April 7, 2020

Adidas SWOT Analysis (2020)

Company: Adidas Group
Founder: Adolf (Adi) Dassler
Year founded: 1924 (as Gebruder Dassler Schuhfabrik), 1949 (as Adidas)
CEO: Kasper Bo Rorsted
Headquarter: Herzogenaurach, Bavaria, Germany
Type: Public
Ticker Symbol: ADDYY
Market Cap (Feb 2020): $62.12 Billion
Annual Revenue (FY18): EUR 21.9 Billion
Profit |Net income (FY18): EUR 1.7 Billion

Products & Services: Sports Apparel | Football Boots | Basketball Shoes | Running Shoes | Sports Bags | Glasses | Hats | Headbands, and Wristbands | Hoodies | Yoga Pants | Shorts, T-Shirts | Jackets

Competitors: Nike | Puma | Under Armour | Callaway Golf | Fila | Converse | New Balance | ASICS | Lululemon Athletica | VFC | Victoria Secrets

Did you know both Puma and Adidas belong to Dassler brothers? In 1947, the brothers split up and opened their separate companies, which later became the biggest business rivals in the sports apparel industry.

Adidas Strengths

  • Brand Value: Adidas is one of the most valuable brands in sports. According to Forbes, it is ranked at #3 position (Nike at # 1 and ESPN at # 2) with a brand value of $6.8 Billion.
  • An Iconic Brand with a Prestigious Legacy: Adidas has nurtured a strong and prestigious legacy and heritage over its long, illustrious history by influencing and shaping numerous aspects of society across the world.

For example, the company influenced sports in the 70s and shaped the hip-hop culture in the 80s. Its iconic three-striped tracksuit and three-leafed motif logo transformed the brand into a cult, particularly among urban youth.

  • New Products Innovation: Since its founding, Adidas has prioritized the quality of its products over everything else. In 2018, EUR 153 million was invested in R&D (0.7% of its annual net sales). High-quality, innovative products are one of the driving forces behind its ever-growing customer base.
  • Diversified Portfolio: Even though the Adidas brand is restricted within the sportswear industry, the company’s products are diversified. It offers multiple products that are designed to cater to a wide range of sports, including footwear, apparel, and hardware accessories.
  • Young Customers prefer Adidas: The consistent focus on product quality and customer experience has enabled Adidas to nurture a global and loyal customer base, particularly teens and young adults between 16 and 24 years in urban areas.
Image Source: www.entsight.com | Survey shows that US youth prefers Adidas over other sports brands
  • Effective Supply Chain Management: Supply chain management is vital in the success of global companies, particularly for Adidas, since it outsources most of its manufacturing. According to its annual report, Adidas works with key strategic partners to ensure control of the entire supply chain.

Footwear – In 2018, 97% of total footwear volume was produced in Asia and Europe (1%) and the Americas (2%). Vietnam is the largest sourcing country representing 42% of total volume.

Apparel – In 2018, 91% of total apparel volume from Asia. Europe (3%), Americas (4%), Africa (1%). Cambodia is the largest sourcing country representing 24% of produced volume.

Hardware – In 2018, about 79% of hardware products (bags and balls) were produced in Asia, Europe (19%) and Americas (1%). China represents the largest sourcing country (38%), followed by Turkey (18%) and Pakistan (18%).

  • Strong Financial Position: Financial capability is critical in protecting market share and long-term profitability and sustainability. Adidas is among the most financially stable companies globally and utilizes its financial superiority to fend-off competition from other global companies such as Nike and Puma.

In 2018, Adidas’s currency-neutral revenue grew by 8% to EUR 21.9 Billion, and net income increased by 20% to EUR 1.7 Billion.

  • Strong & Diversified Distribution Network: Adidas has several distribution networks, including over 2300 company-owned retail stores, over 14,000 mono- branded franchise stores, and over 150,000 co-branded, retail partners and wholesale stores.

In addition, eCommerce platforms increase sales by providing different channels to reach target markets and sell directly to the consumers within these markets.

  • Effective Marketing Strategy: The strength of the marketing strategy used by Adidas stems from its perfectly balanced mix of promotion, advertisements, and the use of digital technology.
    • Branding through international sponsorships: Sponsoring global organizations provides an opportunity to advertise directly to sports lovers and fanatics globally. For example, the marketing campaign for the FIFA World Cup in Russia, NBA, Olympics.
    • Sponsorship of high-profile athletes such as David Beckham, Lionel Messi, Sachin Tendulkar, Andy Murray, etc. strengthens brand desire.
  • Celebrity Endorsements: Adidas has strived to maintain and enhance its recognition as a youthful and urban brand through endorsements from celebrities. Adidas has been endorsed by a long list of movie stars and music hit-makers such as BeyoncĂ© and Kanye West.

Adidas Weaknesses

  • Supply Chain Shortage: Adidas outsources the production of most of its products to 3rdparty or independent manufacturing suppliers, mainly in China, Cambodia, and Vietnam. It has exposed Adidas to the risk of overdependence on foreign suppliers.

According to Reuters, these suppliers are unable to keep up with the growing demand for mid-priced apparel in the North American market, resulting in a reduction in sales growth by 1-2% in 2019.

  • Expensive Products: Adidas charges a premium or high prices for its products, which has alienated low-income consumers. Only upper- and middle-income group customers can afford over a $100 shoe.
  • Limited Product Line: Adidas Group has only Adidas brand and Reebok brand under its portfolio, which has restricted the company within sports footwear, sports apparel, and accessories. Therefore, a decline in demand for sports-related products can be disastrous to Adidas.

Adidas Opportunities

  • E-commerce: In recent years, the number of consumers who shop online or use e-commerce sites has increased significantly. Adidas incorporated Instagram’s checkout feature into its distribution network, leading to a 40% increase in online sales in the 1st Quarter of 2019, which implies that it can replicate this success in other social media platforms such as Facebook and Snapchat.
  • Growing Sportswear Industry: Sports and fitness have grown in popularity with no sign of slowing down soon, which means there will be a consistent increase in demand for sportswear products and assortments.
  • Investing in Smart Materials: Technological advancements have enabled the development of new synthetic materials that are better and more beneficial than traditional materials.

Continual and increased investment in technological development and the manufacture of new materials can provide Adidas with an edge over its competitors.

  • Culture of Yoga Pants: Increased health consciousness, change in preference, and tastes among consumers have increased demand for sports-related products. “Culture of yoga pants” is redefining our sports apparel industry.
  • Increasing Demand for Premium Sports Products: Improved economic situation in developing countries has increased purchasing power and demand for premium products. Adidas can capitalize on this by expanding into countries such as India, where discretionary income is expected to increase by 45% by 2025.
  • Diversification into sporting equipments: Even though Adidas has a diversified portfolio, there is still room for expansion of its product line.

For example, Adidas can differentiate itself from Puma and Nike by expanding its product line to include sporting goods such as tennis rackets, golf clubs, hockey sticks, and so on.

  • Global Expansion: The rapid growth of emerging markets in Africa, Asia, and South America provides Adidas with lucrative opportunities for expansion. For example, Adidas has about 12,000 stores in China, and in 2019, they plan to open additional 1000 new stores.
  • Product Development in Space: In 2019, Adidas has partnered with International Space Station National Lab to explore new product development “Boost midsole creation” process without gravity.
  • Shoe Subscription – In the UK, it is estimated that over 300 million pairs of running shoes are thrown away every year. Adidas engineers are trying to make the entire running shoe (midsole foam, outer sole, knitted upper, an insole, laces, torsion bar) from the same material (usually, Adidas’s running shoes include over 12 different materials).

Once the shoe is worn out, it can be completely melted and recycled to new shoes. This concept is known as FutureCraft.Loop. Who knows – this can very well turn into a shoe subscription model in the future?

Adidas Threats

  • Competition: The main threat facing Adidas is increased competition due to globalization and technological advancements, which has enabled entry and penetration of small and medium companies. This implies that Adidas has to compete against main rivals such as Nike, Under Armour, Puma while fending-off new entrants and penetrators.
Image Source: Statista | Adidas’s Major Competitors
  • Rapid Expansion and Adoption of Ecommerce: Companies are adopting the rapidly expanding e-commerce at an alarming rate, which can pose a threat to Adidas if its main competitors such as Nike and Puma adopt e-commerce before them.
  • Supplier Dominancy: The fact that Adidas outsources most of the manufacturing of its products implies that the suppliers have more bargaining power than the company. The skewed balance of power exposes Adidas to the possibility of being held hostage by its biggest suppliers.
  • Loss of Trademark: In 2019, Adidas lost the three-strip logo trademark case in the General Court of the European Union, which exposes the brand to the threat of imitation.
  • Technological Advancements: The threat posed by competitors increases as they become more technologically advanced. This implies that a competitor such as Nike will pose a greater threat if they become technologically advanced than Adidas.
  • US-China Trade Tensions: Adidas operates globally, which implies that the company is susceptible to the reckless tit-for-tat imposition of tariffs between countries. A trade war is particularly threatening to Adidas because the US is the company’s second-largest market, yet vast majority of its products are made in China and other Asian countries. According to CEO Rorsted, currency war and tariffs pose a major threat to Adidas.
  • Exchange Rates: Fluctuations of major currencies such as the Euro and the US Dollar can negatively affect Adidas’s profits since it operates in the global marketplace.
  • Global Economic Slowdown: The effects of economic slowdowns, such as lower sales, negatively affect Adidas, just like any other company.
  • Fake Products: According to CEO Rorsted, 10% of Adidas products in Asia could be fake. The number and quality of fake products for premium shoe brands have increased significantly in the recent past, which poses a threat to shoe-manufacturing companies.