Between this year and 2025, Adidas wants to be more digital, more direct, more female-focused and more sustainable. But to do so, it must spend billions and may ditch smaller retailers.

A year in which the German sportswear brand finished with sales and income down did not stop the multibillion-euro brand from revealing an ambitious plan for the next five years, as well as some core changes to the way it works.

Adidas on Wednesday reported sales of 19.84 billion euros in 2020, compared to 23.64 billion euros in 2019. This was a decrease of 14 percent, in currency neutral terms. In the last three months of a topsy-turvy 2020, Adidas reported sales rose 1 percent to hit 5.55 billion euros.

Income before taxes plummeted 77.5 percent in 2020, going from 2.56 billion euros in 2019 to just 575 million euros in 2020. Nonetheless, results in the fourth quarter were slightly better than analysts had predicted, and Adidas forecast a far brighter 2021.

The company would be taking 2020 into account its new 2021 to 2025 strategy, named “Own the Game,” Adidas revealed. The new strategy had been about 18 months in the making, chief executive officer Kasper Rorsted said. He described 2020 as “a year like no other.”

Adidas decided to split its strategy into two parts, with the first half focused on 2021 and a recovery from the pandemic this year. The group aims for growth in the mid- to high-teens this year and a return to 2019 levels of business. During the presentation, Rorsted told journalists that over the first two months of this year the company was already doing “strong, double-digit business.”

The second half of “Own the Game” will concentrate on 2022 to 2025. During those years, Adidas is aiming for compound annual growth rates in sales between 8 and 10 percent and 16 to 18 percent in net income.

In a series of talks filmed at its headquarters in Herzogenaurach in southern Germany, Adidas executives outlined new plans for sustainability initiatives, sales, product lines and partnerships.

Possibly the most business-changing proposal is boosting direct-to-consumer sales, the company’s head of finance, Harm Ohlmeyer, commented.

In a year significantly impacted by the COVID-19 pandemic, the biggest winner in 2020 was Adidas’ e-commerce, which saw triple-digit growth before stabilizing. E-commerce growth came to 53 percent for the whole year, generating well over 4 billion euros in sales.

Over the next five years, the German brand plans to double down on that, predicting that online sales will grow up to three times faster than offline. Over the last five years, e-commerce net sales had increased 700 percent. By 2025, up to half of Adidas’ sales should be direct-to-consumer and e-commerce would have doubled, to total between 8 and 9 billion euros.

“It’s a truly seismic shift,” Ohlmeyer said. He explained that the move from less wholesaling to more direct-to-consumer sales meant Adidas received more revenue from each sale because it was, in effect, cutting out some of the middlemen. Adidas would have to spend more on things like logistics and marketing, he conceded, but this shift would also generate higher revenues and net income should grow faster than sales, Ohlmeyer said.

The company would continue to cooperate with retailers that had their own e-commerce environments, Rorsted added. But the new strategy meant some smaller retailers might “not be coming on this journey,” he confirmed.

Over the coming years, the plan was to extend Adidas’ digital world both behind the scenes and for customers, with investments of around 1 billion euros over the period. This included a membership drive to enlist more consumers into various loyalty programs as well as more streamlined design and production that would “consolidate the time between creation and delivery,” Rorsted predicted.

Adidas also planned some changes to the way it works with various territories.

For 2020, the final outcome in different parts of the world reflected the pace of the pandemic, as certain areas opened or closed depending on lockdowns. Europe was worst impacted in the fourth quarter, with net sales falling 6.2 percent, in currency neutral terms, to reach 1.3 billion euros. For the whole year, European sales were down 11.9 percent to 5.32 billion euros.

North American net sales rose 2.2 percent to reach 1.4 billion euros in the fourth quarter and Asia Pacific sales rose 1.4 percent to hit 1.92 billion euros. In Asia Pacific, customers in mainland China drove growth, the company said, adding 7 percent to the territory’s fourth-quarter sums. Even though Greater China was one of the first areas to recover from the lockdown, net sales for all of 2020 fell 17 percent.

Mild growth in the fourth quarter wasn’t enough to improve figures for the full year: North American net sales were down 8.6 percent, in currency neutral terms, for 2020 and totaled 4.76 billion euros. Net sales in Asia Pacific dropped 17.3 percent to 6.55 billion euros.

Because of the differences between Greater China and the rest of the Asia Pacific region, Adidas revealed plans to report these figures separately from 2021 onward.

Adidas executive Roland Auschel, responsible for global sales, said around 90 percent of all growth between 2021 and 2025 would come from three main markets — North America, mainland China and the EMEA region, which Adidas has redefined to include Europe as well as Africa, the Middle East and its emerging markets category. For that reason, the company now planned to concentrate on those three markets more than any others. By 2025, it was aiming for low double-digit growth in net sales in China and high single digit growth in North America and EMEA.

Adidas also revealed changes to brand architecture. Because of a perceived gap between lifestyle clothing and more technical, athlete-oriented items, Adidas now plans three main lines, each with their own logo adapted from the original three stripes. These will be: Adidas Originals, which will include status, hyped and luxury items as well as celebrity collaborations, Adidas Performance for actual play or practice, and Adidas Sportswear, destined to slot in between those two and “address the growing relevance of ath-leisure.”

The company also planned to concentrate on five main categories: running, training, outdoor, soccer and lifestyle. The company plans to put more effort into women’s clothing — seen as a growth area — as well as on sustainability. By 2025, nine out of 10 Adidas items should be sustainable, Martin Shankland, the executive responsible for global operations, said during the presentation, adding that Adidas shoes made out of mushroom and algae would soon hit the market.

Executives mentioned a variety of new releases, without going into great detail: A new high-end label called Blue Version, a partnership with home-exercise cycle company, Peloton, and cooperation with the U.S. luxury streetwear label, Fear of God, designed by Jerry Lorenzo, that had already been revealed in December. Existing arrangements with the likes of musicians Beyoncé and Pharrell Williams and designer Stella McCartney would continue. Further details on collaborations would be unveiled March 18, the Adidas executives teased.

Meanwhile Adidas’ troubled younger sibling brand, Reebok, had become something of a side note. In February, Adidas revealed plans to sell the smaller brand.

“We can’t predict who a potential buyer could be, whether it will be a strategic buyer or a private equity buyer,” finance boss Ohlmeyer told journalists, observing that the sales procedure had only just begun. “It’s an open process and there is tremendous interest.”

Over the fourth quarter, Reebok’s net sales fell 5.2 percent, currency neutral, to 406 million euros. Reebok’s full year ended with a drop in net sales, currency neutral, of 16.1 percent to total 1.4 billion euros. Adidas predicted that, until 2023, it would be bearing the costs of setting up the underperforming brand, bought 15 years ago, as a stand-alone concern.

load comments
blog comments powered by Disqus