Commercial Awareness

Adidas
THE MARKET IS CHANGING
Introduction
Adidas (styled as ‘adidas’ on company websites without the capital ‘A’ and named after its founder
Adi Dassler) is a global sportswear business, headquartered in Germany. Adidas also includes the
Reebock sportswear brand.

The retail segment of the business sells sports products in football, basketball, running, training, and
outdoor activities. There is also an Adidas apparel range which includes high-end clothing such as
Porsche Design Sport.

While Adidas has a strong presence in many markets around the world, it has for a long time faced
stiff competition from Nike where, in key markets such as the US, Adidas is unquestionably second
place in market share. However, Adidas has recently been reporting very strong growth in the US
and has produced a 2017 performance which saw increased revenues (up 16%) and increased
operating profits (up 10%). Performance in Adidas’ strategic focus areas were the drivers of these
results: including the US, the other focus areas were China and digital commerce.

Brands
Brand loyalty is understood in wider terms as ‘brand personality’ which indicates how
customers might relate to a product with a strong brand. The evidence suggests that products
with strong brands entice and encourage customers to buy related products and remain loyal.

Brand personality is often seen in terms of character traits such as sincerity, excitement, and
sophistication. If a customer can personally relate to these ‘traits’ then they are more likely to
associate with the brand and become a loyal customer.

Brands have value because they can contribute to business performance. Each year, Forbes
magazine values brands by their worth and their top 5 for 2017 were Apple, Google, Microsoft,
Facebook and Coca-Cola1. Cristiano Ronaldo, it was reported in the Daily Mirror, is the only
footballer to appear in Forbes’ list of most valuable athletic ‘brands’.

Market demographics are key to understanding the development of the sportswear market. Strong
market growth is likely to appear where i) there is a growing younger age group, as experienced in
the Far East and South Asia and ii) where there is developing purchasing power amongst the
younger age group.

1https://www.forbes.com/sites/forbespr/2017/05/23/forbes-releases-seventh-annual-worlds-most-valuable-
brands-list/#54238a775b55
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 Revenues in US$2 billions
2013 2014 2015 2016 2017
Adidas 11.2 11.4 15.9 17.4 19.6
Nike 25.3 27.8 30.6 32.4 34.4

Both Adidas and Nike continued to perform strongly in 2017 and are likely to improve further. This is
in spite of a strengthened dollar which has seen Adidas’ price competiveness reduce in dollar based
markets. Strong growth might be important in developing and promoting products to the key Greater
Chinese market where consumer trends, indicating the importance of lifestyle brands, are likely to
be central to success and where a sports-related, active lifestyle is growing in attractiveness. It would
be vital for Adidas to keep its level of engagement in Greater China3 since it has experienced sluggish
growth in the last few years in both profits and revenue, and is fixed, almost permanently, in second
place to Nike in the giant US market. However, this might be changing since Adidas has been gaining
US market share recently from both Nike and Under Armour with sales rising by 21%4.

More recently, Adidas has been improving performance across Western Europe, China, Latin
America, the Middle East and Africa. The company is also benefiting from good sales performance
of its retro trainers which is likely to be very significant for the US, according to the Adidas CEO 5.
Adidas is investing in the US to challenge Nike. It still has a significant mountain to climb in the US
with Nike holding 60% of the footwear market (the global sneaker/'athleisure' market) and Adidas
holding less than 5%. For 2017, Adidas had sales of $5.1 billion in North America, compared with
Nike’s $15.2 billion6.

Adidas % Regional Sales

14 21
North America
3 Greater China

9 Western Europe
Japan
5 Latin America
19
Russia/CIS
MEAA
29

2 Converted at average IRS exchange rates for the year

3 China, Hong Kong, Macau, and Taiwan
4 https://www.businessoffashion.com/articles/news-analysis/north-america-and-china-drive-Adidas-growth
5 https://www.bloomberg.com/news/articles/2018-03-14/Adidas-fourth-quarter-sales-speed-up-after-slower-

third-quarter
6 https://footwearnews.com/2018/business/earnings/adidas-market-share-nike-under-armour-2018-

1202557651/
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All rights reserved
No part of this publication may be reproduced or transmitted in any form or by any means, or stored in any retrieval system of any nature
without prior written permission, except for permitted fair dealing under the Copyright, Designs and Patents Act 1988, or in accordance with
the terms of a licence issued by the Copyright Licensing Agency in respect of photocopying and/or reprographic reproduction. Application
for permission for other use of copyright material including permission to reproduce extracts in other published works shall be made to the
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 Nike % Regional Sales

4 3
North America
12
Greater China

6 45 Western Europe
Japan
Emerging Markets
18 Central & Eastern Europe
Others
12

In Europe, the heartland of Adidas’ market and presence, Nike’s recent growth figures for sportswear
are stronger than Adidas, which will be alarming for Adidas.

Adidas appears a few steps behind Nike and some analysts have suggested that Adidas needs to
do more in terms of its digital and social network presence, more effectively using its sponsorship
base, and developing new products. However, a recent study from analytics firm Brandwatch found
that Adidas has the most shared logo on social media, beating Nike, Google and Puma (and perhaps
confirming the brand’s digital “genius”7). One new area for Adidas is in developing products for fitness
tracking, but it is not the first mover in this field.

Morgan Stanley, the bankers, is predicting that Nike will overtake Adidas in Europe in the foreseeable
future – the very market that has been dominated by Adidas. Morgan Stanley’s market research
shows that Nike is strengthening its brand in Europe, particularly so in the 19-24 age bracket. In a
note to investors, Morgan Stanley analysts cautioned, however, that Nike’s problems in North
America appear to be worsening since it is offering discounts and threatening the value of the brand8.

Market development in China

Nike and Adidas have adopted different strategies to China, with Nike developing plans based on
celebrity endorsement for basketball sportswear, whereas Adidas has focussed on youth culture and
football. Both have government endorsements. In 2017, Nike partnered with the China Ministry of
Education to encourage physical activity in schools. In turn, Adidas has also partnered with the
Ministry to promote football skills. The partnership by Adidas seems rather a better move since the
partnership also taps into the growing popularity of football and is likely to prove a very effective
device to promote the brand.

7 http://footwearnews.com/2018/business/earnings/Adidas-market-share-nike-under-armour-2018-
1202557651/
8 https://qz.com/1067801/nikes-iron-grip-on-the-sneaker-market-is-slipping/

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All rights reserved
No part of this publication may be reproduced or transmitted in any form or by any means, or stored in any retrieval system of any nature
without prior written permission, except for permitted fair dealing under the Copyright, Designs and Patents Act 1988, or in accordance with
the terms of a licence issued by the Copyright Licensing Agency in respect of photocopying and/or reprographic reproduction. Application
for permission for other use of copyright material including permission to reproduce extracts in other published works shall be made to the
publishers. Full acknowledgement of author, publisher and source must be given. Page 3 of 4
For Adidas, currently, China is the third largest market (after Western Europe and the USA) but it is
the most profitable with gross margins (gross profit/sales) in excess of 50%. For Nike, China is likely
to become the second market in terms of revenue after the US. This development is notwithstanding
that a pair of trainers can often exceed average monthly wages in certain parts of China so, quite
clearly, there is a concentration of sales effort in the more affluent metropolitan areas.

Current events
Adidas announced they are withdrawing sponsorship of the IAAF (International Association of
Athletics Federations), the body that runs the Olympics. This is an extremely high profile withdrawal
of sponsorship as Adidas is the largest sponsor. It follows in the wake of continuing reports of doping
scandals surrounding athletes. The danger for the IAAF is of a snowballing effect of other major
sponsors withdrawing. This leaves open the door for Nike, however, to be represented in the
Olympics as the major running shoes and sportswear sponsor. The Olympics is one of the most
important marketing and advertising events for products associated with sport.

Adidas is withdrawing from certain sports markets. It has recently sold its golf club business,
TaylorMade, the largest golf club producer which experienced a drop in sales of over 25% in recent
periods. The Reebok brand is said to be slowly returning to profitability. Adidas has reduced staffing
in a measure to reduce costs and increase profitability but is it time to consider other products and
other markets?

Copyright © ICAEW 2018

All rights reserved
No part of this publication may be reproduced or transmitted in any form or by any means, or stored in any retrieval system of any nature
without prior written permission, except for permitted fair dealing under the Copyright, Designs and Patents Act 1988, or in accordance with
the terms of a licence issued by the Copyright Licensing Agency in respect of photocopying and/or reprographic reproduction. Application
for permission for other use of copyright material including permission to reproduce extracts in other published works shall be made to the
publishers. Full acknowledgement of author, publisher and source must be given. Page 4 of 4