Adidas Five Year Business growth Strategy
Adidas is a leading sports shoe brand, headquartered in Herzogenaurach, Germany. Apart from being, one of the largest and most popular sport shoe brands, the company is also a leading competitor of Nike, the world’s biggest sports shoes and apparel brand. While the company experienced a decline in sales and revenue in 2020, compared to the previous year, its eyes are set on faster growth in the future. Adidas has turned its focus towards customer experience and technology to achieve after growth.
Apart from that, sustainability also features as an important factor on its agenda for the next five years. The sports shoe industry is experiencing higher competition driven by several factors including technology and demographic factors as well as marketing. Nike is currently the leading player in the industry, which has strategically been investing in technological innovation to grow its sales and strengthen the company’s brand image.
However, Adidas is Nike’s leading challenger and it has also made some important changes to its business model and strategy over the past few years to improve its competitive edge against Nike.
In 2021, after having faced a highly challenging 2020, Adidas is planning to invest in long-term growth. The company experienced a decline of 16% in its net revenue in 2020 compared to the previous year. Digital technology is driving several major changes across the sports shoe industry and Nike is ahead of the others in this area. For Adidas to maintain its competitive position and market share, it is essential to undertake a complete digital transformation. This will enable the brand to achieve superior results by growing its efficiency and customer connection.
In any industry, success comes from maintaining a central focus on the customers. In the shoe industry too, customer experience has become central to maintaining growth momentum and gaining a stronger competitive edge. Adidas has set aggressive growth plans and termed its 2025 growth plan ‘Own the Game’. Rather than a strategic plan of action, it sounds like a slogan but demonstrates the brand’s commitment to snatching market share from its leading rival Nike.
In this post, we will discuss the latest business strategy of Adidas and how it can enable faster growth for the company over the next four to five years.
Highlights of Adidas’s latest business strategy:
- Focus on growing the credibility of the brand.
- Improving the consumer experience
- Focus on sustainability. (90% of the new products will be sustainable)
- Improving adidas brand architecture and making it sharper.
- Changing to a direct to consumer led business model.
- Achieve double ecommerce sales.
- Investing one billion euros in digital transformation
- Establishing a mindset of innovation organization wide to drive faster change and adoption of more innovative methods.
Innovation now features on the top of the company’s agenda for faster growth in the future. Its new strategy includes a solid investment in digital transformation. However, while innovation is key to growth and sustaining its competitive edge, there are other several factors too worth noting that will remain critical to achieving faster growth in the future in any industry sector.
In any industry sector, the picture revolves around the customer, and formulating a customer-centric strategy is key to achieving growth and remaining the customers’ favorite in the longer term. While Adidas has remained customer-centric in the past, it seems with changing times and changing customer preferences and needs it might be time to revive its strategy and show more customer dedication.
A higher focus on innovation will also require the company to make it an intrinsic part of its organizational culture. The company is ready to steer itself in a new direction. Nike has substantially grown its edge over the past few years through strategic investment in research and development and making a digital transformation possible that made it the formidable leader in the sports shoe industry.
Adidas is also ready to undertake a similar transformation. The future is going to be more full of competition. Unless companies put more effort and investment into the strategically important areas, they may end up losing the game to the best players in the industry.
Adidas’s new strategy begins with an increased focus on building the credibility of the brand. The company is already a well-recognized brand that enjoys strong demand. However, based on the level of competition in the industry, and how it is intensifying day by day, Adidas will need to focus more on growing its credibility. The question is how to build a grow credibility. This will depend on growing the brand’s and its products’ distinction in the market.
Apart from drawing a clear brand architecture, the company will also focus on specific product segments that are expected to drive the highest growth in the near future. The growing relevance of athleisure trends demands that the company focuses on sports-inspired leisurewear.
As a part of its plan, the company will primarily focus on the following five categories: Football, Running, Training, Outdoor, and Lifestyle. Adidas expects that these categories will drive 95% of its total revenue growth until 2025.
The company is also planning to grow its focus on the women’s segment. It will execute on a cross-category plan to achieve product excellence and to elevate the women’s experience with the goal to grow currency-neutral net sales for its Women’s business at a mid-teens rate on average per year between 2021 and 2025.
Improving consumer experience:
While companies are utilizing an omni channel strategy to reach their consumers and achieve higher sales, the importance of managing a superior customer experience along all these channels has also grown a lot.
Consumers’ expectations from brands and their preferences have undergone a sea change over the past few years. So, whether along the physical channels or the digital channels, the companies need to provide their customers a shopping experience that is tailored to the customers’ preferences including personalized offers.
Adidas plans to change its business model into mainly a direct to consumer business. This business model will be built around membership, enabled by a network of own-retail stores and e-commerce. The company expects that by 2025, more than half of its sales will be achieved through its direct to consumer sales channels. These channels will also drive 80% of the sales growth for the company until 2025.
The company also expects its e-commerce sales to double its current by 2025. Adidas will continue to invest into its e-commerce capabilities and expansion of its membership program. The company expects that the number of its members will have more than tripled the current by the year 2025. Currently, the number of Adidas members is around 150 million which it expects to grow to 500 million by 2025.
To improve customer experience further, the company’s physical stores will be equipped with full-fledged omnichannel capabilities. The company’s wholesale partners will also be included in its digitalization plan to ensure a seamless experience for consumers across all the touchpoints. Megacities still feature on the top of Adidas’ growth agenda. The company will seek to drive membership growth through its focus on megacities.
The company will continue to build on its existing Key Cities portfolio of Tokyo, Shanghai, Paris, London, New York, and Los Angeles, by adding Mexico City, Berlin, Moscow, Dubai, Beijing, and Seoul. Apart from the twelve megacities, Greater China, EMEA (Europe, Middle East, and Africa), and North America have also continued to grow in strategic importance as leading markets of Adidas products. Adidas will continue to grow its investment in these markets in a higher proportion compared to the others since they are going to account for 90% of its net sales growth until 2025.
Adidas had made sustainability a key part of its business strategy around two decades ago. While the company has gained substantially in this area and successfully advanced its sustainability agenda over these years, in the future it expects to grow its investment and focus on sustainability.
Currently, six out of the ten products that Adidas makes are made from sustainable material. However, by 2025, the company plans to grow this limit to 9 out of ten. To achieve this, the company will further expand and innovate its three-loop system: recycled loop (made from recycled materials), circular loop (made to be remade), or regenerative loop (made with natural and renewable materials).
Over the past several years, Adidas has been researching fully biodegradable or recyclable materials. It plans to use only recycled polyester in every product in every product that it makes. Apart from that, the company will also intensify the marketing efforts behind the sustainable products it makes. Sustainability will be a key part of its product strategy but apart from that, it will also occupy an important space in marketing.
Adidas is planning to project the image of a highly sustainable or sustainability focussed brand in the coming years. The company will also roll out its take-back program at a larger scale to take products from consumers for recycling. The shoe brand has committed itself to reducing CO2 footprint by 15% for each product by 2024. Adidas is also working with its global supply chain patterns to expand the ambit of its sustainability programs. This will help the company reduce energy and material consumption and make greater use of green energy sources in its system. The company plans to achieve climate neutrality in its operations by 2025 and overall carbon neutrality by 2050.
In order to get ahead of the others and emerge as the leading player in the game, Adidas would need to invest heavily in digital transformation. One of the leading factors that have helped Nike, the biggest competitor of Nike maintain its leadership position is its investment in digital transformation. The balance is tilted heavily now in the favor of digital technology. Since the pandemic, the use of digital channels for shopping has grown among customers worldwide. People are now shopping more from Amazon and other eCommerce websites or the direct-to-consumer digital channels owned by brands.
As a result, companies are now investing more in providing an omnichannel experience with a central focus on digital technology. Digital does not just attract more consumers but it also helps grow the efficiency of businesses and generate superior results.
Adidas has also planned to invest heavily in digital technology for superior performance and to accelerate its sales growth. It plans to invest more than 1 billion Euros in digital technology by 2025. It plans to digitalize all the core processes across the entire value chain including the creation process with 3D design capabilities, via the sourcing of its products to selling it to customers and consumers.
By 2025, the company expects to generate the vast majority of its sales through digital channels and from products that were created digitally. The company also plans to expand its data and technology expertise internally and expanding the size of its tech team. Adidas plans to hire at least 1000 people with expertise in technology and digitalization in 2021. It will also invest in digital resources to streamline its business operations including the new ERP system S/4HANA.
Mindset and culture of innovation:
The success of an organization is mostly rooted in its organizational culture. If you want to create an innovative organization, you must try to create an organizational culture of innovation first that drives a mindset of innovation organization-wide.
In recent years, the company has intensified its focus on innovation and struck several partnerships that can help grow the pace of innovation happening inside the organization. Adidas has stated that it will continue to focus on strengthening the innovative mindset across the organization to ensure that groundbreaking innovations continue to flow. In the past, it has brought several groundbreaking innovations including Boost technology and the partnership with the Parley for the Oceans. The latest such example is its Future Craft technology.
Other examples include a running shoe with an upper based on athlete data to be released in 2022 or new vegan and recyclable versions of the popular lifestyle silhouette Stan Smith. Apart from that, Adidas is planning to make one of its most successful franchises, the most sustainable in its entire portfolio. Other innovations that Adidas is planning to bring include new tech platforms in running, a swipe mechanism for product feedback incorporated into the Adidas app as well as dedicated and sustainable Outdoor stores in the Alps called Terrex Mountain Lofts.
Adidas also plans to launch Adizero Adios Pro 2, whose first generation it launched in the second half of 2020. Apart from these, the company already has several innovations in the making. The company also plans to launch the Ultraboost DNA Loop in larger quantities for the first time in 2021.