Ambitious Goals

Adidas Retools, Investors Shrug

Adidas shoes reuters
Is it a shoe-in?
  • Why it matters

    Why it matters

    If Adidas’ new strategy to cut costs and change its focus works, it may win market share from U.S. rivals Nike and Under Armour.

  • Facts

    Facts

    • Adidas has the third-largest market share in the United States, behind Nike and Under Armour.
    • The firm has promised shareholders that earnings will increase on average 15 percent until 2020.
    • Its new strategy will see customers influencing designs through social media.
  • Audio

    Audio

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Sport may not only be good for your health but also for your pocket, at least if you’re an Adidas shareholder.

This week Adidas chief executive Herbert Hainer promised shareholders that earnings will increase on average 15 percent until 2020.

If all goes according to plan, the company could achieve a surplus of €1.4 billion ($1.5 billion), more than twice the most recent results.

Mr. Hainer also announced that Adidas would increase revenue by up to 9 percent annually over the same time frame.

In the best-case scenario, Adidas would then have revenues of €22 billion in five years.

The brand is focusing on six major cities: Los Angeles, New York, London, Paris, Shanghai and Tokyo.

Shareholders are expected to profit from the positive business performance with a higher dividend rate, which is expected to be 30 to 50 percent in the future. So far it has been at 20 to 40 percent.

Still, on Thursday, the stock exchange in Frankfurt reacted coolly to the company’s plans, with the stock price remaining at €70 in an extremely weak trading environment.

Mr. Hainer told analysts, investors and reporters from around the world how Europe’s largest athletic shoe producer will raise its game: “We must surprise the customers every day.”

His efforts will be focused on three areas. First, Adidas will move faster. Many products will be developed in the future within a season. To date, that process has taken up to a year and a half. By speeding up, Adidas will have the goods that are popular with the customers on the shelves and won’t have to mark down last season’s goods to make space for new ones.

Secondly, the brand is focusing on six major cities: Los Angeles, New York, London, Paris, Shanghai and Tokyo. Adidas will invest in marketing and attract the trendsetters in the hope this strategy will have a spillover effect across the globe.

Third, the consumers are to play a bigger role when the brand develops new shirts, shorts and shoes. Adidas wants to gather buyers’ ideas from social media, such as Twitter and Facebook. Sports stars and musicians will also gain access to company archives, the factories, workshops, labs and prototype studios.

“We were not as good as we had hoped. We lost our appeal because we did not concentrate enough on the needs of our customers.”

herbert hainer, chief executive, adidas

Adidas will bring in more partners from other industries as it did with BASF and Red Bull in the past. Adidas and the chemical company BASF developed a new type of shoe sole; Red Bull and Adidas’ outdoor division work on events together.

Adidas desperately needs new momentum. The past two years were disappointing for the company and its stockholders, after Adidas was far off the mark in meeting the goals it set itself. “We were not as good as we had hoped,” admitted the 60-year-old Mr. Hainer. “We lost our appeal because we did not concentrate enough on the needs of our customers.”


Video: Adidas’ soccer stars have a game of house football.

 

What was especially irksome for Adidas was that the global leader in the industry, Nike, made significant gains over the same period. In 2014, the company’s stock price declined by almost 40 percent, making it the biggest loser on the DAX.

But now things are expected to look up – and Mr. Hainer is clearing house.

One in four items will disappear from the product line. His employees are now being allocated to individual sports, such as soccer or running. To date, they had been organized by their functions, such as marketing or sales. The change is meant to speed up processes.

Mr. Hainer also announced that in the future Adidas will bring in more money in its own stores – more than 60 percent of sales instead of the 50 percent in the past. He also wants to sell more products via the Internet. The company’s online retail business recently accounted for €422 million. But by 2020 it should increase to more than €2 billion. That is important, because the margins in the company’s own online business are the highest.

And that is not all. “We are marrying American creativity with German engineering,” said marketing director Eric Leidtke. Adidas is currently building a new design center in the United States. Nike has dominated Adidas in the U.S., and Adidas has the greatest need to catch up in that market, the world’s largest sports market.

Even if Adidas implements the new plan as outlined, Nike is still the industry’s yardstick. The American company increased its earnings in the last quarter by 16 percent to $791 million. As a result, Nike earned as much in a quarter as Adidas did in a year.

Mr. Hainer also won’t be able to complete the long-term plan, because he is scheduled to step down from his post in two years. He sees no problem in leaving behind a five-year-plan for his successor, who has not been named yet. “This isn’t my plan, a team created it and we all stand behind it,” he said.

Sporting Goods Market in the U S  2-01

 

 

Handelsblatt’s Joachim Hofer writes about recreation, sports, technology and IT. To contact the author: hofer@handelsblatt.com

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