A few years ago, Adidas was thought to be able to challenge Nike for the crown of the world’s largest sports goods manufacturer. Photo: Adidas-group.eu.
A few years ago, Adidas was thought to be able to challenge Nike for the crown of the world’s largest sports goods manufacturer. At that time, the American opponent was in an extremely strong offensive position, but Adidas was no less competitive.
Under the direction of Kasper Rorsted, who took over as CEO of Adidas in October 2016, the German sportswear company’s revenue has grown by 30% in the first three years of his tenure. Notably, a lucrative deal since 2013 – the production and sale of sneakers designed by American rapper Kanye West – has brought fruit.
In 2021 Kanye West’s Yeezy line contributed 12% of Adidas’ total shoe sales. In August of the same year, Adidas’ market capitalization reached 67 billion euros ($79 billion), more than twice as much as five years earlier.
But contrary to many people’s expectations, Adidas is increasingly moving away from the track, making the dream of usurping Nike even more distant. Adidas’ revenue has neither increased nor decreased in the last 3 months of 2022.
The company just reported an operating loss of 724 million euros in the first quarter of 2023 compared with a profit of 66 million euros a year earlier, due to significantly increased supply chain costs as well as major promotions to reduce costs. inventories are at a high level.
In contrast to Adidas, Nike recently reported quarterly sales of up to 12 billion USD, 14% higher than the previous year and 2 times the sales of Adidas. Operating profit margin is also very positive, reaching 13%.
All have caused Adidas’ market value to drop to 25 billion euros, only 1/7 of Nike’s.
Looking at the stock price movements of sportswear brands, even investors now put more faith in Puma, Adidas’ smaller domestic rival.
The situation at Adidas is partly caused by factors beyond the control of this German sports company.
Inflation has pushed up supply chain costs. Adidas had to scale back its operations in the Russian market, after the country brought tanks into Ukraine in February 2022, triggering a wave of Western companies leaving the Russian market.
In October of the same year, Kanye West’s increasingly erratic behavior, including hate speech against Jews, forced Adidas to terminate the rapper’s contract. As a result, Adidas faced millions of unsold Yeezys, worth up to 1.2 billion euros.
Unless this inventory is resolved, Adidas could end 2023 with its first annual operating loss in 30 years, amounting to 700 million euros. The prospect of a recession in Europe and North America and uncertainty about China’s economic recovery are other downsides for Adidas.
However, bad luck is only part of the story. The former Rorsted CEO’s focus on efficiency and cost, while a good thing in some respects, is not small. Rorsted has treated Adidas’ retail partners lightly, preferring to focus on selling directly to consumers through the Company’s stores.
He also neglected to invest in innovation. “Rorsted would probably do well as CFO. But instead, he is an example of what happens when you put the wrong person in the CEO position,” commented Florian Riedmüller of the Nuremberg Institute of Technology.
Adidas’ Board of Directors believes that it has found the right person for the position, Bjorn Gulden, who took over as CEO earlier this year. The former professional football player from Norway helped reverse Puma during his nine years at the sports company, and is expected to repeat the feat at Adidas.
Gulden’s first task in his new position was what to do with the millions of unsold Yeezy shoes and the company’s high inventory — a factor that is expected to affect the company’s revenue growth. Adidas this year.
According to Chief Financial Officer Harm Ohlmeyer, by the end of the year, Adidas’ inventory had increased by 49%, to a value of 6 billion euros.
A bigger and longer-term challenge, according to Aneesha Sherman of Bernstein, is what to do with the large Chinese market.
Last year, Adidas’ sales in China fell by 36%. The strict blockade to prevent COVID-19 in this country and the boycott of Western brands, have significantly affected Adidas’ sales.
Even Nike saw sales decline in China in the latest quarter, with an 8% drop. But while Nike – the best-selling sporting goods brand in China – has deftly adapted to the tastes of domestic consumers, especially the growing love of basketball, Adidas has not kept up. cope with the changing environment here.
As a result, Adidas’ sales were surpassed by Anta, a very agile domestic competitor. Now Adidas is in danger of losing third place to another domestic competitor, Li Ning.
Despite struggling in important markets such as China and Russia, Adidas still saw double-digit revenue growth in other markets in the first quarter of 2023, especially Latin America, Asia – Thailand. Binh Duong and EMEA (Europe, Middle East and Africa).
Gulden’s strategy is to make Adidas “a lot more local than before” so that it can meet the needs and tastes of consumers in the host country. “The world will no longer become more centralized or globalized. It is very difficult to find products that sell well in all regions and all markets,” he said.
This is also the challenge Gulden faces: making a highly globalized giant like Adidas local. Surely this task will not be solved overnight, especially in the production stage. But Gulden is working to change that. “We have design centers in Tokyo, Shanghai, USA and now also in India and Europe. We will become more and more localized.”
At a recent meeting, Gulden rated 2023 as a transition year as it clears the way for Adidas to rebuild into a profitable company next year.
“Adidas has all the ingredients for success. But now we need to put the focus back to the core: the product, the consumer, the retail partners and the athletes,” Gulden said.
He said he would cut dividends, reduce discounts on unsold items, mend relationships with retail partners and invest more in Adidas products and brands. That is the starting step. He believes that Adidas’ brand awareness remains very high around the world and recent partnerships with Montclair, Prada, Gucci and Balenciaga are testament to the brand’s appeal.
For Gulden, it’s not too late, but for Adidas to catch up with Nike, he needs to accelerate even more.
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