Business Strategy of Adidas
Business strategy has a very important role in the making of any market leading brand. The 21st century marketplace is highly competitive and to stay ahead of others you need a strong business strategy. Changes happen fast in the business world. However, strategy is at the foundation of everything you need to excel in a highly competitive and fast changing business environment. In this article, you will read about the business strategy adopted by Adidas for market growth. During the recent years, Adidas has made several changes to its business strategy for achieving faster growth worldwide.
Nike is currently dominating the market, but the sales of Adidas have grown fast. The brand is gearing up for a high jump in the near future. Its new business strategy encompasses several things from changing the company’s strategic focus, to creating more sustainable products and technological innovation. Adidas is aiming to become the first true fast sports company of the world. Speed is a very important element and at the core of its new business strategy. It also aims to leverage its scalable operating model to grow its income faster and derive better financial and operational results. The financial results of 2017 prove that these changes have started bearing results better than expectations and if Adidas can sustain the momentum, it could reduce the gap between itself and Nike faster.
An overview of the Sports shoe industry:
The US Sports shoe industry is being shaped by athleisure trends. It is seeing fast growth and high level of competition. In 2017, it achieved a growth of 2% in terms of unit sales and generated $19.6 Billion in sales. Looks like ladies have been shopping the most because the ladies footwear category was the one to have achieved the highest growth in sales of around 5% compared to the previous year. Men’s and Kid’s sports shoes saw a growth of 1% each. Sports leisure is now the largest category in US athletic footwear. Among the best selling brands in the U.S. market were Nike/Jordan, Adidas Skechers, Under Armour and New Balance. While Nike and Jordan continued to rule the top ten best sellers in the U.S. market, Adidas also made it to the list. Two of Adidas models made it to the top ten. However, in terms of sales, Adidas that achieved the highest growth.
The global sports shoe industry has also seen similar changes happening at a fast rate. In 2015, the global footwear industry was valued at 75.2 Billion dollars. However, it is expected that by 2023, this value would have crossed the $115.6 Billion mark. One central factor supporting fast growth of sports shoe industry worldwide is the rising health consciousness. Globally, the population of millennials is highly health conscious. Apart from fitness trends, growth in gym and sports infrastructure across the urban areas, has supported the growth of this industry. The two markets that are leading in terms of overall sales are Europe and North America. However, a large proportion of sales are also coming from the fast growing Asian economies. Nike has steadily continued to dominate the sports shoe and apparel market. However, Adidas has also made a strong return, by growing financial investment in innovation and digital technology. 2017 financial performance of Adidas tells an exciting story of fast growth and exceptional financial performance. Its higher focus on innovation, digital technology and sustainability has started paying off and one can expect Adidas to perform better in future.
Key Elements in Adidas Business Strategy:
- – Corporate Strategy – Creating the new.
- – Focus on Sustainability
- – Investment in Digital
- – Marketing for higher impact
- – Effectively managing the supply chain
- – Focus on key urban markets
Corporate Strategy – Creating the New
Adidas’ mission is to be the best sports company in the world. Being the best means making best in class products and serving the customers in the best manner possible. Its new strategic business plan is termed “ Creating the new”. At the core of this plan is Adidas’ ambition to drive top and bottom growth further by increasing the brand desirability significantly. The focus therefore is how the brands connect and engage with the customers. However, to achieve its new business plan, the brand has also focussed on the creation of a performance culture. The new strategic plan of Adidas is built around three strategic choices – speed, cities and open source.
Brand desirability at Adidas begins with customers. The customers are at the centre of everything it does and focuses on saving them in the best possible manner. However, this also includes speeding things up so the consumers can find fresh and desirable products where and when they want and a matchless shopping experience. This requires Adidas to be able to anticipate consumers’ desire and to react fast to it. Speeding things up and being fast to react to consumers’ demand will enable it to grow faster by giving it . There are three Pillars of the Speed program which are never out of stock, planned responsiveness and in season creation. Since the creation of this program the coverage has been expanded continuously. Now, it has completely onboarded all the markets and programs and the brand has started capitalising on the benefits of all the SPEED Programs. The net sales share of products supported by the SPEED program has also continued to rise. Apart from speeding things up in the existing supply chain of Adidas, the brand is also exploring new disruptive business models and technologies.
World’s biggest cities contribute to the largest part of the world’s GDP. It is why Adidas has focused specifically on major cities. It started from London, Los Angeles, New York, Paris, Shanghai and Tokyo. It aims to create an end to end ecosystem connecting consumers with relevant products. These key cities also provide platforms for the activation of ADIDAS brands. Some of the major successes in this area include ‘Green Light Run’ in Tokyo, receiving six Cannes awards, as well as the Parley ‘Run for the Oceans’ in New York City and the launch of our new football footwear franchise Nemeziz in London. Apart from generating excitement in the respective cities, these events also got excellent social media coverage all throughout the globe. Focusing on consumer experience in these cites has helped brands find growth faster. In 2017, these cities made an above average contribution to the overall growth of the company and its market share.
The focus of ‘Open Source’ is to let consumers enjoy higher participation in the products Adidas makes. This part is about learning and sharing and inciting conversations between the brand, external experts and consumers. Three strategic initiatives started for Open Source are creative collaboration, athletic collaboration and partner collaboration. Creative collaboration focuses on increased partnership between the brand and outside creative thinkers. Athlete collaboration focuses on partnering with athletes so that the two can shape the future of sports together. Partner collaboration on the other hand focuses on sharing resources and expertise with the best in other fields. In order to accelerate its ‘Create the New Plan’ Adidas introduced a few new initiatives. The first major initiative taken in this regard was to update the portfolio and focus only on the core areas of sports shoes and apparel. Another important strategic initiative was focused upon North America and making it a strategic priority since this is the largest market for Adidas that represents around 40% of total share in the sporting goods industry. However, another important dimension of this plan is to align the efforts of the entire business and therefore One Adidas. While Adidas is continuously working to achieve operational excellence, it is also focusing on bringing higher alignment throughout the entire organization. In this regard it has focused on three important pillar that include brand leadership, marketing effectiveness and operational efficiency. ‘Creating the New’ plan cannot catch pace without investing in digital. Its digital transformation plan is also one important part of its new business strategy.
– Focus on sustainability:
Sustainability has become a key focus for all the big brands of the world including Adidas. The brand is smartly investing in this area and has formed some important partnerships that will enable it to achieve higher efficiency while having lower environmental impact. It formed a strategic partnership with Parley for The Oceans. It is now producing shoes using the Parley ocean plastic. In 2017, it continued to reduce its use of virgin plastic and made more than a million pair of shoes using Parley Oceans plastic. Moreover, 99% of the cotton that the brand sourced from around the world was better Cotton. It has integrated sustainability in most aspects of its business from supply chain to product creation and store concept development. The brand has also decided to keep its offices plastic free and for that it implemented a plan that will avoid the use of at least 40 tons of single use plastic every year. However, that is not all because the brand is focusing on more eco innovative technologies and processes that reduce its dependence on harmful products and minimise its environmental impact. Not just Adidas but Reebok is also focusing on production using sustainable raw materials. It has announced Cotton & Corn sustainable products initiative. This initiative intends to bring plant based products to the market by 2018. These shoes will have an upper part made up of organic cotton and a base made from industrial grown corn. For this initiative Reebok has partnered with DuPont Tate & Lyle Bio Products, a leading manufacturer of high-performance bio-based solutions. In this way Adidas & Reebok have continued to raise their investment in sustainable products and processes.
Investment in Digital:
Digital technology is changing many things in the business world and there is a strong reason that every brand must have and follow a digital strategy. Consumers want personalised and better experiences from the businesses. However, digital is also helping brands manage their supply chains, distribution networks and inside the store experiences better. Adidas has also invested in digital technology to drive its productivity high. In 2017, Adidas founded the digital leadership team whose responsibility was to start digital initiatives across the entire company and support the various functions with decision making in this area. This team has set its digital priorities and also set a clear digital roadmap for the future. Adidas is crafting a new digital experience for its customers which starts from Adidas and Reebok websites. the brand has set a target of 4 Billion revenues in terms of e-commerce revenue for itself. In 2017, it also introduced new features and technologies on its e-commerce channels such that the customers can have a great online shopping experience.
2017 also saw the launch of Adidas app. Its e-commerce channels are also the fastest growing of its all sales channels which achieved 57% growth in 2017. Digital experiences shape the perception of consumers towards a brand and as such digital is now an essential part of brand’s business strategy. However, digital extends deeper in Adidas’ system than shopping and marketing. The brand is forming fresh partnerships to extend the impact of digital in its entire system. It has adopted the digital light synthesis which eliminates the need for traditional prototyping or holding in the making of athletic footwear. Apart from that Adidas and Siemens announced a collaboration that is aimed at minimising the time it takes to bring a product to the market. The two are going to undertake research and development programs together which will enable the Adidas speed factory to grow capabilities that will aid fast, transparent and individualised production. Siemens is a leader in digital factory automation and simulation solutions, and the expertise it brings will offer greater flexibility and higher manufacturing efficiency to Adidas.
Marketing for higher impact:
Both Adidas and Reebok are trying to achieve more from their marketing efforts. Adidas focuses on creating inspirational and innovative marketing concepts driving consumer advocacy as well as brand equity. Adidas uses its marketing activities to build trust among its customers. Apart from that, it uses its marketing efforts to maintain the iconic status of its key franchises, making it more reasonable for buyers to buy from these brands. A large part of its marketing investment is spent on partnership assets. However, Adidas plans to decrease this investment from around half of its total marketing investment to only 45%. In this regard it has partnered with high profile events, teams and individuals. through key events like FIFA, UEFA, French open and Boston Marathon it has continued to build its products to the biggest stages throughout the world. Similarly, it has been using high profile teams and individual football stars like Leonel Messi and Paul Pogba for the marketing and promotions of its brands. Apart from these the brand has also struck a large number of partnerships like that with Kanye West and Pharrell Williams as well as several top designers and design studios.
Similarly, Reebok has focused on creating an emotional connection with its customers. It has created a ‘Be More Human’ platform especially for consumer connection. To give its marketing strategy a more authentic feel, the brand has created a series of partnerships. It is building partnerships with fitness instructors and currently more than 100,000 fitness instructors globally are a part of its network. Its digital channels are the main channels for communication and marketing initiatives as well as from a commercial perspective. On its website, its focus is on improving usability, speed and consumer experience. 2018 has brought further enhancements to its digital ecosystem.
Effective management of the supply chain:
A large and complex global network cannot operated without an efficient supply chain. The effectiveness of the entire brand depends upon the effectiveness of its production system. Adidas has managed its supply chain excellently. Its global operations channel takes care of the supplier relationships and works in tandem with strategic supply chain partners for improving the process of manufacturing. The Global operations function is delivering against there strategic focuses that are :
- To make Adidas the first true fast sports company which involves speeding things up.
- Creation of a seamless consumer experience that has the customer at the centre.
- Transforming the manufacturing process.
While the number of total Adidas suppliers is around 800, the Global Operations function worked with 296 of them and 109 of them are strategic supply partners that have worked with the brand for more than 10 years. A very large part of its suppliers are located in Asia which is to minimise the costs of manufacturing since the raw material and labor are cheaper there. 97% of Adidas’s footwear production took place in Asia in 2017. China is its largest supplier of apparel followed by Cambodia and Vietnam. The Global Operations function plays the central role in managing the supply chain. The brand is especially focusing on speed in its supply chain and therefore created Speed-factories. These speed factories combine technology with art to better cater to customer demand. The first of these speed factories was opened in Germany.
In this way, Adidas has used a multi-pronged strategy for getting faster growth. Apart from focusing on increased technological efficiency through investment in digital technology, the brand has also focused on operational efficiency. Increased focus on supply chain has led to smarter management of the manufacturing processes. Marketing is also a critical focus which is being reshaped though the use of digital technology and by designing new and improved consumer experiences. To start with, it focused on six key megacities and which has helped it find publicity as well as better sales. Last year’s financial performance is an indication that Adidas might be very well poised to grow faster at a global scale.
Adidas Annual report 2017