Strategic and SWOT Analysis Report on Adidas AG
COMPANY OVERVIEW
adidas AG
(adidas or 'the company') produces sportswear and sports equipment. It offers
its products primarily through three brands: adidas, TaylorMade and Reebok. The
company operates in Europe, the Americas and Asia. It is headquartered in
Herzogenaurach, Germany and employed about 46,306 people as of December 31,
2012.
The company
recorded revenues of E14,883 million ($19,136.6 million) in the financial year
ended December 2012 (FY2012), an increase of 11.7% over FY2011. The operating
profit of the company was E920 million ($1,182.9 million) in FY2012, a decrease
of 3.5% compared to FY2011. The net profit was E526 million ($676.3 million) in
FY2012, a decrease of 14.2% compared to FY2011.
SWOT ANALYSIS
adidas produces
sportswear and sports equipment. It offers products primarily through three
brands: adidas, TaylorMade and Reebok. Strong brand portfolio will not only
enhance the market position of the company but also boost its topline. However,
widespread counterfeits deprive revenues for the company as well as dilute its
brand image.
Strengths
Leveraging strong brand portfolio to establish a
robust retail footprint
adidas is one of
the world's largest manufacturers of athletic footwear, apparel and equipment
with revenues of E14,883 million (approximately $19,136.6 million). The
company's leading market position is built on its portfolio of strong brands
like adidas, Reebok and TaylorMade. Its major brands adidas and Reebok cover
the footwear and apparel categories, providing both performance and lifestyle
products. The TaylorMade brand, which designs and markets golf products, leads
the golf industry in metalwood sales and is also the leading brand on the
world's major professional golf tours. Also, Reebok-CCM Hockey is one of the
world's largest designers, manufacturers and marketers of ice hockey equipment
and related apparel with two of the world's most well-recognized hockey brand
names: Reebok Hockey and CCM.
The company is
leveraging its brands to establish a strong retail presence and increase profit
margins by increasing retail sales as a percentage of total sales. The
company's portion of own-retail has grown substantially and currently adidas
operates 2,446 stores for the adidas and Reebok brands worldwide. In order to
ensure proper assortment and presentation at the point of sale, the company either
manages its stores itself (own-retail and e-commerce formats) or collaborates
with its wholesale partners such as mono-branded franchise stores, shop-in-shops,
joint ventures and co-branded stores. To further enhance its retail operations,
adidas has a central team which works closely with the company's market
organizations to drive the performance of the adidas and Reebok retail operations
worldwide. In order to further grow its retail footprint, the company plans to
open around 100 net new stores and remodel around 150 stores in FY2013. The
company also plans to open nearly 550 adidas and Reebok stores over the
five-year period. adidas' strong brand portfolio and enhanced retail presence
enable easier customer recall as well
as help it to drive topline
growth and to attain competitive advantage over its peers.
Focus
on R&D has facilitated continuous development of new products
adidas devotes
significant resources and attention to product development, process technology
and consumer insight research to develop products with innovative and
distinctive features for its two brands: adidas and Reebok. Even in difficult
economic environment, the company maintained its investment on R&D. adidas
spent E128 million (approximately $164.6 million) on R&D in FY2012 and E115
million ($147.9 million) in FY2011.
The adidas
Innovation Team is responsible for the development of new technologies and
concepts in all key product categories for the adidas brand. The team is
divided into groups that focus on apparel, footwear and hardware, within which
there are individual product focus categories. In addition to its internal
R&D efforts, adidas also procures a limited amount of R&D expertise
from established research partners, including University of Loughborough
(England), the University of Calgary (Canada), the University of Michigan (the
US), the University of Erlangen-Nuremberg and the University of Freiburg
(Germany). This strategy allows a greater flexibility and faster access to know-how
as compared to substantial time and resources required if developed within the
company.
During 2012, the
company partnered with BASF, a key material partner, to develop a material innovation
called Boost, which is being used for the first time in running shoes. adidas
launched
Energy Boost
running shoes featuring BOOST, a cushioning technology which provides high energy
return, in February 2013. Also during 2012, the company and University of
Calgary together developed adizero Prime SP sprint shoe. The research studies
conducted along with the University of Calgary focused on the optimization of
the stiffness of the lightweight carbon nanotube plate and the placement of the
shoe’s spikes. Further in the year 2012, two scientific studies were conducted
at Loughborough University to evaluate the effectiveness of the adiPower
muscle-warming pants. The studies proved this technology was able to maintain
muscle temperature at an optimum level between end of warm-up and race start
and therefore to increase sprint performance. In 2012, Reebok continued its
research with R&D institutes around the world, which included completing
testing on EasyTone footwear with Arizona State University, and continuing
lacrosse biomechanics with the University of Las Vegas. TaylorMade-adidas Golf
continued its long-term cooperation with researchers at the University of
Calgary in 2012, with extensive joint swing dynamic studies, identifying the
influence of club specifications on player performance and perception.
Such strong
focus on R&D has enabled the company to launch various products in 2012.
For instance, in the football category, the company introduced lightweight
adizero f50 football boot weighing only 165 grams. In the basketball category,
the company demonstrated its leadership in lightweight with the introduction of
the adizero Crazy Light 2, which weighs only 9.5 ounces (269 grams). Under the Rebook
brand, the company's new product launches during FY2012 included ZigShark (a
more responsive version of ZigTech), ZigLite (a lighter-weight platform) and a
heel-only version called ZigKick. TaylorMade also introduced the R11S line of
drivers, which incorporates a larger range of adjustability, featuring
TaylorMade’s Adjustable Sole Plate technology and Flight Control and Movable Weight
Technology. The company’s sales were driven by the latest product offerings.
New p 67% of footwear sales products launched during 2012 accounted for 78% of
adidas sales, and 67% of footwear sales for Reebok. At TaylorMade-adidas Golf,
products launched in the last 18 months (the typical product life cycle in
golf) represented 84% of total hardware sales in 2012. The company's strong
focus on R&D has allowed it to uphold the technological leadership in most of
its product segments. It has also enabled adidas to develop innovative
products, leading to strong sales.
Wide
geographical footprint with increasing focus on emerging markets
adidas sells its
products in virtually every country around the world.The company has an
established presence in North America and Europe and is also rapidly expanding
into emerging economies of Asia which provide a huge potential market compared
to the developed regions. adidas' presence in several geographical regions will
ensure diversified revenue stream and reduces the business risk. It also makes
the company less vulnerable to the vagaries of a single economy. The emerging
economies are growing at a faster pace as compared to the matured markets such as
the US, Japan, and certain European countries. adidas' effective participation
in high growth emerging markets has been its driver of growth in recent times.
For instance, in FY2012, revenues from European emerging markets increased by
21.9% in FY2011. Similarly, revenues from Greater China and other Asian markets
increased by 27.1% and 14.5%, respectively, in FY2012 over FY2011. Large
geographical footprint in diverse markets provides the company with the
resilience to withstand a setback in any one country and stabilizes revenue
growth.
Weaknesses
Dependence
on third party manufacturing
adidas
outsources nearly 100% of production to independent third-party suppliers,
primarily located in Asia, to minimize production costs. During FY2012, 96% of
the company's footwear volume for adidas, Reebok and adidas Golf was produced
in Asia. In comparison, the production in Europe and the Americas together
accounted for the remaining 4%. Moreover, China represents the company's largest
sourcing country with about 33% of total volume. Since the company procures its
merchandise from foreign manufacturers, it has little control over the product
quality. There have been concerns over unsafe Chinese consumer products in the
past. The Consumer Product Safety Commission has issued alerts and announced
voluntary recalls by US companies on numerous products made in China. Any
failure on the part of vendor and manufacturer to achieve and maintain high manufacturing
standards could result in manufacturing errors resulting in product recalls or withdrawals,
delays or interruptions of production, cost overruns or other problems that
could seriously harm the company's business. Overdependence on third party
vendors and manufacturers limits the flexibility to quickly shift to more
productive product lines. It also exposes the company to various risks that
could affect its operations.
Opportunities
Acquisition
of Adams Golf strengthens market position
adidas, through
its TaylorMade-adidas Golf business, acquired Adams Golf in June 2012. Adams
Golf designs,
assembles, markets and distributes technologically innovative golf clubs for
all skill levels. The combination of Adams Golf and TaylorMade-adidas Golf
brings together two complementary sets of brands, combining Adams' focus on
game-improvement as well as senior
and women
golfers with TaylorMade-adidas Golf’s focus on the younger and the low-to-mid
handicap golfer. Furthermore, the company plans to leverage synergies between
the TaylorMade and Adams Golf R&D departments, to share best practices and
to broaden Adams Golf’s product architecture. The company also intends to turn
Adams Golf into a global golf brand by leveraging TaylorMade-adidas Golf’s
established distribution channels around the world. This offers a significant future
growth opportunity, as 92% of Adams Golf sales were in North America in
2012.The acquisition of Adams Golf helps TaylorMade-adidas Golf to strengthen
its market position in the global golf category and to expand its presence
across products and customer demographics.
Growing
global footwear market
The global
footwear market has grown moderately in recent years. According to MarketLine
estimates, the global footwear market had total revenues of $256.6 billion in
2012, representing a compound annual growth rate (CAGR) of 3.5% between 2008
and 2012. In comparison, the European and Asia-Pacific markets grew with CAGRs of
1.7% and 4.8% respectively, over the same period, to reach respective values of
$98.4 billion and $49 billion in 2012. The performance of the market is forecast
to accelerate, with an anticipated CAGR of 4.9% for the five-year period
2012–17, which is expected to drive the market to a value of $326.5 billion by
the end of 2017. Comparatively, the European and Asia-Pacific markets will grow
with CAGRs of 2.5% and 5.9%, respectively, over the same period, to reach
respective values of $111.4 billion and $65.1 billion in 2017. The company, through
its strong brand portfolio and wide geographic presence is well positioned to
capitalize on the favorable trends in the global footwear market.
Sponsorship
agreements of major sports events enhance the company's visibility
adidas has
sponsorship agreements with major associations for sports events across the
world. The company signed an 11-year global merchandising partnership agreement
(beginning with the 2006–07 season) with the NBA. This deal made adidas the official
uniform and apparel provider for the NBA, the Women's NBA and the NBA
Development League. The company also has a sponsorship agreement with the Japan
Football Association until March 2015 and with the Australian Olympic Committee
until 2016. It also secured sponsorship rights to the 2014 FIFA World Cup. In
addition, in 2009, adidas extended its partnership with UEFA for the UEFA EURO
2012 and UEFA EURO 2016 football championships, as well as for all other
national team competitions to be conducted during 2010–17 under UEFA's EUROTOP
banner. As an official sponsor of the UEFA Euro 2012 in Poland and Ukraine, the
company expects to record sales of more than E1.6 billion ($2.1 billion) in the
football category in FY2012. This sponsorship positioned adidas among the
leading companies in the football category in Poland. This significantly
strengthened the company's position in the country and it estimates to become
the largest seller of sporting goods in Poland by 2015. In Ukraine, this
sponsorship enabled the company to improve its market position. Previously in
2011, adidas and RFEF extended their sponsorship agreement until 2018. In the
same year, the company and Argentine Football Association extended their
sponsorship agreement until 2022. Later in 2011, adidas and UEFA announced the
extension of their long-term partnership for the UEFA Champions League, UEFA
Europa League as well as the UEFA Super Cup and UEFA Women's Champions League. adidas
was also associated with London 2012 Olympic Games. At the Olympic Games, the
company outfitted more than 80,000 Games Makers with sustainable products,
supplied kit for 3,000 athletes competing in 25 out of the 26 Olympic Sports
and worked together with 11 National Olympic Committees. As a result, the sales
for the adidas brand in the UK grew by 24% currency-neutral for the first half
of FY2012, driven by demand for Olympic and Team GB (a brand of British Olympic
Association) products. Olympic license product sales in the UK grew by 250%
compared to Beijing 2008. Such agreements help in increasing the brand
awareness and increase customer base.
Growing
online retail channel
The growing
preference of customers to shop online has boosted the online retail trade in
the US,
Europe and Asia.
According to the US Census Bureau, online retail sales (adjusted for seasonal
variation) in
the US increased from $142.6 billion in 2009 to $224.4 billion in 2012,
representing a compound annual growth rate (CAGR) of 16%. E-commerce sales
increased 16.3% in 2012 over the previous year. Total retail sales, on the
other hand, grew by only 5.1% in 2012. E-commerce sales accounted for 5.2% of
total retail sales in 2012, compared to 4% in 2009. e-commerce sales totaled
approximately $67 billion for the third quarter of 2013, an increase of 17.5%
from the third quarter of 2012. A similar trend is noticed in the European
market. According to industry estimates, the online retail sales in Europe will
increase to $255 billion by 2017, a 70% increase over 2012. The Asian market is
also expected to witness strong growth in online retail sales in the next few years,
driven by strong growth rates in China and India. The Chinese online market, in
particular, grew remarkably by over 70% during 2009–12, surpassing $200 billion
according to industry sources.
The company
offers Reebok, adidas and TaylorMade products through the e-commerce platform.
In 2012, the
company launched a fully integrated brand and store site, providing a single destination for each of its brand’s consumers.
In addition, the company also launched new country-specific e-shops globally
for both adidas and Reebok. The company’s e-commerce offering currently covers 20
countries. The company also introduced customization concepts such as mi adidas
and miteam for the adidas brand. Mi adidas and miteam allow consumers to design
and order customized adidas footwear and apparel online In FY2012, sales from
adidas and Reebok e-commerce platforms grew by 68% on a currency-neutral basis
compared to FY2011. E-commerce revenues grew 78% to E158 million (approximately
$203.2 million) from E89 million (approximately $114.4 million) in FY2011. By
2015, the company expects its e-commerce business to increase to E500 million
(approximately $642.9 million). Online channel,
due to several
key characteristics such as convenience and lower costs, is likely to be a key
driver for sales growth in the near future. Additionally, online presence will
enable the company to tap into the growing online retail sales globally which
would, in turn, lead to increased sales.
Threats
Increase
in counterfeit products may hurt the brand image
The spread of
counterfeit goods has become global and the range of goods subject to infringement
has increased significantly. Some of the major factors that led to an increased
trade in counterfeit products include growing internet usage, extension of
international supply chains and more recently, the global economic downturn
that led customers to look for low cost alternatives. According to the Intellectual
Property Rights (IPR) Seizure Statistics by Customs and Border Protection (CBP)
Office of International Trade, the number of IPR seizures in 2012 reached
22,848 in 2012. According to European Commission, the number of detention cases
registered by customs reached 90,473 in 2012. Of this, the number of detention
cases registered under sport shoes category were 6,768. As a result, companies
such as adidas, which offer branded products, are likely to suffer more damage from
counterfeit goods. In 2012, about 13 million counterfeit products of adidas
were seized worldwide. Besides revenue losses, counterfeits also affect the
company's brand because of low product quality and reduce consumer confidence
in branded products, thereby affecting sales.
Intense
competition could hurt the company's margins
The market for
sporting goods is intensely competitive in the US and across geographies.
adidas
competes
internationally with a large number of athletic and leisure shoe companies,
athletic and
leisure apparel
companies, sports equipment companies and companies with diversified lines of
athletic and
leisure footwear and apparel and equipment.The company faces competition from
Nike and Puma in the international market. During FY2010–12, Nike’s apparel
sales grew at a CAGR of 12% followed by Puma (11%), which were higher than that
of adidas (8%). Nike also enjoys greater brand recognition. According to an
industry source specializing in brand related services and activities, Nike was
the 30th most popular global brand in 2012. In the US market, the company also
faces competition from regional players like Callaway Golf and New Balance
Athletic Shoe. Besides, in the US, the company faces competition from the
cheaper imported footwear from Asian countries like China. Thus, intense
competition and availability of cheaper products could put pressure on the price
of products and therefore adversely affect the company's margins.
Exposure
to foreign markets makes adidas susceptible to foreign currency fluctuations
adidas sells its
products throughout the world. As a result, it earns revenues, pays expenses,
owns
assets and
incurs liabilities in countries using various currencies. Since a significant
portion of the company's revenues are generated outside the euro currency
region and the procurement of production material and funding are also
organized on a worldwide basis, the currency risk is an extremely important
factor for adidas' earnings. The effect of changes in demand and refinancing
conditions and
fluctuations in exchange rates has a significant impact on the company's
earnings. The unexpected devaluations of currencies in developing or emerging
markets, such as the devaluation of the Venezuelan Bolivar could affect the
value of the company's earnings from, and of the assets located in, those
markets.
The value of the
company's equity investment in foreign countries may fluctuate based upon
changes in foreign currency exchange rates.These fluctuations, which are
recorded in a cumulative translation adjustment account, may result in losses
in the event a foreign subsidiary is sold or closed at a time when the foreign
currency is weaker than when the company initially invested in the country. Any
unfavorable change in other currencies would have an adverse effect on the
profitability of the company.
If you want SWOT Analysis Report on Adidas, than contact Mahasagar Publications.
