China's sportswear retail market with a retail volume of 32.5 billion yuan, with a market share close to 16%.

The growth rate of the two main brands in the Greater China region even exceeded 21%, and the revenue generated once approached 90%.

By the beginning of 2019, after the split, Taobao's self-operated stores in China had developed to 8,343, with about 2 million people consuming here every day.

In October of the same year, Taobao (6110.HK) was successfully listed on the Hong Kong Stock Exchange with a total market value of 58.2 billion Hong Kong dollars, which has exceeded the private equity price of 53.1 billion Hong Kong dollars at the beginning, and Hillhouse Capital can be said to have achieved a great victory.

It is clear that the biggest contributor is still the two major brands of Adidas and Nike.

The middlemen are also full of pots and bowls, and the brand side is naturally not bad.

According to the financial performance released by Nike Group, the revenue in the Greater China region exceeded 6 billion US dollars for the first time in 2019, leading the global market.

Adidas also said in the third quarter financial report of 2019 that the revenue in the Greater China region achieved a good result of double-digit growth of 11%.

Adidas and Nike are even proud to think that Chinese consumers cannot do without them and their brands.

However, after the Xinjiang cotton incident, the situation has turned sharply.In order to garner greater profits, Adidas and Nike have launched a resounding "elimination of middlemen" campaign, namely the TDC strategy. Essentially, the TDC strategy involves selling products directly to consumers through direct sales channels, which will reduce costs and naturally release a significant amount of profit margin.

However, for middlemen like Top Sports, the implications are self-evident, especially as the consequences of heavily relying on these two giants begin to unfold one by one. Overnight, it seems that Adidas and Nike, once money-making trees, have lost their magic, and Top Sports' performance has started to decline. While the pandemic has had an impact, the more significant reason is that various brands have embraced the DTC (Direct-to-Consumer) model.

In fact, Nike began to reduce its cooperation with multiple retail partners in 2017, gradually opening direct stores. Adidas, of course, is not lagging behind, and it is expected that by 2025, half of the sales will be completed by TDC business.

The various actions of Adidas and Nike have made it impossible for Top Sports to pin its hopes on the goodwill of these two brands, prompting it to seek new development strategies for itself. For Top Sports, even as the market continues to change, as the largest retail distributor of sports brands in the country, it still needs to focus on retail distribution, maximizing its channel advantages and operational value.

With the rise of e-commerce media, many consumers have become accustomed to obtaining product information online and even making purchases there. Based on this, Top Sports has moved its business online and launched the Top Sports App.This app not only features an online shopping mall, limited releases, and membership activities, but also offers customized sneaker services and membership point redemption, allowing consumers to achieve a dream collaboration with Top Sports without leaving their homes.

At the same time, physical stores are also undergoing smart upgrades, combining online social media to establish store communities, deeply linking with consumers, creating stickiness, and better serving consumers in the long term.

Of course, the precise operation of the retail business has also brought significant rewards to Top Sports.

By August 2021, Top Sports had accumulated 24 million registered users, and 95% of the store's turnover was contributed by members, a trend that has continued for several quarters.

While Adidas and Nike aggressively implemented DTC (Direct-to-Consumer) strategies, Top Sports was not only not replaced but also forged a new path, striving to break away from the situation of rising and falling together with Adidas and Nike.

Instead, after several attempts, Adidas and Nike did not make a fortune by eliminating middlemen; on the contrary, the company began to regress, and they also fell behind other brands in product innovation, with their dominant position in jeopardy.

Moreover, under the DTC strategy, the issues of returns and inventory that were originally handled by wholesale and retail were all transferred to the brand itself. After the increase in logistics and processing costs, profits plummeted.

Nike's financial report for the third quarter of 2024 showed an overall revenue of 12.4 billion, a sequential decline of 7.16%, and a net profit of 1.172 billion, a sequential decline of 25.73%.

They intended to get closer to consumers and win the market by facing consumers directly, but they did not expect that leaving department stores and retail shops would make overall revenue growth even more difficult.

Even the former CEO of Adidas, Herbert Hainer, admitted: "We made mistakes in China."Adidas and Nike only realized at this point that by abandoning wholesalers and retailers, their market losses were even greater, and "returning to wholesale" was the key to improving the decline in performance.

In 2023, Adidas and Nike had to gradually resume cooperation with retailers, and the results were also very significant.

In this game of "middlemen" and "brands," Taobao seems to have won, but as Adidas and Nike recover, Taobao's main brands are still Adidas and Nike.

However, Taobao is also very clear that deeply relying on the two giants can only bring short-term benefits, and long-term development requires exploring more cooperation channels.

In recent years, Taobao has been actively exploring new partners, continuously expanding its business boundaries, to diversify the risks brought by the uncertainties of Adidas and Nike.

In 2024, it successively reached cooperation with international brands HOKA ONE ONE and KAILAS, and successfully obtained the exclusive operation rights of the high-end outdoor cross-country running brand norda in China, and also actively delved into outdoor sports and ski tracks.

At present, the returns are also quite ideal. According to Taobao's financial report, the revenue from other businesses besides the two main brands of Adidas and Nike increased by 10.5% year-on-year, reaching 3.89 billion yuan.

All these layouts are to increase efforts to decouple from Adidas and Nike.

Now, although Taobao's offline operation stores have been reduced to 6,144, the single store area has increased by 6% year-on-year.

The purpose of closing small stores and opening large stores is to focus more on service and after-sales, as well as the consumer's shopping experience, to further attract the offline shopping group.At the same time, online, more than 2000 mini-program stores and 100 live broadcast accounts for shops have been developed, with 73.6 million Taobo users, and the contribution rate of members accounts for 96.4% of sales.

Clearly, the integration of online and offline development is aimed at one day achieving "de-Adidasization, de-Nikeization."

However, no matter how hard Taobo works, it is just a middleman, a link in the shoe and clothing industry chain, and its ability to make money cannot be compared with those brands that firmly hold the discourse power in the industry chain.

Perhaps, there are many things that Taobo should consider at present, which are more important than "de-Adidasization, de-Nikeization."