"Wherever there is a world champion, there is Adidas" was people's affirmation of Adidas' status in the world in the past. As a veteran of the sports goods industry, Adidas ranks second in global sports market share. It is the first foreign sports shoe and apparel brand to enter the Chinese market. It has achieved double-digit sales growth in Greater China for 23 consecutive quarters, with market performance Attention.
However, in recent years, Adidas' performance in the Chinese market has suffered a setback, with negative growth for eight consecutive quarters. This also makes investors not optimistic about the future development of Adidas. On February 10, 2023, after Adidas released its operating performance expectations for 2022, its stock price plummeted 10%.
But judging from its latest performance, Adidas seems to have really begun to counterattack.
Recently, Adidas announced its third quarter financial report for 2023, with global revenue of 6 billion euros, a year-on-year increase of 1%; gross profit margin increased by 0.2 percentage points to 49.3%, and operating profit was 409 million euros. As one of Adidas' three major global strategic key markets, Greater China achieved revenue of 870 million euros in the third quarter, a year-on-year increase of 6%; excluding the impact of Yeezy, it achieved a year-on-year growth of 10%, which is higher than the global average growth rate.
Based on outstanding performance, Adidas's current stock price has increased by more than 30% compared with the beginning of this year.
So, from losing to Maicheng two years ago to rebounding from the trough today, what kind of advancement path is Adidas taking?
Whether it's a good time or not, performance will see positive growth
Looking back, Adidas's weak sales performance in Greater China in the past two years is indeed more prominent. The financial report shows that from the first quarter to the fourth quarter of 2022, Adidas Greater China’s revenue was 1.004 billion euros, 720 million euros, 937 million euros, and 520 million euros respectively, down 34.6%, 35.1%, 26.6%, and 50% year-on-year. %; revenue in the first quarter of 2023 fell 12% year-on-year to 884 million euros.
Corresponding to this is the strong rise of domestic brands such as Anta, Li Ning, and Peak.
In recent years, the national trend culture has become popular. Under this trend, domestic sports shoes and clothing brands are focusing on product development, design, brand marketing, etc., and entering the lives of young people with a fashionable attitude. For example, Peak has applied the "national trend" elements. Taking the meaning of "Tai Chi" and injecting high-tech elements in the name of Tai Chi, it has achieved the integration of traditional culture and high technology. Similar measures have also promoted changes in the consumption concepts of young people, no longer simply "paying based on bids."
The technology that Adidas is now well-known to the public is still the Boost platform launched in 2013. In addition, in terms of marketing, Adidas global media director Simon Peel once admitted in an interview that "77% of the company's marketing expenditure budget is on performance advertising, and only 23% is invested in brand advertising." From this, we can also understand why Adidas previously Facing development resistance in the Chinese market.
Now, as the upward trend in performance becomes more and more obvious, Adidas, which is familiar to the public, seems to be "back".
The financial report shows that Adidas achieved global revenue of 16.616 billion euros in the first three quarters, a year-on-year increase of 3% after excluding the impact of Yeezy; operating profit was 646 million euros. Among them, Greater China achieved revenue of 2.52 billion euros in the first three quarters, a year-on-year increase of 2.5%. This is inseparable from the impact of the recovery of market consumption.
Specific to the Chinese market, driven by relevant events, the domestic people's enthusiasm for participating in sports has been further stimulated, and the sports consumption market has grown significantly. Value-added tax invoice data released by the State Administration of Taxation show that during this year’s Mid-Autumn Festival and National Day holiday, the consumer market for cultural and sports services heated up rapidly. Sales revenue from cultural and sports services increased by 45.4% year-on-year, and sales revenue from sports-related services increased by 27.1% year-on-year.
Against the background of the accelerated recovery of the domestic market, Adidas has also continued to make efforts in sales channel layout and brand marketing.
In terms of channel layout, Adidas actively cooperates with platforms such as Tmall, Taobao, JD.com, Douyin Live, and Mini Programs to comprehensively improve its online sales capabilities. It also uses its sales network composed of physical stores and e-commerce platforms to promote membership-based sales. The development of sales models led by central and direct business, such as the creation of CONFIRMED APP for members, with the community as the core, provides sneaker enthusiasts with a new digital experience through exclusive limited products and creative content.
The omni-channel sales effect is also obvious. According to the financial report, in the third quarter, the sales of full-price products generated by Adidas's own e-commerce platform grew strongly at a double-digit rate, driving the share of full-price products in all markets to significantly increase. DTC revenue increased by 5% year-on-year. Commercial business continued to grow by 1% year-on-year.
In terms of brand marketing, Adidas pays more attention to youth and fashion to adapt to the needs of young consumers. For example, with the help of the Hangzhou Asian Games, Shanghai Fashion Week, and previous trips to China by Messi and NBA star Harden, we can amplify the brand's voice and reshape young consumers' brand impression of Adidas.
Because of this, Adidas’ classic models such as Samba, Gazelle, and Country are becoming “new treasure shoes” in the eyes of many consumers. Data from overseas online market Laced shows that the sales of Samba series shoes this year have increased by more than 2,000% year-on-year. On the domestic Dewu platform, sales of Samba shoes have approached the 100,000 pair mark. According to the financial report, the company’s global footwear revenue increased by 6% year-on-year in the third quarter.
At the same time, Adidas’ inventory destocking is still in progress. The financial report shows that in the third quarter of this year, Adidas inventory fell by 23% year-on-year. In the first nine months of this year, Adidas' global inventory levels dropped by more than 1.1 billion euros, which is obviously good for performance growth.
Overall, Adidas seems to have regained deterministic growth in the third quarter, especially the Chinese market which still plays a decisive role in the development of Adidas. However, as mentioned above, although China's sports shoes and apparel market is currently huge, competition is becoming increasingly fierce. It can be seen that the development trend of domestic shoe and apparel brands is also very good.
According to statistics, in the first half of this year, Nike China, Adidas China and the four major domestic sports brands Anta, Li Ning, Xtep and 361 Degrees generated a total revenue of approximately 95 billion yuan. Among them, the four major domestic sports brands’ total revenue was 54.499 billion yuan, accounting for up to 57%; net profit increased by 19% year-on-year, both hitting new highs in recent years.
From this point of view, if Adidas wants to truly achieve a magnificent turn and further open up the Chinese market, it still needs to be prepared for a "protracted war."
Adidas’s way to break through: focus on localization
"The Chinese market is an important strategic market for Adidas. In the future, we will continue to increase investment in China and further localize the brand." This was a speech by Adidas Global CEO Bjorn Goulden at a media exchange meeting during his visit to China. .
It can be seen that the Chinese market will still be a very important battlefield for Adidas in the future, and the reason why it attaches so much importance to this market is mainly because of the broad market prospects and large consumer groups. iiMedia Consulting data shows that my country’s sports shoes and apparel market will reach 385.8 billion yuan in 2021, and is expected to reach 598.9 billion yuan in 2025. Seizing the Chinese market means a considerable "money prospect" for the development of the enterprise.
However, it is also necessary to note that Adidas has gradually lost ground in the Chinese market in recent years. In addition to the rise of domestic brands mentioned above, it is also due to its previous low degree of localization.
It is reported that as labor costs in the Chinese market increase, Adidas has gradually moved its manufacturing plants to Southeast Asian countries such as Vietnam, Cambodia, and Myanmar. Although this move is reasonable, it can also easily trigger an industrial chain supply crisis to a certain extent. For example, it is difficult for product R&D and design to receive market feedback in a timely manner; especially in a weak consumer environment, high transportation costs may lead to supply chain lags, extended delivery, inventory backlogs and other problems. Financial report data shows that as of the end of 2022, Adidas inventory is 5.973 billion euros, a year-on-year increase of 49%.
On the other hand, overseas sports brands currently developing strongly in the Chinese market have all made successful attempts at localization. Take the American sports brand Skechers as an example. The third quarter financial report of 2023 shows that Skechers’ revenue was US$2.02 billion, a year-on-year increase of 7.8%, of which revenue in the Chinese market increased by 18%. It is understood that 85% of Skechers' products sold in the Chinese market are produced locally in China. Because of this, the brand can understand local consumer needs faster and respond in a shorter time to achieve efficient supply. Iterate.
Based on this, Adidas has now regarded localization as the core concept of expanding the Chinese market. Bjorn Goulden said: "For any global brand, it is important to be close to the local market and use local resources to be closer to local consumers. , is a correct strategy and choice." This can be seen from the actions and some plans currently taken by the company.
In fact, as early as 2019, the Adidas Asia Creative Center landed in Shanghai. The center aims to provide all-round support and services for "Created in China" products. The center has a team of 80 designers and produces thousands of products every year. Here comes the market. The CLIMACOOL Qingfeng series of shoes launched this year are products specially designed by the local design team for domestic consumers.
Not only that, in order to better serve Chinese consumers, in September this year, Adidas invested 1 billion yuan to build the Suzhou Automated Distribution Center X, which was officially opened. This is also its largest investment in China in the past five years. After the opening of the center It marks the comprehensive upgrade of Adidas's supply chain and logistics system in China, which in turn promotes the company's consumer-centric transformation from "production determines sales" to "sales determine production" in its flexible supply chain business model.
In addition, according to Bjorn Goulden, more and more products in the Chinese market will be designed locally, and this number is expected to reach 70% next year.
Although this road to localization breakthrough is destined to be long and difficult, from a global brand perspective, Adidas still has very significant brand influence and industry status. If Adidas can persist in staying close to the preferences of Chinese consumers and create better quality For products, efforts may be positively correlated with returns, so we can also look forward to a new round of performance growth for Adidas.
Author: Yang Lingling
Source: US Stock Research Institute