A several years forward It looks like Adidas could challenge Nike for the title of world’s largest sportswear maker. To be sure, the American giant is way ahead. But its three-stripes German rival has been buoyed in its stride. Under Kasper Rorsted, who took over as chief executive in October 2016, Adidas’ revenue has skyrocketed — by about 30 percent in his first three years as leader. A deal to manufacture and sell sneakers designed by American rapper Kanye West paid off handsomely in 2013; Mr West’s Yeezy line contributed to Adidas’ overall footwear sales by 2021 12%. In August of that year, the company’s market capitalization hit 67 billion euros ($79 billion), more than double what it was five years earlier.
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Adidas looks like a loser today. Revenues for the final three months of 2022 were essentially flat year-over-year. The company disclosed a quarterly operating loss of 724 million euros. Far from catching up, it fell further behind Nike, which reported quarterly sales of $12 billion on March 21, up 14% from a year earlier, double that of Adidas, and owning 13% of its Air soles. operating profit margin. Adidas’ market value fell back to 25 billion euros, one-seventh of Nike’s. Investors today appear to be more confident not only in the Nike logo, but also in Adidas’ smaller domestic rival, Puma (see chart).
Some of adidas’ cramps were caused by factors beyond its control. Inflation drives up supply chain costs. In February 2022, militant Russian President Vladimir Putin sent tanks to Ukraine, prompting Western companies to withdraw from the Russian market and the company had to scale back its massive Russian operations. West (now insisting on calling him Ye)’s increasingly erratic behavior, including outbursts of anti-Semitism, led Adidas to cut ties with him last October. That leaves it with millions of pairs of unsold Yeezys, worth around 1.2 billion euros. Unless these are somehow repurposed, the company expects to post its first annual operating loss in 30 years, around 700 million euros, by the end of 2023. The prospect of a recession in Europe and North America and uncertainty about China’s economic recovery were additional drags.
However, bad luck is not the whole story. Mr Rorsted’s focus on efficiency and cost, while welcome in some quarters, has come at a price. He has been rude to Adidas’ retail partners, preferring to focus on selling directly to consumers through the company’s own stores. He also neglected to invest in innovation. Florian Riedmüller of the Nuremberg Institute of Technology said Mr Rosted would have made a good chief financial officer. Instead, he “is an example of what happens when you put the wrong person in the top job”.
The adidas board believes it has now found the right man in Bjorn Gulden, who will take over CEO at the beginning of the year. The Norwegian former professional footballer helped turn Puma around, but he was poached from Puma.
Mr Gulden’s first priority is deciding what to do with all Yeezy shoes (options include trying to sell them, possibly giving the proceeds to charity, donating them to charities such as victims of the recent earthquakes in Syria and Turkey, or simply boxing them ). Aneesha Sherman of brokerage Bernstein said a bigger long-term challenge is how to deal with China. Adidas’ sales in China fell 36 percent last year. China’s strict pandemic lockdown and boycotts of Western brands that have expressed concerns about China’s treatment of its Uyghur Muslim minority have both played a role; Nike’s sales in China also fell 8% in the most recent quarter.
But unlike Nike, China’s best-selling sportswear brand, which deftly adapted to local tastes, especially a growing love for basketball, Adidas was caught off guard. Its sales in China have been surpassed by fast-growing local rival Anta. Now it risks losing third place to another Li-Ning company.
Mr Gulden called 2023 a “transition year” that would pave the way for rebuilding a profitable business in 2024. He plans to cut the dividend, reduce discounts on unsold kit, repair relationships with retailers and invest more in product and the Adidas brand. It’s a start. But if adidas really wants to catch up to Nike, it needs to step up the pace — and speed up. ■
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