Adidas 70 Years Old: Sports Brand Competition Is Just Beginning In The Second Half.

No brand can be evergreen. When the "little white shoes" craze is completely covered by "Daddy shoes", the 70 year old Adidas is standing on the new starting line, and the second half of the sports brand competition is just beginning.

Adidas, a German sportswear group, handed in a mixed report on Wednesday. Its sales grew by 5% to 5 billion 230 million euros in the fourth quarter to December 31, 2018, and net profit rose 29% to 93 million euros.

In 2018, sales of adidas group increased by 8% to 21 billion 900 million euros after excluding exchange rate factors, while net profit rose 19.5% to 1 billion 700 million euros, a record high.

It is noteworthy that the third largest market in the world, the Greater China market, grew by 23% in 2018, up 13% in the fourth quarter, and the growth rate slowed down significantly. As of the third quarter, adidas has increased more than 20% in the 11 consecutive quarters of Greater China.

By Region:

Adidas sales in the North American market also surged 14.9% to 4 billion 689 million euros last year.

The European market recorded a decline of 0.4% to 5 billion 885 million euros.

Sales in Russia increased by 1% to 595 million euros.

Sales in Latin America rose 5.6 to 1 billion 634 million euros;

Sales in the Asia Pacific market registered an increase of 14.9% to 7 billion 141 million euros.

Emerging market sales fell 3.1% to 1 billion 144 million euros compared with the same period last year, while sales in other regions increased by 14.7% to 829 million euros.

CEO KasperRorsted revealed at the meeting after the earnings report that the growth of group performance thanks to the promotion of the Greater China region, it also benefited from a significant increase in the electricity supplier channel. Sales rose by 36% to 2 billion euros compared with the same period last year, while the other brand Reebok also returned to profitability, but sales fell 3% to 1 billion 687 million euros.

However, some analysts pointed out that adidas Group sales actually slowed down compared with the 2017 fiscal year, which means that the group will face challenges.

According to fashion headline data, adidas Group sales increased 2017 to 15% billion euros in the year of fiscal year, operating profit increased by 31%, of which sales in the Greater China region increased by 29.5% to 3 billion 789 million euros over the 2016 fiscal year.

At the same time, Adidas issued early warning to investors. The group will not be able to achieve the expected growth target in the 2019 fiscal year. Due to the shortage of supply chain, the group's shoe and clothing supply is limited in the first half of this year, especially in the North American market.

5 years ago, as part of the strategy of "Lixin", adidas group estimated that the annual sales growth of group sales will reach 10% to 12% in the period from 2015 to 2020 under the elimination of exchange rate factors.

Obviously, for KasperRorsted, the situation is still not optimistic.

After the release of the earnings report, adidas Group's share price fell 5.5% to 197.7 euros, narrowing to 2.79% as of Wednesday's close, and its current market capitalization is about 42 billion euros.

Luckily, adidas has not been dazzled by the new high performance. The sports giant has also begun to face the problems of his own while enumerating his achievements.

Loss of base camp

When the adidas Group's performance in North America and greater China has progressively improved, the European market, including Germany, has gradually become trapped.

Adidas, founded in Germany in 1949, has been focused on competing with Nike in the North American market in recent years. It not only works with celebrities such as Kanye West and PharrellWilliams, but also trunches the designers of Nike, trying to compete for more shares in the fashion leisure sports shoes market.

Driven by measures such as improving freshness, Adidas's sales in the North American market have indeed improved, extending double-digit growth, but its sales in Europe have gone back to 0.4% from a 12.6% rise in the 2017 fiscal year.

At the same time, Nike's tentacles are constantly deepening in the European market. In the second quarter of November 30th last year, the brand not only resumed growth in the North American market, but also increased sales in Europe and other regions by 11% to 2 billion 313 million US dollars, accounting for 24.6% of the total revenue.

To better attract female consumers, Nike held a fashion show in Paris fashion center in March 11th. 40 women athletes from all over the world showed 14 national team uniforms in the women's World Cup.

Another German sports brand, Puma, is also squeezing the market share of Adidas. The sales of the brand 2018 in the fiscal year of EMEA increased by 11.4% to 1 billion 800 million euros, while sales in the North American market increased by 16.9% to 1 billion 612 million euros, while sales in the Asia Pacific market rose 28.8% to 1 billion 235 million euro yuan.

In an interview with Bloomberg and Reuters, KasperRorsted stressed that Britain's departure from Europe had further hit the group's performance in the European market, but he said investors should not worry too much.

Adidas Group has decided to increase its marketing investment in the European market, including signing a sponsorship agreement with the British football team, so as to raise sales of sporting goods in the market as soon as possible.

It is reported that adidas Group's marketing expenditure increased by 10% to 3 billion euros over the previous fiscal year, but most of it was used in the North American and greater China markets.

In addition, adidas Group expects its performance in Greater China this year will continue strong growth trend, which is enough to offset the decline of the group's performance in the European market.

He also said that China's overall economic scale is still far more than five years ago, which will release more market potential for the sportswear market.

Earlier, insiders pointed out that in addition to the North American market, the Chinese market will become a key market for Adidas and Nike, and China's online business, including Tmall, will be the key to victory in the future.

According to fashion headline monitoring, the number of Adidas fans in Tmall flagship store is currently 20 million 360 thousand, which has exceeded 18 million 520 thousand of Nike.

In January this year, Adidas opened a new Asia Pacific and greater China headquarters in Shanghai. ColinCurrie, managing director of the Asia Pacific region and managing director of Greater China, said: "this will be a new starting point". It is revealed that after adapting to the new working environment, adidas Group will focus on Digitalization and other fields, further enhance the brand commercial value, and provide a better product and retail experience with consumers as the center.

No longer cool "little white shoes"

"Stan Smith and Superstar have fallen out of favor. Sales of these two shoes have been reduced by US $565 million in the past year", KasperRorsted announced at a conference call after earnings.

What it means is that Stan Smith was the most expensive sports shoes sold in the United States in 2016, and KasperRorsted is very calm. "Product life cycle is a process of rising and falling. Stan Smith and Superstar have experienced ups and downs since its establishment."

The Stan Smith series, which was first launched in 1971, is a pair of cortical green tailed white shoes sold by Adidas in the second year after the second and last Grand Slam men's singles championship in StanSmith.

Last December, the adidas Group signed a lifetime contract with StanSmith.

In Stan Smith and Adidas over 40 years of cooperation, he receives fixed remuneration and commission from Adidas every year.

Adidas Originals brand general manager Torben Schumacher said that the Stan Smith series has become one of the most classic sports shoes. In order to commemorate the signing, Adidas will launch a new sports shoes called #StanSmithForever.

In the early days, fashion headlines wrote that the life curve of every Adidas exploded product seemed to have the same goal.

With the help of hunger marketing strategy, Adidas revived two classic sneakers of StanSmith and Superstar, but as time went on, the two shoes that helped Adidas turn over were also no longer hot. Behind this, young consumers were getting more and more happy.

Similarly, with the star effect of Kanye West and JustinBieber, Ultraboost, which is known as "the best running shoes", once faced the same problem.

The trend media Hypebeast commented that it has been nearly 4 years since the birth of Ultraboost. Although it has been a new force in the sales of adidas running shoes, and has constantly introduced new designs, the most critical point is that the changes of each generation are limited to material and shoe texture, and the outline of shoes has not changed much.

KasperRorsted also took the initiative to talk about this product in the earnings conference. It believed that Ultraboost still has great potential in North America and greater China and so on, and its valuation is about 1 billion euros.

As part of the brand's strategic cooperation with Tmall, Ultraboost19 took the lead in Tmall's flagship store last month.

In addition to the above, adidas has always been the engine of growth engine Yeezy Boots is also concerned by the industry.

KanyeWest disclosed last year that its Yeezy brand valuation has reached $1 billion 500 million.

But when Yeezy Boots suddenly announced its output in August last year, it did not receive positive market feedback.

Analysis shows that as the product enters the mass production stage, the interest of consumers is declining. The average selling price of series products on KLEKT and other resale platforms is declining.

MattPowell, vice president and senior industry consultant of NPD group, said, "if a shoe is available to everyone, people will not buy impulse again."

Surprisingly, Kasper Rorsted chose to continue to believe in KanyeWest, but it will also adjust its business model when increasing investment.

Three years ago, Yeezy released at most two to three new products a year, and the number was very limited. But in response to KanyeWest's desire to popularized Yeezy brand, Adidas will launch 20 to 30 Yeezy products every year and insert some limited styles in it.

"What we need to do now is to ensure that we can continue to bring the truly popular shoe products into the market, thereby achieving growth in performance. Yeezy is not a US brand, but a global brand."

KasperRorsted added.

To be sure, adidas has realized the risk of surviving on a single explosive product. Now that the Stan Smith, Ultraboost and YeezyBoots craze are in decline, Kasper Rorsted says Adidas will continue to develop new explosions, such as the retro sneakers similar to "old shoes" shoes.

In addition, Reebok is also regarded as a potential player in the adidas Group's performance. With the marketing tools such as VictoriaBeckham and Vetements's cooperation series, ReebokClassics and other products have won the attention of millennial consumers, and sales are rising at a double-digit percentage.

Be the best sports company in the world, not the fashion brand.

Needless to say, after raising freshness, Adidas's recovery is inseparable from the growth of millennial consumers.

NeilSchwartz, an analyst at Sportsonesource, said: "once adidas shoes only have several color matching options, and now a shoe has 31 different styles."

In essence, the first importance of sportswear group should be linked to professionalism, but in the past three years, whether Nike, Adidas or Puma and UnderArmour, the balance of the global sports apparel industry is constantly tilting towards fashion.

From the crossover between Nike and Supreme, to Adidas and KanyeWest, and then to the Fenty series of Puma and Rihanna, fashion has indeed injected new vitality into the sports apparel industry, exposing the brand highly, but its variability and uncertainty are also losing the vitality of the sports brand.

Careful observation is not difficult to find that after experiencing the street trend blowout period, Nike, Puma and other sports brands have begun to reflect on and brake at an emergency, and focus on the professional basketball, football and running fields. UnderArmour has conceded its fashionable pformation failure in the latest financial reports, aiming to target basketball and other professional sporting goods market in the future.

KasperRorsted also stressed in the interview that sports business is still the core of the adidas group. Football, running and rugby football will be the focus of this year's development. With the casual leisure of the workplace clothing, leisure sports products with a tendency to fashion will also have broad market prospects.

Adidas has also reached strategic cooperation with FootLocker, an American sports shoe retailer.

But the most pressing problem facing adidas Group is the shortage of supply chain. The group produces 457 million garments a year, most of which come from Kampuchea, China and Vietnam. With the increasing share of North American market and the shortage of some popular products, Adidas will alleviate this problem by redistributing plant capacity and giving priority to the US market.

Last month, Kasper Rorsted dismissed Gil Steyaert, the head of the global supply chain who took office for more than a year, and appointed MartinShankland to take over.

Macquarie analysts expect supply chain adjustment or temporary drag on Adidas's share price growth.

The word "innovation" has also become the key to the adidas pformation strategy. The brand is expected to produce about 100 thousand pairs of 3D print shoes Alphaedge4D by 2019.

James Carnes, vice president of Adidas global brand strategy, said the group has started mass production of Alphaedge4D, which is also the first sport shoe in the world to use 3D printing technology as well as mass production.

At the end of last year, Adidas officially entered the world's largest start-up Station F, launched the incubator PlatformA, and chose 13 start-ups in three sectors to participate in the plan, with an estimated investment of 1 million euros.

In addition to helping start-ups choose to build traction, Adidas also hopes to learn from it and get more new ideas for strengthening its own sales and supply chain.

In terms of marketing expenses, KasperRorsted said it would maintain about 3 billion euros this year to achieve its long-term goal, that is, the operating profit margin increased to 11.5% in 2020. By the end of 2018, the net cash of adidas group was 959 million euros, almost two times that of the same period last year.

In January this year, adidas Group announced that it will start the second stage stock repurchase program, originally announced in March last year, and will be completed by December 31, 2019, with a scale of about 800 million euros.

For fiscal year 2019, the Group expects sales to increase by about 5% to 8% and net profit growth to be 10% to 14%.

According to Citibank's earlier data, Adidas's sales growth now depends mainly on leisure products, star cooperation limited money and other fashion products, not brand core sports shoes. People in the industry have always questioned whether future entertainment stars will sell more shoes than athletes.

Bloomberg analysts believe that the adidas Group's plan for last year's summing up with the new year is in a way consistent with the vision of investors, that is, keeping the trend of fashion while maintaining their professionalism. At the end of the earnings conference, KasperRorsted said, "we hope to become the best sports company in the world, not the best fashion company."