1
March21,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Adidas Investor Day 2017: Riding the Athleisure and E-Commerce Waves
1) InMarch2015,Adidasintroducedastrategicbusinessplannamed“CreatingtheNew,”whichdefinesthecompany’sstrategiesandobjectivesthrough2020.Followingexceptionalfinancialresultsinitsfiscal2016year,thecompanyupdateditscorporatestrategyandintroducedanaccelerationplanthatoutlinesmoreambitiousgrowthtargetsthanthoseinitiallysetin2015.
2) Adidasisamajorplayerinanindustrythatishighlyattractiveduetoitsrobustgrowthtrends,whichhavebeendrivenbytheriseofathleisure,increasingglobalconcernsregardinghealthandfitness,andhighersportsparticipationrates.Theglobalsportinggoodsindustryisforecasttogrowatamid-single-digitratein2017.
3) Thecompanywillpropelsalesgrowthbydrivingbranddesirabilitythroughproductinnovation,brandexitsandturnarounds,aswellasbyfocusingonstrategicgrowthareassuchase-commerce,greaterpenetrationoftheNorthAmericanmarketandwomenswear.Adidasplanstoimprovegrossmarginsbyminimizingclearanceactivities,increasingtheshareoffull-pricesalesandspeedingupitssourcing.
OnMarch14,2017,FungGlobalRetail&TechnologyattendedtheAdidasannualInvestorDayeventatitsglobalheadquartersinHerzogenaurach,Germany.Thecompany’snewCEO,KasperRorsted,presented,asdiditsHeadofGlobalBrandsandCFO.Welefttheeventwithafavorableimpression.Inourview,Adidasisaforward-thinking,agileandinnovativecompany.Here,wediscussthekeytopicscoveredduringthedayandourtoptakeawaysfromtheevent.
2
March21,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
CEOTransitionBodesWellNewCEOKasperRorstedjoinedAdidasonOctober1,2016,succeedingHerbertHainer,whohadledthecompanyfor15years,makinghimthelongest-servingCEOofamajorGermancompanyatthetime.RorstedisahighlyregardedcorporateexecutivewhopreviouslyheldthepostofCEOatGermanconsumerstaplescompanyHenkel.RorstedhasbeenwidelylaudedforHenkel’s6%operatingmarginexpansionfrom2008through2014.Theinvestorandanalystcommunityisoptimisticthat,withRorstedatthehelm,Adidaswillincreaseitsprofitabilityandmargins,andmakeheadwaytowardclosingtheoperatingmargingapwithNike.Adidas’ssharesroseby5.8%onnewsofRorsted’sappointment,whileHenkel’sdeclinedby4.5%.ManyInvestorDayattendeeswerekeentospeaktoandquestionRorsted.
CreatingtheNewInMarch2015,Adidasintroducedastrategicbusinessplannamed“CreatingtheNew,”whichdefinesthecompany’sstrategiesandobjectivesthrough2020.Followingexceptionalfinancialresultsinfiscal2016,thecompanyupdateditscorporatestrategyandintroducedanaccelerationplanthatoutlinesmoreambitiousgrowthtargetsthanthoseinitiallysetin2015:
• Adidasplanstogrowtotalcompanysalesto€25–€27billionin2020,upfrom€19.3billionin2016.Thecompanyexpectssalesgrowthtobehigherthanthatoftheglobalsportinggoodsindustry,whichmeansAdidaswilltakemarketshare.
• Thecompanyalsoaimstoreachatotaloperatingmarginof11%in2020,upfrom7.7%in2016.Thiswouldnarrowthecompany’smargingapwitharchrivalNike,whichenjoysa14%annualoperatingmargin.
Source:Adidas
3
March21,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
RorstedstronglyemphasizedthatAdidashastherightcompanystrategyinplaceandthatmanagementwillnowoverwhelminglyfocusonexecutingthestrategyforthenextcoupleofyears.Adidashashadastrongstartintermsofaccomplishingits2020goals,butstillhasalongwaytogotoachievetheminfull.
Source:Adidas
2016:ABlowoutYearThecompanyachievedstellaroperatingresultsin2016andincreaseditstop-andbottom-lineguidanceseveraltimesthroughouttheyear.In2016:
• Netsalesincreasedby18%yearoveryear.
• Grossmarginexpandedby30basispointsduetobetterproductpricingandproductandchannelmixaswellaslowerinputcosts,allofwhichhelpedtooffsetseverecurrencyheadwinds.
• Operatingmarginexpandedby120basispointsoncostcontrolandoperatingleverage.
• Netincomeincreasedby41%yearoveryear.
• Thecompany’ssharepricesurgedby67%overtheyear,andAdidaswasthebest-performingstockontheGermanDAXIndexforasecondyearinarow.
IncreasedGuidancefor2017Managementexpects2017tobeanotherstandoutyear.Forthefullyear,thecompanyhasguidedfor:
• Anetsalesincreaseof11%–13%yearoveryear.
• Operatingexpensesasapercentageofsalestodecrease.
• Operatingmargintoexpandby60–80basispointsyearoveryear,to8.3%–8.5%.
• Anetincomeincreaseof18%–20%yearoveryear.
4
March21,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
AttractiveIndustrySportsfootwearandapparelisahighlycompetitiveindustrydominatedbylarge,globalplayersthatincludeAdidas,NikeandUnderArmour.Numeroussmallerplayersarealsoactiveintheindustry.In2016,Nikereportedtotalcompanysalesof$32.4billion,andthecompanyplanstoincreaseitssalesto$50billionby2020.
Despiteheavycompetition,theindustryisattractiveduetorobustgrowthtrends,whichhavebeenpropelledbytheriseofathleisure,increasingglobalconcernsregardinghealthandfitness,andhighersportsparticipationrates.MarketresearchfirmTheNPDGroupforecaststhattheglobalsportinggoodsindustrywillgrowatamid-single-digitratein2017,eventhoughnomajorglobalsportingeventsarescheduledtooccurthisyear.Consumerspendingonsportinggoodsisexpectedtogrowfasterindevelopingeconomiesthanindevelopedmarkets.
Source:Adidas
AthleisureandStreetwearThecasualathleticcategorycontinuestoenjoystrongmomentum,drivenbyretrorunningandtennisdesignsandsilhouettes.AccordingtoAdidas,theathleisuretrendwillremainastrongstructuraldriverforthesportinggoodsindustry.Adidaswillcapitalizeontheseongoingfavorabletrendsbycreatinganddrivingdemandforstreetwearthroughsports-inspiredlifestyleproducts.
Source:Adidas
5
March21,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Mission:ToBetheBestSportsCompanyintheWorldThecompany’smissionistobethebestsportscompanyintheworld,anditsstrategyistoincreasetop-linegrowthandmarketshare,expandgrossmarginandincreaseoperatingleverage.
Source:Adidas
• Adidasplanstopropelsalesgrowthbydrivingbranddesirabilitythroughproductinnovation,brandexitsandturnarounds,aswellasbyfocusingone-commercegrowth,greaterpenetrationoftheNorthAmericanmarketandwomenswear.
• AllP&Litemsareexpectedtocontributetoprofitabilityandmarginimprovement.
• Adidasplanstoimprovegrossmarginbyminimizingclearanceactivities,increasingshareoffull-pricesales,speedingupsourcingandimprovingmanufacturingefficiencies
• Thecompanyaimstoincreaseoperatingmarginsthroughgrossmarginexpansion,costcontrol,moreefficientmarketingprocurementandgreaterreturnonmarketinginvestment.
Source:Adidas
6
March21,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
NewProductLaunchesAreKeyTheimportanceofmaintainingapipelineofnewproducts,especiallyinfootwear,cannotbeunderestimated.In2016,newlylaunchedproductsaccountedfor77%ofAdidasbrandsalesand73%ofReebokfootwearsales.Newproductshavehighergrossmarginsthandothosethathavebeenonthemarketformorethanoneseason.
Thecompany’snewproductdesignshavebeenbasedon:
• Designcollaborationpartnershipswithathletes,performingartists,designers,models,celebritiesanddigitalinfluencerssuchasKanyeWest,PharrellWilliamsandStellaMcCartney.
• Therelaunchofhistoricdesignsandstyleswithmodernsilhouettesanddetailing,usingnewmaterialsandfabrics.Forexample,Adidashasleveragedsomeofitsiconicfranchises,suchasStanSmithandGazelle,tocapitalizeonretroandnostalgiaconsumertrends.
• Theuseofinnovativematerialssuchasrecycledpolyesterandbiodegradablefabricsinordertoleverageconsumerconcernsregardingsustainabilityandenvironmentalism.Forexample,Adidasunveiledthefirstmass-producedrunningshoecreatedwithrecycledoceanplastic;the7,000pairsoflimited-editionshoessoldoutin24hours.
MarketingandDistributionStrategyMarketingspendingconstitutesasizableportionofthecompany’soperatingexpensesandrepresentsanimportantmechanismfordrivingbranddesirability.Thecompanyiscommittedtoimprovingmarketingefficiencybyfocusingcommunicationeffortsandbrandinitiativesonthemostimpactfulpartnershipswithsportsteams,events,athletesandartists.
• Adidaswillfocusmarketingspending,productintroductionsandretailstoreinvestmentonsixkeycitiesthatinfluenceglobalconsumertrends:NewYork,LosAngeles,London,Paris,ShanghaiandTokyo.
• Thecompanyplanstoexpanditscontrolledspace,whichisretailspacewhereAdidasisabletomanagethewaybrandsandproductsarepresented.Thesespacesincludeownretailstoresandfranchises,andshops-in-shopsatcertainwholesaleaccounts.Thecompanyaimstogenerate60%ofrevenuesincontrolledspacesby2020.
• ThecompanyrecentlyopeneditslargestglobalflagshipstoreinNewYorkCity,onFifthAvenueand46thStreet.Thestorefeaturesaninnovativehighschoolsportsstadiumconcept.
7
March21,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
StreamliningandRevampingtheBrandPortfolioAdidashasannouncedthatitwillexitlow-growth,noncoreandlow-profitabilitybusinessessuchastheTaylorMadegolfandCCMhockeybusinesses,asthesearedilutivetooveralltop-lineandprofitabilitytrends.Ifthedivestituresoccurin2017,annualsales,marginsandearningswouldincreaseevenmorethanoutlinedinthecompany’sfull-yearguidance.
Source:Adidas
• Thegolfandhockeybusinessescontributed6%tototalcompanyrevenuesin2016,butconstantcurrencysalesdeclinedby1%inthegolfbusinessandby13%inthehockeysegment.
• ThecompanyisalsoimplementingaturnaroundplanforReebok,whosesalesgrowthandmarginsarelowerthanthoseoftheAdidasbrand.Reebok’ssalesgrowthisalsolowerthanthatoftheoverallsportinggoodsindustry,anditsmarginsandoperatingprofitsarelowerthanthoseofitsmaincompetitors.Asaresult,Reebok’sperformanceisdilutivetototalcompanyearnings.
• ManagementhaschosentorevamptheReebokbrandinsteadofdivestit,asReebokhasalreadymadesomeoperationalheadway.Thebrandhasposteddouble-digitrevenuegrowthoutsidetheUSforthelastthreeyears.
• ThekeyistonowincreasegrowthintheUSmarket,especiallygivenReebok’shistoricrootsintheUS.ReebokNorthAmerica’sconstantcurrencysalesdeclinedby1%yearoveryearin2016.Managementandorganizationalchangeshavebeenmadeatthebrand’sheadquartersinBoston.ThenumberofReebokUSfactoryoutletstoreshasbeenreducedandmorebrandstoreswillbeclosedin2017.
8
March21,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
OpportunitiesforGrowthE-CommercetoQuadrupleAdidasplanstoincreaseitstoplineandmarketsharebygrowinge-commercerevenuefrom€1billionin2016to€4billionin2020.In2016,e-commerceconstantcurrencysalesgrewby59%yearoveryear.
WomenswearOneofthecompany’stargetedgrowthareasiswomenswear(boththefootwearandathleticapparelcategories).Managementstatedthatitisnothappywiththecompany’scurrentpositioninthewomenswearmarketandthatitseekstodoubleitsshareofthesegmentby2020.Womenswearrepresented23%ofAdidas’srevenuesin2016,andthecompanywantsthatfiguretoreach28%by2020.
• Adidasisformingcollaborationswithfemaleinfluencers,leaders,athletesandmodels.Thecompany’scurrentteamof25femaleinfluencersincludesformerLululemonAthleticaCEOChristineDay.
• In2016,afterteamingupwithglobalfemaleathletestostudythefemalefootandhowitmovesduringrunning,Adidascreatedthefirstrunningshoedesignedspecificallyforwomen.Traditionally,runningshoesforwomenwereadaptationsofmen’sshoes.
FocusonNorthAmericaThecompanyhasidentifiedtheNorthAmericanmarketasastrategicgrowthdriver.
• NorthAmericasalesrepresented21%oftotalcompanysalesin2016.ThecompanyplanstogrowtheAdidasbrandinNorthAmericato€5billioninsalesby2020,upfrom€3.4billionin2016.NikecurrentlydominatestheNorthAmericanmarket,andsawUSsalesof$14.8billionin2016.
• Adidas’smomentumintheNorthAmericanmarketacceleratedconsiderablyin2016followingorganizationalsetupimprovementsandnewproductlaunches.Salesintheregionincreasedby24%yearoveryear,vastlyoutpacingtotalsportinggoodsmarketgrowth.
Source:Adidas
9
March21,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
SourcingAdidasisfocusingonimprovingsourcingandlogisticsandincreasingspeedtomarket.Thecompanystatedthatthefuturesbusinessmodel,withretailersbookingorderssixtoninemonthsinadvance,isantiquatedandnotrepresentativeofcurrentdynamicworldtrends.Continuedinnovationsinthesupplychainandadvancesinproductiontechniqueswillspeedthedesignandmanufacturingprocesses,enablingthecompanytogetproductstoconsumersfaster.
SpeedProgramsAdidaswillmoveawayfrommainlydevelopingproductrangesinadvanceofseasonalmerchandisingcalendarsandtowardin-seasonproductionprocessesandrapidreplenishmentmanufacturing.
Improveproductavailability:Thecompanyseekstoenableconstantproductavailabilityandensurefasterdeliveryofproducts.
Decreaserisk:Adidasislookingtoreducetheriskofoverbuyinganddecreaseend-seasoncleanupbycreatingmorerelevantproductpropositions.
Createadditionalnetsales:Adidasaimstocapturehigherdemandwithshorterlead-timeproductionandavoidseasonalproductsuccessesgoingoutofstock.
Generatemorecontribution:Thecompanyplanstoreducemarkdownsonarticlessoldbyincreasingtheshareofvolumessoldatfullprice.
Adidasisstrivingforquickreplenishmentcapabilitiesforfast-sellingitems.Currently,about15%ofsalesaregeneratedonspeedprograms,butthecompanyplanstoincreasetheshareofspeed-enabledproductstoatleast50%ofnetsalesby2020.Adidasexpectsthistohelpitachieve20%highershareoffull-pricesales.
• Some80%oftheapparelvolumesforthefall/winter2017seasonwereproducedwith60days’leadtime.
• Themajorityoffootwearvolumesarealreadyproducedwithleadtimesof60daysorless.
10
March21,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comEvaK.SeniorResearchAssociate
HongKong:8thFloor,LiFungTower888CheungShaWanRoad,KowloonHongKongTel:85223004406London:242–246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NewYork:1359Broadway,9thFloorNewYork,NY10018Tel:6468397017
FungGlobalRetailTech.com