Shaq's China Shoe Deal Bad News for Nike and Adidas

| About: Nike Inc. (NKE)
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In today's Wall Street Journal, Geoffrey Fowler and Mei Fong comment on NBA star Shaquille O'Neal's sneaker deal with China's top sports brand as it takes on Nike and Adidas in ADVERTISING: Chinese Firm Drafts NBA's Shaq.

Shaq's line of basketball shoes, "Dunkman Game Shoes" sold at Payless ShoeSource haven't taken off despite their $39.99 price tag targeted at lower income consumers and families. So Shaq's next move is to take on the world's largest consumer market and a place where basketball's popularity is thriving.

Shaq has entered a five-year deal with China's leading sportswear brand Li Ning to market a "Li Ning Shaq" line of basketball shoes and apparel only in China. Shaq will bring both street level and international credibility to Li Ning, which has fallen to third place in the domestic market behind Nike and Adidas (note: China's NBA star Yao Ming has a deal with Reebok which is owned by Adidas). Nike said it has annual sales in China of about $600 million and it's estimated Adidas' totaled $385 million in 2005, versus Lin Ning at $300 million.

Comment: Smart move by Shaq and at the same time, bad news for Nike (NYSE:NKE) and Adidas. Terms of the Shaq-Li Ning deal were not disclosed but the "Li Ning Shaq" line of shoes will likely be cheaper than rivals' and that means a possibility of a much broader consumer base. It will be interesting to watch Nike and Adidas' reaction and see if they step up marketing and/or adjust pricing. The timing of the deal ahead of the 2008 Olympics in Beijing will force Nike and Adidas to fend off a hungry Li Ning, the latter which is likely looking to move into at least the 2nd spot by the time of the games.