Adidas CEO

Trump Risks Scoring Own Goal

  • Why it matters

    Why it matters

    Adidas and numerous other German firms could suffer substantially if the U.S. slapped an import duty on imported products.

  • Facts

    Facts

    • Adidas CEO Kasper Rorsted, 55, told WirtschaftsWoche magazine, a sister publication to Handelsblatt, that U.S. President Donald Trump would hurt business and jobs in the U.S. by taxing sports goods imports from Asia, where most sports companies manufacture their products.
    • Adidas earlier this month increased its sales and profit targets, forecasting currency-neutral sales growth of between 11 and 13 percent in 2017 and a net income increase by as much as a fifth.
    • The German firm is the world’s second largest sportswear manufacturer behind U.S. group Nike and plans strong growth in the U.S., the world’s biggest market.
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adidas Opens The Doors To Its New York City Flagship Location With Special Guests
Adidas opened its flagship store, its biggest worldwide, in New York last December. Source: Dave Kotinsky/Getty Images for Adidas

Kaspar Rorsted isn’t convinced that Donald Trump’s plans to bring work back to the United States will work quite the way he intended. In fact, quite the opposite when it comes to things like sporting goods.

In an interview, the Adidas chief executive warned Mr. Trump would be putting U.S. jobs at risks by imposing import taxes on sports shoes made in Asia.

Asked if he thought the Trump administration would thwart the company’s current plans for strong investment in the U.S. by taxing imports, Mr. Rorsted said: “I don’t think so. All manufacturers produce between 80 and 90 percent in Asia. If the U.S. were to introduce import taxes, that would hit the entire sector and the consumers who would have to pay higher prices.

“We employ around 13,000 people in the U.S. and are expanding the workforce even further. All that would be in danger if the products had to become more expensive and demand fell due to a possible tax,” he told the business weekly WirtschaftsWoche, a sister publication of Handelsblatt. “And there still wouldn’t be mass production of sports shoes in the U.S. There simply aren’t the factories for that.”

The U.S. is the world’s biggest market and at the same time the one where we have our lowest market share. I see a great deal of potential there for us.

Mr. Rorsted, 55, a Danish national who was chief executive of German consumer and industrial products group Henkel before becoming CEO of Adidas last October, described the U.S. market as the “central long-term project” for Adidas.

He said sales of the brand had recently expanded by 30 percent in the U.S. where the company plans to open a new “Speed Factory,” operated largely by robots and using new additive manufacturing or 3D technology, in Atlanta this summer. Asked how he would react if Mr. Trump wanted to come to the opening to cut the tape, Mr. Rorsted said: “If this request came we would probably accept it. I’m not entitled to a political opinion whether I like a leader or not.”

Adidas’s other Speed Factory is being built in the Bavarian town of Ansbach. The project has attracted a lot of attention because it is bringing back some shoe production from low-cost regions in Asia. The aim is to cut the time between design and production to less than a week from the current duration of up to 18 months. But Adidas will remain dependent on Asian factories because the total annual output of the new Ansbach and Atlanta factories will only amount to half a million pairs of shoes each per year, said Mr. Rorst. “But at the moment we sell one million pairs per day,” said Mr. Rorsted. “With planned growth of 11 to 13 percent there will be an added 40 million pairs of shoes per year. So we would have to open 80 Speed Factories just to cover the increase. That won’t work.”

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Adidas earlier this month increased sales and profit targets. It now expects currency-neutral revenues to rise between 10 and 12 percent on average between 2015 and 2020, and said the operating profit margin should rise to 11 percent from 7.6 percent in 2016. That’s still well below Nike’s 14 percent. For 2017, Adidas forecast currency-neutral sales growth of between 11 and 13 percent and net income to rise by as much as a fifth to up to €1.22 billion, or $1.3 billion.

The company is gaining ground on arch-rival Nike, the global market leader, in the critical U.S. market, but still has a long way to go. While the Adidas Superstar model was the best-selling sports shoe in the U.S. in 2016, the next 9 shoes in the ranking were made by Nike.

Mr. Rorsted said he saw great potential for growth in Europe and China and in a number of segments such as fitness clothing and sports shoes for women.

“But above all we will grow in the U.S. Together with our brand Reebok we have €3.4 billion sales there at present. But the U.S. is the world’s biggest market and at the same time the one where we have our lowest market share. I see a great deal of potential there for us,” the CEO said.

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He said Adidas was restructuring its loss-making U.S.-based unit Reebok, moving it to Boston and freeing it up to develop its own products independently of Adidas.  “We have reduced the number of employees and will sell the headquarters. The new independence is an opportunity for Reebok. But it will take another 18 months for the first products from the new constellation to reach the stores. We will see in two or three years if the measures have worked.”

He said there would have to be “consequences” if Reebok failed to make a turnaround. “Those are the rules of the game in business that apply in every country, for every brand and for every manager – not least me as chief executive. To put it frankly, it would have been the easiest solution for me to put Reebok up for sale as soon as I took office. But we believe we can turn around the brand and thereby create value for our company.”

Mr. Rorsted said he wants quadruple e-commerce sales to €4 billion and that the expansion will initially target the company’s own platforms adidas.com and reebok.com, which last year increased their revenues by 60 percent, mainly due to growth in Europe and the U.S. Asia would become a major focus of e-commerce growth, he said. One major challenge with e-commerce was constantly speeding up delivery times. “These days delivery times of three, four days are enough and everyone’s happy. But in a few years it will be different. Then people especially in big cities won’t want to wait that long, and instead have their running shoes within just two or three hours.”

 

This article first appeared in business weekly WirtschaftsWoche, a sister publication of Handelsblatt. To contact the authors: peter.steinkirchner@wiwo.de, henryk.hielscher@wiwo.de and hauke.reimer@wiwo.de

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