|Industry||Sports Equipment manufacturer|
|CEO||Kasper B Rorsted|
|Revenue||EUR 20 billion|
|Profit||EUR 1.92 billion (9.6% net margin)|
|Competitors||Nike, Puma, Under Amour, New Balance|
The German giant, with the iconic 3-stripe and 3-trefoils logos, is the leading sportswear company that sells sports apparel, shoes, and sports equipment. Adidas operates in over 160 countries in the world, joining Nike and Under Amour as the trinity of global sporting goods companies. Adidas AG owns Adidas and Reebok brands and distributes goods under those two brands through 2,500 stores worldwide and a franchise network. While Adidas focuses on popular sports, such as football, American football, basketball, running, training gears, Reebok is specialized in gym apparel and target gym-goers. 90% of Adidas AG sales are accounted for by Adidas-branded merchandise. Footwear is Adidas’s biggest product segment, which generates around 60% of sales. The apparel segment contributes 35%, and the remainder 5% is filled with sports equipment. Today we will go over a detailed SWOT Analysis of the company.
Adidas Strengths 2020:
- Strong brand recognition and a large marketing budget have allowed Adidas to score large sponsorship deals with sports teams and athletes.
The company has been FIFA and UEFA’s sponsor for the footballs and apparel used in major tournaments for many years, a position that even Nike cannot overthrow. They are also the main sponsor for Germany National team, Manchester United, Real Madrid, as well as famous footballers such as Paul Pogba, Lionel Messi, and Gareth Bale. Adidas also secured a sponsorship deal with the MLS (the U.S professional national football league) to expand the brand’s exposure in the U.S market. Apart from football, Adidas also has sponsorships with athletes in basketball (James Harden, Donovan Mitchell), boxing, rugby, and many Olympic teams.
- Innovative and top-quality products keep Adidas’s sales high and affirm its position among competitors.
Collaboration with artists and other celebrities, such as Kanye West and Pharrell Williams, allows Adidas to penetrate the premium casual fashion, where the Yeezy 350 can be sold for hundreds of dollars. The company constantly introduce new lines of football boots with new designs and features to suit the demands of their top athletes, as well as improving and refreshing current lines with new colors. Adidas is also in the race with Nike for the carbon-sole running shoe market, and its latest product received positive reviews from professional athletes.
- Strong financial performance over the last 10 years, Adidas is only second to Nike in terms of revenue and profit.
Adidas recently divestiture its non-core brands, TaylorMade and Rockport, and it resulted in a 55% jump in net income in 2018. Its margin also increased as the company was able to grow sales without adding a similar proportion to the cost of sales.
Adidas Weaknesses 2020:
- Adidas’s overall sales rely too much on the footwear segment.
The segment is currently accounted for 60% of sales and it is expected to rise further in a near future. However, the growth of footwear sales has slowed down significantly, from 23% in 2017 to only 3% in 2018. To avoid the negative effect of changing consumer taste on revenue, Adidas should diverse its revenue to apparel and sporting equipment, or introducing new and innovative shoes to reignite the demand.
- Fewer brands under management limits Adidas’ abilities in brand positioning compared to Nike.
At the moment, the company markets its products under Adidas and Reebok brand, while Nike has NIKE, Jordan, Hurley, and Converse brands to market its products, therefore Nike could reach out to different customer groups using its lifestyle products lines. Reebok brand does not receive the same attention from the parent company as Adidas brand, therefore the average sales growth and profitability are much weaker, and it cannot compete with Jordan or Converse in terms of sales volume and brand recognition.
- Too little market shares in North America even though Adidas is a global force.
According to Euromonitor, Adidas only represented 5.9% of the U.S market in 2019, while Nike had 16.7% of it. Adidas’s main sports, football, is not a popular choice among Americans and the company cannot win sponsorship deals with major professional leagues, such as the NFL and the MLB. Adidas used to be the main apparel sponsor for the NBA, however, it lost the contract to Nike.
Adidas Opportunities 2020:
- Many opportunities on digital platforms for sales and customer engagement, given its early-stage succession in e-commerce.
Adidas only launched its mobile application in 2017, but it is now available in 30 countries and features the latest augmented reality technology for customers to try on products virtually. Combined with Adidas’s Creator Club, a loyalty program that rewards shoppers with access to exclusive events and products, app sales have increased by four times. Adidas can also merge its mobile app with digital touchpoints in stores to enhance customer engagement. Adidas also sells products on its website, in which it is forecasted to continue its double-digit growth rate.
- Focus on six key cities: Los Angeles, New York, London, Paris, Shanghai, and Tokyo to expand sales and enhance customer experience there.
These urban markets are very important since they generate about 80% of global GDP and they are expected to host 60% of the world population living there by 2030. Adidas’s management plans to double revenues in these cities.
- Focus on penetrating the North America market to catch up with Nike in sales and market shares, which are relatively low compared to other regions.
The company leads the German market and ties with Nike in Western Europe, however, its market shares in the U.S is only 5.9% compared to 16.7% of that of Nike in 2019. North America sales increased by 8% in 2019, in which Adidas brand and Reebok’s sales rose by 7% and 12%, respectively. Adidas can further narrow the gap with Nike, in terms of operating margin, by pushing sales of full-price items, despite higher sales and marketing expenses.
Adidas Threats 2020:
- Since close to 75% of Adidas’s sales are outside of the Eurozone, the company is exposed to exchange rate fluctuation.
Central banks around the world have been issued different monetary policies to fend off the recent recession, making exchange rates harder to predict.
- Environmental–conscious consumers are on the rise and it might force Adidas to further innovate its products to cut wastes and encourage recycling.
Every year, there are millions of old shoes end up in landfills around the world, further worsen the problems with the environment. A few Adidas products are already made from recycled material; however, environmentalists would demand further efforts from sports apparel companies, for a better environment.
- Adidas lost its 3-stripe design in the EU after the general court of EU ruled it was not distinctive enough in 2019.
The company states that “This ruling is limited to this particular execution of the three-stripe mark and does not impact on the broad scope of protection that Adidas has on its well-known three-stripe mark in various forms in Europe,”. While waiting for the appeal court, Adidas’s design could be subjected to imitation.
Adidas SWOT Analysis Conclusion 2020:
Despite reaching its 100th birthday, Adidas has never lost its innovation touch that helps position itself as the second-largest sports apparel and equipment manufacture. The company dominates the market in Germany and has a very strong appearance in other Western European countries, as well as the ones in the Asia Pacific region. Adidas has promising opportunities to expand its sales via its mobile platform and focusing on the North American market. The company has a long history and a competitive edge in the world’s most popular sport, football. You can find a blank SWOT pdf template here.
Poonam Goyal, A. G. (2020). Adidas: Company Outlook. Bloomberg Intelligence.