3 Billion 500 Million, Marketing Budget, Can Adidas Still "Cut It Off" This Year?

All along, large sporting events are the best opportunities for brands to attract eyeballs. Today, the amount of global sports sponsorship is rising, such as the European Cup and Tokyo Olympic games such a magnitude of events, but also a marketing opportunity for all brands. Before the arrival of 2020, each brand has already made its own marketing plan around these two competitions.

For the European Cup, sporting goods giant Adidas is one of the biggest sponsors of this European Cup. They are the official sponsors of Germany, Spain and Belgium. However, with the extension of the European Cup, the high exposure marketing scenario of Adidas, which lasted for one month in 2020, had to be postponed for a year.

In addition, Adidas has sponsored many associations and athletes participating in the Tokyo Olympic Games. But in March 24th, the Tokyo Olympic Games also made a decision to postpone a year. Two important competitions have failed, which is a double blow for all sports brands including Adidas.

But surprisingly, although the 2020 sports year has collapsed, but Adidas has no plan to cancel the sales campaign for the European Cup and the Tokyo Olympic Games. The company is ready to deal with the loss.

Affected by objective conditions, the impact of the epidemic on the company's 2020 revenue forecast is not to be overlooked. In the interview, Adidas CEO Kasper Rosterd said: "if these two events (European Cup and Olympic Games) are postponed, our sales volume is expected to be reduced by 50 million to 70 million US dollars, which accounts for 0.3% of our 23 billion market capitalization. "

Although it accounts for only 0.3%, 50 million -7000 million is still a sky high price figure. But Adidas seems to disagree, saying that the loss is "limited" to the company and "impact" is the same for all companies in the industry. "

Adidas has so far been "tough" in its budget promotion, for two reasons:

In the 1.2019 fiscal year, the company was in good condition and had sufficient cash flow to cope with the epidemic situation.

2., an optimistic judgement of the future trend of sporting goods consumption.

In the 2019 fiscal year, Adidas's key financial data rose steadily. Excluding exchange rate effects, revenue grew by 6% to 23 billion 640 million euros compared with the same period last year; net operating profit continued to grow 12% to 1 billion 918 million euros compared with the same period last year; operating profit margin increased to 11.3% compared to the same period last year; while in the field of strategic growth, sales of Adidas Greater China and e-commerce channels increased rapidly. Sales in Greater China rose 15%

In a telephone conference about the company's 2019 Q4 earnings report, the Adidas CEO message fully stated that, regardless of the impact of the epidemic, most of the marketing activities around the event had already happened before the start of the competition. "

"Consumers will not say that I will not go running because the Olympic Games are cancelled. I will not buy new jerseys because of the cancellation of the European Cup. "

"These high frequency consumer demand is the reason why we still have confidence in ourselves. "

The relevant data of the financial report also verified his view: in 2019, the overall sales volume of Adidas brand increased by 7%, and its sports fashion series achieved a high single digit growth, especially in the middle price clothing demand growth, and even once there was a shortage of supply chain.

"At present, we have not considered cancelling any contract, and will continue to invest in marketing activities that can enhance corporate profits and brand awareness. Of course, these activities must be adjusted according to objective conditions. "

"We are not interested in compressing the marketing budget," Rorsted stressed. The company will continue to invest in related fields and invest in a long-term perspective. "Adidas is a big global brand. Compared with last year, our profit increased by 7 billion euros. We are now considering increasing our profit margin by 5% and increasing our marketing expenditure by 1.5-2%, because we believe this is the right thing to do. "

"From the perspective of market share, we are in a good position, which is precisely why we should consider carefully. But we will never be short-sighted and will not shake our position in 2021 and 2022 in order to make a beautiful bill in the next one or two quarters. If there is a suitable opportunity, we will continue to sign new sponsorship contracts and make new investments. With the belief that the market will eventually return to normal, we will continue to build good products. "

In this year's marketing expenses, the German sports brand giant plans to keep in line with last year and maintain a budget of around 3 billion 500 million euros. However, due to the recent closure of the stores due to the new crown disease, the disappearance of shopping scenes under the line has frustrated Adidas in the important source of revenue. Adidas is really going to have a question mark about whether its bold budget can be put on schedule.

In addition, some recent news in the market has also caused a lot of negative impact on Adidas's PR image.

One is about Adidas's arrears of rent. According to the German media DW, during the epidemic, Germany issued an urgent law that the landlord should not unilaterally lift the rental contract between April 1, 2020 and June 30th. The obligation of tenants to pay rent is still there, but the time to pay the rent can be extended to the end of June 2022. As soon as the policy came out, the market spread, including the big brands of sports brand Adidas, fashion company H&M and Deichman, a famous shoe seller in Germany (Deichmann). They also prepared "wool", which indicated that the rent of their shops would be suspended from April to ease the pressure of operation.

The giant brand's "first response to the call of the government" has aroused strong dissatisfaction among politicians and people. Germany's social network has even appeared to boycott Adidas and other businesses with #niewiederadidas as the topic label. In their view, the beneficiaries of these policies should be small and medium enterprises, rather than big companies like Adidas.

According to the German media DW, Adidas's CEO had to declare itself under pressure. The company did not plan to "rent" the rent in April, but only wanted to apply for deferred payment. It also says that only four stores in the German store are rented from private owners. The rent will be paid on schedule. Most of the stores will be subleased from large real estate agents and insurance funds. The two sides have also made full consultations, and the lessor has already expressed his understanding of the request for the delay in paying the rent.

At the same time, rumors about Adidas cutting or even cutting the marketing budget are also rampant. Recently, a blogger has exposed an internal mail of a so-called public relations company on twitter, claiming that Adidas has sent a statement to all marketing companies that it will stop spending all advertising and marketing expenses due to epidemic situation.

In response to this slightly sensational news, a person familiar with the matter said that this is only the regular operation of the "reminder money" by Adidas, a public relations company as Party B every year, and Adidas official has not commented on this rumor. However, it is undeniable that in today's epidemic situation, large companies such as Adidas will attract more speculation and doubt when they are caught in market rumors.

In addition to the European and American markets, Adidas is facing the pressure of "rescue the market" in the Asian market headed by China.

Despite full confidence in the future of China's sports consumption, Adidas is doing its best to cope with the chain reaction caused by the big losses in the Chinese market. To this end, they set up two specialized working groups, one for staff health, they have closed offices in China, and restricted staff to undertake international tourism; and the other group is responsible for China's sales decline in the overall economic impact of the company.

Before the outbreak, Adidas's performance in the Greater China region has reached a new high, making them in a more favorable position to cope with the current losses. During the period from the Spring Festival to the end of February, Adidas's revenue in China dropped by 80% over the previous year. Since March, factories and shopping malls have resumed work, and things have improved a little.

Adidas said to the outside world, "the first quarter revenue in China may be reduced by 1 billion euros compared with last year, while operating profit may be reduced by 500 million euros. The spillover effect will also appear in Japan and Korea. "

In order to deal with the crisis more effectively, Adidas divided the "self rescue plan" into two parts:

A. different continents arrange different coping strategies according to local conditions.

B. minimize the impact of sales losses on other aspects of the company.

Adidas expects sales of Q1 to drop by about 900 million to 1 billion 100 million. Take China as an example, Adidas's first quarter sales in China are expected to drop by 800 million to 1 billion euros ($908 million to $1 billion 100 million). Business in Japan and South Korea is also slowing, which will reduce profits by 400 million to 500 million euros. But at the same time, in other parts of the world, Q1 is expected to maintain an increase of 6% to 8%, both of which will offset each other to a certain extent. Eventually, the company's sales in Q1 will be reduced by around 700 million euros.

In addition, the DTC (direct to consumer) business, which has been developing vigorously in the past three years, may also help alleviate some crises.

Note: DTC (Direct To Consumer) refers to the marketing mode directly facing consumers. It includes any communication activities targeting end consumers. Compared with traditional media such as television advertising, the advantages are mainly reflected in closer proximity to consumers, more attention to consumer behavior research, and more emphasis on the grasp of consumers' life style.

Adidas CEO has said cautiously and optimistically that "our 2020 performance will not change dramatically due to the impact of the epidemic. Worldwide, DTC business is developing rapidly. More and more brands focus on how to tell a good story and how to make use of the consumer's opinion to create and improve their products directly. In the past three years, our DTC business has been transformed. This will not only help us in the current predicament, but will also bring huge positive benefits to our future. "

Therefore, for Adidas, whether the 2020 3 billion 500 million marketing budget can really cut a knife does not matter not only the survival of the German brand, but also the important "vane" of the entire marketing industry. Their strategies for the epidemic will also play a typical role in other brands in the industry.

Under the epidemic, the competition stopped, including global brands, including sports brands, which were caught up in a huge advertising marketing crisis and plunged into an unprecedented predicament. In the next 12 months, sports brands need to be hardworking and practicing internal strength.

After the end of the epidemic, the sports match will represent a comeback. The big clubs and stars will continue to attract people's attention and become the focus of global attention. Whether these assets, brands and products can stand out in the dispute after the outbreak, or even set up a new market order, we may as well wait and see.