port uniform premium pricing. Starbucks, meanwhile, has divested a majority stake in its China business to a local partner so it can greatly expand its footprint in markets with weaker demographics and greater promotional needs. Who’s got it right? Nike’s China play: wresting back control of a chaotic marketplace Nike’s reset in China is about regaining control of a chaotic marketplace that was damaging the premium image of the brand. Cathy Sparks, Nike’s vice president and general manager for Greater China, reiterated this week in a post on the company’s website that Nike would phase out sales of Nike products from most of its more than one thousand online storefronts in China, with the exception of flagships on Nike.com.cn, the Nike app, Tmall, JD.com and Douyin. The idea is simple: by reducing the fragmentation in messaging, customer experience and pricing that has plagued the brand’s integrity and caused Nike to shed market share to competitors, the company hopes to present a single, consistent front to consumers. This will enable it to maintain pricing power, although any increase in profitability may well come at the expense of sales volume. Sparks said: “Consumers expect authentic product, consistent storytelling and a seamless experience across every touchpoint. By creating a more consistent, premium and connected marketplace, we can reduce fragmentation, strengthen trust and deliver a better Nike and Jordan experience wherever consumers choose to engage.” So far, the strategy involves the elimination of digital storefronts only, but leaves in place the thousands of physical points of sale operated by third parties such as Topsports International. The intention is to upgrade stores rather than slash their number, but with no fewer than 16 retail partners in China, maintaining some aspects of the required customer experience is challenging. On the product front, Nike has created a dedicated team to design and manufacture products that are tailored and relevant to the Chinese market. China is a big place with huge regional differences in demographic and lifestyle profiles, so localisation is important. The one thing that isn’t negotiable, though, is the company’s renewed focus on sport. CEO Elliott Hill believes the company drifted too far from its roots into a heavily congested field of fashion and athleisure and needs to get back to an obsession with leadership in sport. In the fourth fiscal quarter ending May 31, sales in Greater China fell by 17 per cent adjusting for currency fluctuations, and for the whole fiscal year by 13 per cent. China revenues currently account for just under 13 per cent of the company’s global revenues. Company CFO Matt Friend has told investors that, even ahead of the third-party store phase-out, the unruly discounting situation was being brought under control. “We are seeing recovery in full-price realisation on digital after more aggressive actions to reduce promotions over the last two quarters,” he said. Meanwhile, Starbucks takes a different road While Nike is taking back control of its brand and marketing message, Starbucks is, to some extent, ceding it. The company, which has just under 8,000 stores in China already, has sold a majority stake in its China business to Boyu Capital, a Hong Kong-based private equity firm that will act as a conduit to extend the Starbucks brand into smaller, untapped markets. The expectation is ultimately to have 20,000 stores open in the country. Boyu plans to use its regional insights to localise Starbucks stores with a variety of formats to suit local real estate markets and with food and beverage menus tailored to local tastes. Effective pricing is also likely to vary according to local demographics, in much the same way that its low-priced competitor Luckin uses app engagement to offer backdoor promotions rather than varying the base menu price. Although Starbucks still owns the intellectual property rights for Starbucks China and the expectation is for a consistent premium Starbucks experience, an expansion that could more than double the store count and bring Starbucks to far-flung locations carries obvious risks to the brand when it comes to maintaining a consistent level of quality. Some of the new locations are likely to be small express-style stores that are inconsistent with the “third place” image and functionality that have long been part and parcel of the Starbucks brand. So while localisation for Starbucks, as for Nike, sounds good in theory, the reality is that it risks making the Starbucks experience in many locations more like that of its low-priced competitors. Luckin, its main rival, already has almost 35,000 outlets and is deeply embedded in provincial culture. Its reach extends all the way to Kashgar, a trading post on the old Silk Route in far western Xinjiang Province. Localisation is something it does exceptionally well, and Starbucks faces a major challenge in competing. The good news is that Luckin also uses a franchise model to reach one in three of its locations. Who has got it right? Both have. Despite the risks involved, China is too important a market for Starbucks not to pursue further growth, and putting a local partner in the driving seat was an astute move given the significant regional variation in demographics and consumer food and beverage preferences. Moreover, Boyu has extensive retail experience, including intimate knowledge of the massive, more than 50,000-store network of ice cream and beverage chain Mixue. If anyone can help Starbucks penetrate lower-tier markets, Boyu is one of the strongest candidates. Nike, for its part, has also got it right by doing the opposite: reducing the number of local partners and consolidating storefronts to eliminate brand confusion in the marketplace. Nike remains the leading premium player in China’s athletic footwear market, and the new strategy under CEO Elliott Hill is a sensible first step towards strengthening its market position and returning to growth. Further reading: Inside Nike’s great China purge: Fewer sellers, one brand