The singer Rihanna, in an oversized hoodie and stiletto boots, presented her first sports fashion collection last Friday as brand ambassador for Puma: complete with low-cut, tummy-revealing tops, tight shorts, hipster sweatpants and high heels. The launch of her “Fenty X Puma” brand in New York was glitzy and high octane: all the things the German sportswear maker hopes to be.
But when Puma boss Björn Gulden announced the sports company’s annual results on Thursday, the presentation was a little more austere. The Norwegian took over the reins just three years ago to restore the ailing brand but the results show he still has some way to go.
Puma did grow considerably last year. It increased revenues by 14 percent to €3.4 billion, or approximately $3.8 billion. That represents a plus of around half a billion euros. But compared with its neighbor and arch rival Adidas which grew by five times as much, i.e. by €2.5 billion, the growth is week,
Puma is making progress, but still not catching up with Adidas or market leader Nike. The American company is nearly 10 times as big as Puma and its profits alone nearly match Puma’s annual revenues. In this industry, size is not an end in itself, but a company taking in more money can spend more on marketing. As the manufacturers always invest a fixed percentage of revenues in advertising and sponsoring, Adidas and Nike have a substantial advantage.
However, even worse news for Mr. Gulden is the fact that competitors which used to be smaller, are now surging ahead too, Under Armour, for instance. The brand from Baltimore overtook Puma last year and is now number three in the sports industry. The rival grew by 28 percent in 2015 and now generates around €3.7 billion in revenues. Mr. Gulden still thinks his company is on the right track, however, saying: “Sales of our products have improved, both in our own outlets and in those of our retail partners.”
Good business results in the fourth quarter have made him particularly optimistic. Between October and the end of December revenues increased by 17 percent.
“We have increasing difficulties with Adidas and Nike, because they don‘t focus on mid-sized retailers”
The Norwegian never had any doubt that it would take time to restore the label to its former glory. Above all, it will take a lot of money. Mr. Gulden is investing millions in modern IT systems and new outlets as well as in stars and soccer clubs. And that is why he was only able to present meager profits of €37 million – only about half of last year’s result.
However, Mr. Gulden can rely on the support of retailers, because they are disenchanted with the big players. “We have increasing difficulties with Adidas and Nike, because they don’t focus on mid-sized retailers,” complained Hans-Hermann Deters, managing director of the purchasing association Sport 2000. Nike, for example, is demanding a minimum annual order volume of €25,000 with effect from next year. That would mean that every fifth retailer in the group would no longer be supplied by the global market leader. Outlet owners are looking for alternatives. “Puma is on the right track, we will support them,” said Mr. Deters.
That is important, because for years the brand was losing shelf space. In 2013 Puma was still Sport 2000’s fourth biggest supplier, and it has now dropped to sixth place. Nowadays, the mid-sized Jako sells more products with the chain than Puma does. At market leader Intersport it has dropped to ninth place. So, Mr. Gulden is playing down expectations for the current year. After adjustments for currency effects, he said revenues will climb by up to 9 percent, and both operating profit and net income will improve. And that is despite the fact that this year is not exactly lacking in top events, as Mr. Gulden knows: “We are looking forward to a great sports year with the Olympic Games in Rio, the Copa Américana in the United States and the soccer European Championships in France,” he said in his statement.
Joachim Hofer covers the high-tech industry and IT sector for Handelsblatt. email@example.com