Adidas Investor Day 2017: Riding the Athleisure and E-Commerce Waves
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March 21, 2017
Adidas Investor Day 2017: Riding the Athleisure and
E-Commerce Waves
1) In March 2015, Adidas introduced a strategic business plan named “Creating the
New,” which defines the company’s strategies and objectives through 2020.
Following exceptional financial results in its fiscal 2016 year, the company updated
its corporate strategy and introduced an acceleration plan that outlines more
ambitious growth targets than those initially set in 2015.
2) Adidas is a major player in an industry that is highly attractive due to its robust
growth trends, which have been driven by the rise of athleisure, increasing global
concerns regarding health and fitness, and higher sports participation rates. The
global sporting goods industry is forecast to grow at a mid-single-digit rate in 2017.
3) The company will propel sales growth by driving brand desirability through
product innovation, brand exits and turnarounds, as well as by focusing on
strategic growth areas such as e-commerce, greater penetration of the North
American market and womenswear. Adidas plans to improve gross margins by
minimizing clearance activities, increasing the share of full-price sales and
speeding up its sourcing.
On March 14, 2017, Fung Global Retail & Technology attended the Adidas annual
Investor Day event at its global headquarters in Herzogenaurach, Germany. The
company’s new CEO, Kasper Rorsted, presented, as did its Head of Global Brands and
CFO. We left the event with a favorable impression. In our view, Adidas is a forward-
thinking, agile and innovative company. Here, we discuss the key topics covered during
the day and our top takeaways from the event.
Deborah Weinswig, Managing Director, Fung Global Retail & Technology
deborahweinswig@fung1937.com US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 1
Copyright © 2017 The Fung Group. All rights reserved.
March 21, 2017
CEO Transition Bodes Well
New CEO Kasper Rorsted joined Adidas on October 1, 2016, succeeding Herbert Hainer,
who had led the company for 15 years, making him the longest-serving CEO of a major
German company at the time. Rorsted is a highly regarded corporate executive who
previously held the post of CEO at German consumer staples company Henkel. Rorsted
has been widely lauded for Henkel’s 6% operating margin expansion from 2008 through
2014. The investor and analyst community is optimistic that, with Rorsted at the helm,
Adidas will increase its profitability and margins, and make headway toward closing the
operating margin gap with Nike. Adidas’s shares rose by 5.8% on news of Rorsted’s
appointment, while Henkel’s declined by 4.5%. Many Investor Day attendees were keen
to speak to and question Rorsted.
Creating the New
In March 2015, Adidas introduced a strategic business plan named “Creating the New,”
which defines the company’s strategies and objectives through 2020. Following
exceptional financial results in fiscal 2016, the company updated its corporate strategy
and introduced an acceleration plan that outlines more ambitious growth targets than
those initially set in 2015:
• Adidas plans to grow total company sales to €25–€27 billion in 2020, up from
€19.3 billion in 2016. The company expects sales growth to be higher than that of
the global sporting goods industry, which means Adidas will take market share.
• The company also aims to reach a total operating margin of 11% in 2020, up from
7.7% in 2016. This would narrow the company’s margin gap with archrival Nike,
which enjoys a 14% annual operating margin.
Source: Adidas
Deborah Weinswig, Managing Director, Fung Global Retail & Technology
deborahweinswig@fung1937.com US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 2
Copyright © 2017 The Fung Group. All rights reserved.
March 21, 2017
Rorsted strongly emphasized that Adidas has the right company strategy in place and
that management will now overwhelmingly focus on executing the strategy for the next
couple of years. Adidas has had a strong start in terms of accomplishing its 2020 goals,
but still has a long way to go to achieve them in full.
Source: Adidas
2016: A Blowout Year
The company achieved stellar operating results in 2016 and increased its top- and
bottom-line guidance several times throughout the year. In 2016:
• Net sales increased by 18% year over year.
• Gross margin expanded by 30 basis points due to better product pricing and
product and channel mix as well as lower input costs, all of which helped to offset
severe currency headwinds.
• Operating margin expanded by 120 basis points on cost control and operating
leverage.
• Net income increased by 41% year over year.
• The company’s share price surged by 67% over the year, and Adidas was the best-
performing stock on the German DAX Index for a second year in a row.
Increased Guidance for 2017
Management expects 2017 to be another standout year. For the full year, the company
has guided for:
• A net sales increase of 11%–13% year over year.
• Operating expenses as a percentage of sales to decrease.
• Operating margin to expand by 60–80 basis points year over year, to 8.3%–8.5%.
• A net income increase of 18%–20% year over year.
Deborah Weinswig, Managing Director, Fung Global Retail & Technology
deborahweinswig@fung1937.com US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 3
Copyright © 2017 The Fung Group. All rights reserved.
March 21, 2017
Attractive Industry
Sports footwear and apparel is a highly competitive industry dominated by large, global
players that include Adidas, Nike and Under Armour. Numerous smaller players are also
active in the industry. In 2016, Nike reported total company sales of $32.4 billion, and the
company plans to increase its sales to $50 billion by 2020.
Despite heavy competition, the industry is attractive due to robust growth trends, which
have been propelled by the rise of athleisure, increasing global concerns regarding health
and fitness, and higher sports participation rates. Market research firm The NPD Group
forecasts that the global sporting goods industry will grow at a mid-single-digit rate in
2017, even though no major global sporting events are scheduled to occur this year.
Consumer spending on sporting goods is expected to grow faster in developing
economies than in developed markets.
Source: Adidas
Athleisure and Streetwear
The casual athletic category continues to enjoy strong momentum, driven by retro
running and tennis designs and silhouettes. According to Adidas, the athleisure trend will
remain a strong structural driver for the sporting goods industry. Adidas will capitalize on
these ongoing favorable trends by creating and driving demand for streetwear through
sports-inspired lifestyle products.
Source: Adidas
Deborah Weinswig, Managing Director, Fung Global Retail & Technology
deborahweinswig@fung1937.com US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 4
Copyright © 2017 The Fung Group. All rights reserved.
March 21, 2017
Mission: To Be the Best Sports Company in the World
The company’s mission is to be the best sports company in the world, and its strategy is
to increase top-line growth and market share, expand gross margin and increase
operating leverage.
Source: Adidas
• Adidas plans to propel sales growth by driving brand desirability through product
innovation, brand exits and turnarounds, as well as by focusing on e-commerce
growth, greater penetration of the North American market and womenswear.
• All P&L items are expected to contribute to profitability and margin improvement.
• Adidas plans to improve gross margin by minimizing clearance activities, increasing
share of full-price sales, speeding up sourcing and improving manufacturing
efficiencies
• The company aims to increase operating margins through gross margin expansion,
cost control, more efficient marketing procurement and greater return on
marketing investment.
Source: Adidas
Deborah Weinswig, Managing Director, Fung Global Retail & Technology
deborahweinswig@fung1937.com US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 5
Copyright © 2017 The Fung Group. All rights reserved.
March 21, 2017
New Product Launches Are Key
The importance of maintaining a pipeline of new products, especially in footwear, cannot
be underestimated. In 2016, newly launched products accounted for 77% of Adidas
brand sales and 73% of Reebok footwear sales. New products have higher gross margins
than do those that have been on the market for more than one season.
The company’s new product designs have been based on:
• Design collaboration partnerships with athletes, performing artists, designers,
models, celebrities and digital influencers such as Kanye West, Pharrell Williams
and Stella McCartney.
• The relaunch of historic designs and styles with modern silhouettes and detailing,
using new materials and fabrics. For example, Adidas has leveraged some of its
iconic franchises, such as Stan Smith and Gazelle, to capitalize on retro and
nostalgia consumer trends.
• The use of innovative materials such as recycled polyester and biodegradable
fabrics in order to leverage consumer concerns regarding sustainability and
environmentalism. For example, Adidas unveiled the first mass-produced running
shoe created with recycled ocean plastic; the 7,000 pairs of limited-edition shoes
sold out in 24 hours.
Marketing and Distribution Strategy
Marketing spending constitutes a sizable portion of the company’s operating expenses
and represents an important mechanism for driving brand desirability. The company is
committed to improving marketing efficiency by focusing communication efforts and
brand initiatives on the most impactful partnerships with sports teams, events, athletes
and artists.
• Adidas will focus marketing spending, product introductions and retail store
investment on six key cities that influence global consumer trends: New York, Los
Angeles, London, Paris, Shanghai and Tokyo.
• The company plans to expand its controlled space, which is retail space where
Adidas is able to manage the way brands and products are presented. These
spaces include own retail stores and franchises, and shops-in-shops at certain
wholesale accounts. The company aims to generate 60% of revenues in controlled
spaces by 2020.
• The company recently opened its largest global flagship store in New York City, on
Fifth Avenue and 46th Street. The store features an innovative high school sports
stadium concept.
Deborah Weinswig, Managing Director, Fung Global Retail & Technology
deborahweinswig@fung1937.com US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 6
Copyright © 2017 The Fung Group. All rights reserved.
March 21, 2017
Streamlining and Revamping the Brand Portfolio
Adidas has announced that it will exit low-growth, noncore and low-profitability
businesses such as the TaylorMade golf and CCM hockey businesses, as these are dilutive
to overall top-line and profitability trends. If the divestitures occur in 2017, annual sales,
margins and earnings would increase even more than outlined in the company’s full-year
guidance.
Source: Adidas
• The golf and hockey businesses contributed 6% to total company revenues in
2016, but constant currency sales declined by 1% in the golf business and by 13%
in the hockey segment.
• The company is also implementing a turnaround plan for Reebok, whose sales
growth and margins are lower than those of the Adidas brand. Reebok’s sales
growth is also lower than that of the overall sporting goods industry, and its
margins and operating profits are lower than those of its main competitors. As a
result, Reebok’s performance is dilutive to total company earnings.
• Management has chosen to revamp the Reebok brand instead of divest it, as
Reebok has already made some operational headway. The brand has posted
double-digit revenue growth outside the US for the last three years.
• The key is to now increase growth in the US market, especially given Reebok’s
historic roots in the US. Reebok North America’s constant currency sales declined
by 1% year over year in 2016. Management and organizational changes have been
made at the brand’s headquarters in Boston. The number of Reebok US factory
outlet stores has been reduced and more brand stores will be closed in 2017.
Deborah Weinswig, Managing Director, Fung Global Retail & Technology
deborahweinswig@fung1937.com US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 7
Copyright © 2017 The Fung Group. All rights reserved.
March 21, 2017
Opportunities for Growth
E-Commerce to Quadruple
Adidas plans to increase its top line and market share by growing e-commerce revenue
from €1 billion in 2016 to €4 billion in 2020. In 2016, e-commerce constant currency sales
grew by 59% year over year.
Womenswear
One of the company’s targeted growth areas is womenswear (both the footwear and
athletic apparel categories). Management stated that it is not happy with the company’s
current position in the womenswear market and that it seeks to double its share of the
segment by 2020. Womenswear represented 23% of Adidas’s revenues in 2016, and the
company wants that figure to reach 28% by 2020.
• Adidas is forming collaborations with female influencers, leaders, athletes and
models. The company’s current team of 25 female influencers includes former
Lululemon Athletica CEO Christine Day.
• In 2016, after teaming up with global female athletes to study the female foot and
how it moves during running, Adidas created the first running shoe designed
specifically for women. Traditionally, running shoes for women were adaptations
of men’s shoes.
Focus on North America
The company has identified the North American market as a strategic growth driver.
• North America sales represented 21% of total company sales in 2016. The
company plans to grow the Adidas brand in North America to €5 billion in sales by
2020, up from €3.4 billion in 2016. Nike currently dominates the North American
market, and saw US sales of $14.8 billion in 2016.
• Adidas’s momentum in the North American market accelerated considerably in
2016 following organizational setup improvements and new product launches.
Sales in the region increased by 24% year over year, vastly outpacing total sporting
goods market growth.
Source: Adidas
Deborah Weinswig, Managing Director, Fung Global Retail & Technology
deborahweinswig@fung1937.com US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 8
Copyright © 2017 The Fung Group. All rights reserved.
March 21, 2017
Sourcing
Adidas is focusing on improving sourcing and logistics and increasing speed to market.
The company stated that the futures business model, with retailers booking orders six to
nine months in advance, is antiquated and not representative of current dynamic world
trends. Continued innovations in the supply chain and advances in production techniques
will speed the design and manufacturing processes, enabling the company to get
products to consumers faster.
Speed Programs
Adidas will move away from mainly developing product ranges in advance of seasonal
merchandising calendars and toward in-season production processes and rapid
replenishment manufacturing.
Improve product availability: The company seeks to enable constant product availability
and ensure faster delivery of products.
Decrease risk: Adidas is looking to reduce the risk of overbuying and decrease end-
season cleanup by creating more relevant product propositions.
Create additional net sales: Adidas aims to capture higher demand with shorter lead-
time production and avoid seasonal product successes going out of stock.
Generate more contribution: The company plans to reduce markdowns on articles sold
by increasing the share of volumes sold at full price.
Adidas is striving for quick replenishment capabilities for fast-selling items. Currently,
about 15% of sales are generated on speed programs, but the company plans to increase
the share of speed-enabled products to at least 50% of net sales by 2020. Adidas expects
this to help it achieve 20% higher share of full-price sales.
• Some 80% of the apparel volumes for the fall/winter 2017 season were produced
with 60 days’ lead time.
• The majority of footwear volumes are already produced with lead times of 60 days
or less.
Deborah Weinswig, Managing Director, Fung Global Retail & Technology
deborahweinswig@fung1937.com US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 9
Copyright © 2017 The Fung Group. All rights reserved.March 21, 2017
Deborah Weinswig, CPA
Managing Director
Fung Global Retail & Technology
New York: 917.655.6790
Hong Kong: 852.6119.1779
China: 86.186.1420.3016
deborahweinswig@fung1937.com
Eva K.
Senior Research Associate
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Deborah Weinswig, Managing Director, Fung Global Retail & Technology
deborahweinswig@fung1937.com US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 10
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