Plaguing Adidas Is Closing Stores And 1 Billion 600 Million Euros In Inventory Backlog, And A Loan Of Up To 3 Billion Euros To Repay Loans.

"In the first two months of 2020 Q1, everything is still under control. But after mid March, all the achievements really went through a dramatic basically falling off the cliff. "

In the interview with US media CNBC, Adidas's current CEO Kasper Rosterd is slightly tired in the video.

In April 27th, Adidas released its first quarter results in 2020 in its official channels: in the great situation of the new crown pneumonia epidemic, Adidas declined 19% in the first quarter of 2020 to 4 billion 753 million euros. Among them, Adidas brand sales fell by 20%, while Reebok's brand sales fell by 12%.

The figure that gives people more sensory impact is the percentage of 97% - adidas clipper fall on net income.

According to a summary of official performance, Adidas's net revenue from global continuous operation dropped by 97% to 20 million euros. Compared with the same period in 2019, the figure was 631 million euros. In addition, the basic earnings per share from continuing operations dropped to 0.13 euros, down 96% from the same period last year.

But it's more likely that the Adidas's cold back to the darkest moment may not yet come. According to estimates, Adidas's revenue in the second quarter of 2020 will fall by 40%.

Troubled by Adidas, there is also a backlog of total value of over 1 billion 600 million euros; 70% of the world's still closed stores; a stock price drop of nearly 40% in 3 months; and a loan of up to 3 billion euros in order to save money on the account, which needs to be repaid in the future.

Falling into the precipice of Adidas, is besieged everywhere, it is urgent to save itself.

01. Black spring

Although official data of the official disclosure is rather bleak, as early as the beginning of March, adidas has made most accurate predictions of the performance of Q1.

According to the prediction at that time, the Q1 performance of Adidas will be greatly affected by the earlier outbreak of the Greater China region. The first quarter sales in the Greater China region are expected to decline by 800 million to 1 billion euros. The market profits of other Asian countries such as Japan and Korea will also be reduced by 400 million to 500 million euros. The projected figures at these levels are basically consistent with the data disclosed in the official performance summary.

In the month of February -3, except for offline offline stores, the main impact of the epidemic was the adidas production line in Asia. The supply chain has been stagnant for a long time, making Adidas headache.

"Asia's 80% to 90% businesses stopped almost overnight (stopped overnight)," Adidas CEO Kasper Rosterd said in an interview.

"Adidas loses about $100 million a week on average. "

Although Adidas adapted to local conditions, different strategies were put forward in time for the epidemic situation. However, the adverse effects of three major factors, such as the serious backlog of stocks in the Greater China region, the cancellation of purchase orders and the increase in the allowance for bad debts, have been underestimated by Adidas. These negative factors have accumulated a negative impact on Adidas's first quarter operating profit of about 250 million euros.

Note: the so-called bad debt provision means that the accounts receivable should be withdrawn, and the accounts receivable which can not be recovered should be offset. For example, if a company makes a total invoice of 1 million yuan to the customer within a given month, but in view of 5% bad debts recorded in history, the company will issue a 50000 yuan allowance for bad debts (5% of 1 million yuan).

In addition, in 2019, the impressive annual results and the continuous growth of online sales also led Adidas to make a lot of "over optimistic" estimates of the market environment in the epidemic. Even in early March, Adidas said, "the marketing budget of 3 billion 500 million euros in the past year will not be affected this year".

"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. Adidas CEO Kasper Rosterd said in a press conference at the 2019 annual report.

However, the market situation has been on the decline since March. With the breakthrough of millions of global diagnoses, there is more and more blockade and isolation. Whether Adidas's bold budget in marketing can be put on schedule is a big question mark. Especially after the European Cup and the Olympic Games have been postponed one after another, it is that the advertising public relations people are frustrated by the confidence of the brand.

Even Adidas, who had been caught in the dark, was once trapped in a rumor of "arrears of German store 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 that the big brands including sports brand Adidas, fashion company H&M and Deichman, a famous shoe seller in Germany (Deichmann), were also preparing "wool", which indicated that the rent of their shops would be suspended from April, so as to relieve 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 tag. In their view, the beneficiaries of these policies should be small and medium enterprises, rather than big companies like Adidas.

Under pressure, CEO of Adidas had to declare in person that the company did not intend to "rent" the rent in April, but only wanted to apply for deferred payment. It also indicated that only four of the stores in Adidas were rented from private owners. The rent would be paid on schedule, while most shops were subleased from large property agents and insurance funds. The two sides had also made full consultations, and the lessor had already expressed his understanding of the request for delay in paying rent.

Despite the timely announcement by the company's top executives, adidas has been relieved of a bigger public relations crisis. However, the market situation which is hard to see has made Adidas have to take a low profile and seriously consider how the company should give first aid when recovering its rhetoric. In April 14th, Adidas announced that it had received a 3 billion euro revolving loan from Germany Fuxing credit bank to ensure its cash flow during the epidemic.

The loan is made up of 2 billion 400 million euros from the Bank of Germany, and 600 million euros from the consortium of joint credit, Bank of America, Citibank and Deutsche Bank. The effective term is Adidas's suspension of dividend payments during the loan period.

02. Sports giant at the end of the consumer chain

"Indeed, during the epidemic period, sports goods are almost at the end of people's purchasing chain compared to daily necessities such as food and paper towels. Adidas CEO Kasper Rosterd said in an interview.

Despite the summary of the first quarter results in 2020, the adidas business channel maintained a growth of 35%, becoming a rare bright eye. But its growth rate is not enough to make up for the loss of sales caused by the stagnation of channels under the adidas line.

At present, more than 70% of Adidas's stores are still closed. There is still a multivariable number of stores closing time and the resumption of business after reopening.

"In the first three weeks of April, revenue in the Greater China region continued to recover, excluding exchange rate factors, and the global electricity business grew by 55% in March. However, as Adidas closes a large number of stores in Europe, North America, Latin America, emerging markets, Russia / CIS and most parts of the Asia Pacific region, the overall revenue growth of the company will still be severely affected. "

Abstracts from the first quarter of adidas2020 "

However, Adidas, who knew well that offline sales had great influence on themselves, once struggled to keep the storefront running. According to Yahoo, in March 16th, Adidas sent an e-mail to the store employees in Europe and America in the name of CEO Kasper Rorsted, trying to maintain its offline store operation.

In the mail, Adidas CEO tries to convey to employees the importance of store business to the company:

"We must keep the company in good working order to ensure that we can pay monthly salaries and rent to all of us. Making decisions to close is always easy, but we must not give up our efforts. In today's special environment, please remain attentive, perseverance and courage. "

However, only after the internal mail was issued a day later, the store employees launched a joint event on social media, which strongly challenged the decision of the senior executives.

Under the crisis of public opinion, Adidas had to turn back and shut down its stores in Europe and America.

Besides, during the period of the epidemic, the sales of individual products such as yoga mat had reached a record high level. Most sporting goods were reduced due to the decline in consumer demand and the closure of offline shops. As Adidas CEO Kasper Rosterd said in the interview, they were pushed to the end of the consumer chain.

Take the sport shoe products for example. According to the report of Matt Powell, a senior consultant in sports industry at Data quest Inc NPD, the total sales volume of sneakers in the US market dropped by about 75% compared with the same period last year as early as the beginning of April. Among them, running shoes and training shoes fell 70%, basketball shoes reached 80%, while baseball shoes, football shoes and other professional vertical footwear sales fell by nearly 100%, the public's consumption demand for this category, basically disappeared during the epidemic.

With brand as the dimension, the offline sales of Adidas and Nike sports footwear products have dropped by about 75%, and the decline of large factories such as Under Armour, Converse and Skechers has exceeded 80%. Among the many brands, the best performance is the Brooks, which focuses on the American running shoes market and the more common price, but the drop is also 55%.

The problem of the stagnation of sales along the line is the serious backlog of product inventory.

In April 19th, Credit Suisse Credit Suisse issued a research report. The report shows that compared to the normal level of product inventory, the current Adidas self dealer and its inventory surplus margin of about 1 billion 600 million euros. Assets and profit margins have been significantly squeezed. Adidas may take up to a year to clear excess inventory backlog.

In the sporting goods industry, Adidas is also facing more inventory problems. For example, big factories like Nike and Under Armour are also facing a backlog of inventory. The suspension of global mainstream events has made many marketing activities on the brand's original agenda unsustainable, and store orders have been cancelled. The warehouse of these sports factories will face up to two quarters or even three quarters of backlog problems.

"Go stock" is imperative.

03. Dawn after darkness

Although the dark has not yet arrived, but the positive signs of the industry's recovery has gradually emerged.

For example, with the gradual control of China's domestic epidemic, Adidas's offline stores in China are gradually returning to work. Meanwhile, Adidas CEO hopes that other parts of the world, especially those under the North American line, will be able to resume business after mid May and fully resume operation before the end of June.

In addition, Adidas firmly believes that public health will become a global topic after the outbreak. "Sports fitness high frequency consumer demand" has become the reason why Adidas is still confident of the industry's recovery.

"Personal exercise will become more and more important. Especially after today's social isolation, when people are trapped in their homes for six weeks, eight weeks or even more than ten weeks, once people are allowed to go out, the consumption demand of these sporting goods will surely rebound rapidly and usher in a period of considerable growth. Adidas CEO Kasper Rosterd said optimistically in the interview.

However, before greet people's "retaliatory consumption", Adidas also needs to do better in online channels and public relations marketing.

In the CNBC interview, Adidas CEO said that online sales in China's region continued to improve during the epidemic, but Nike's report card was more rapid.

According to the results of the third quarter of fiscal year 2020 (2019.12-2020.2) released by Nike at the end of 3, its digital sales in Greater China increased by 30%, helping Nike sell more than 1 billion dollars of footwear in China in the whole third quarter, excluding the exchange rate effect, which is only 3% less than that of the same period last year, or even exceeded the expectations of Wall Street analysts.

However, it is still too early to conclude that the "Nike online sale is better than Adidas".

On the one hand, at present, Nike's earnings report has not yet achieved its performance after March. In the next earnings report, it is still unknown that "cliff clipper fall". On the other hand, adidas has also made a sales strategy adjustment, putting more manpower and inventory resources on the line. According to Adidas forecasts, the overall performance of online sales in 2020 will reach 4 billion euros, an increase of more than 1 billion euros compared to 3 billion euros in 2019.

In addition, in public relations marketing, adidas has also made many changes with the online sales strategy.

Just as Nike launched the "#Play inside, play for the world" and opened free use of related fitness services, Adidas also joined the star of its signing, launched "#Fit From Home" and "#Fit" activities on the social media platform, and abolished the built-in fees of the "cable" and "cable" and so on, and continuously optimized the social effects of the brand.

However, in the transmission of brand tonality, Adidas also needs to learn from "dead rivals" and master more "soft propaganda" means.

For example, the Michael Jordan documentary "The Last Dance", which has attracted much attention in recent ESPN, has been broadcast for nearly 10 hours. It has undoubtedly publicised the brands such as Nike and Air Jordan. Recently, Nike's sponsorship of the talent show "youth has you 2" has also increased the public exposure to the brand in this special period.

Under the epidemic situation, how to find a balance between economic benefits and public health has become a difficult problem faced by enterprises and governments. When market activity falls into a large area of stagnation, it will take considerable time to recover. For the industry giants like Adidas, it is out of date to depict the future blueprint. What they need to do is to do business in a down-to-earth way, like a real business leader, to lead the industry out of trouble.