Adidas Target Market and Marketing Strategies: Navigating Challenges

Introduction

Adidas was founded by a man named AdiDassler on August 16, 1949, in Herzogenaurach, Germany. Dassler was 49 years old at the time he created Adidas. He was determined to make the best quality sports equipment for all athletes. Adidas’ first pair of shoes were designed with the signature Adidas three stripes on the side (“History”). It was not until 1954 that Adidas became a household name after the German football team won the World Cup. Dassler and his team created lightweight shoes with screw-in studs on the bottom that the players could adjust depending on the field conditions.

This new “Dassler boot” allowed athletes to focus on the game and not their shoes. After the World Cup, the Dassler boots went on sale all over Europe (“History”). Adidas was known for its footwear up until 1968, when they released an ad that showcased Franz Beckenbauer, a famous German footballer, wearing an Adidas tracksuit. This tracksuit contained the famous three stripes down the sleeves and sides of the pants. This ad created a “whole new business” (“History”) for Adidas. In 1970, Adidas released its own line of soccer balls. Dassler met with so many athletes and fans, trying to understand what they wanted out of sports equipment. Adidas created a soccer ball that could be easily followed on black-and-white television. This allowed them to create a partnership with FIFA, and every official World Cup soccer ball was one created by Adidas (“History”). During the 1970s, Adidas designed its signature “Trefoil” logo, which still remains today. It was also during the ’70s that Adidas began to branch out into other sports, like track and gymnastics. After Dassler’s death in 1978, the company was left in the hands of his son, HorstDassler. Under the direction of his son, Adidas continued to grow until Horst’s sudden death in 1987 (“History”).

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Historical Evolution and Brand Impact

The company struggled to find its way after this and almost went bankrupt in the early 90s. Adidas’ CEO at the time, Robert Louis-Dreyfus, led them out of that financial crisis by focusing on the marketing of their products. In 1995, Adidas went public and since then has joined with other companies like Reebok. Their goals today are still like their goals in 1949, to create the best sportswear in the industry. Today, they continue to appeal to both athletes and non-athletes in the same; the famous three stripes have become well-known in mainstream fashion along with sportswear. They remain the largest sportswear company in Europe and second in the world behind Nike (“History”). Adidas says their vision is “everything we do is rooted in sport” (“Strategy”). Sports are very popular in today’s society, and almost everybody has something to do with athletics. The people of Adidas “believe that, through sport, we have the power to change lives. And we work every day to inspire and enable people to harness the power of sport in their lives” (“Strategy”). Adidas is a very special company because they are not limiting themselves by focusing on a specific sport. They are focusing on making sports, health, and fitness a lifestyle.

Focus on Urban Centers

So, by creating shoes that are both stylish for everyday wear and can also be used for athletics, they are onto something big. Adidas is continuing to change the way athletic apparel is viewed in the fashion world. This is a big deal because many people like (or want) to live an active lifestyle, but they also want to be fashionable while doing so, and that is what Adidas is all about. Management Issues The Adidas Group aims to focus mainly on its corporate social responsibility. In particular, they apply the majority of their efforts to the 4 P’s, namely People, Product, Planet, and Partnership. The Adidas Group has implemented various projects to improve the image of its brand in the eyes of consumers and reduce its environmental track at the same time. In this process, they have been seeking partnerships with specialists in various fields. The first effort of Adidas’ sustainability policy is ‘People.’ This effort directs the welfare of employees and workers in their factories. The Adidas Group developed an SMS worker hotline service in 2012 (Vestad). As part of the project, the number of mobile workers is anonymously gathered. Management can then send group texts reminding workers of safety issues or letting them know about changes in policy (Vestad). More importantly, it gives factory workers the opportunity to ask questions, make suggestions or express their concerns by text.

By giving all employees an opportunity to express their concerns anonymously, the Adidas Group provides an unbiased working environment that values their employees’ opinions and views on the quality of their work while also becoming fully transparent in the sharing of company policy changes and safety concerns (Vestad). In the second effort, ‘Product,’ we can better understand how the Adidas Group uncovers improved ways of creating their products, mainly through innovative processes, increased efficiencies, and greater use of eco-friendly materials. At Adidas, innovation is at the heart of all their products. The methods of materials selection and production are the two main ways by which their innovation teams can influence the environmental trace of their products (Innovation, Adidas). “To mention some examples: Avoiding oil-based plastic helps reduce carbon emissions. Thinner or lighter materials mean less waste and less embedded carbon. Dry-dyeing clothes save water, chemicals, and energy” (Innovation, Adidas). Accessing the innovation challenge in terms of the environment enables them to make better products for consumers and also better products for the planet (Innovation, Adidas). Regarding their focus on ‘Planet,’ the Adidas Group has set up various goals. As a leader in chemical management for two decades, they are trying to advance “towards zero discharge of hazardous chemicals by 2020” (Henke). They have set up rigorous programs to manage the chemicals that are used to make their products. To achieve these goals, they asked for help from Bluesign Technologies, which is currently the world leader in providing assessment tools for positive chemistry in the textile industry (Henke). Bluesign Technologies inspects and manages chemical input at the supplier level and provides practical guidance on how to improve the way products are manufactured. The Adidas Group and Bluesign Technologies have gone into Partnership in order to find sustainable solutions in their “global supply chain” (Henke). The other two goals they pursue are related to the use of perfluorinated compounds and the ‘wet process.’ An essential aspect of their sustainability plan is not only to enable them to be sustainable but to encourage their suppliers to adopt and improve their corporate social responsibility. They strive to influence their suppliers by encouraging them to introduce environmental management systems in their own processes. The implementations of their systems are now essential for their main suppliers. Marketing Issues The Adidas product market is very wide. They have several different kinds of products.

Sustainability Initiatives and Market Differentiation

Most of these products are designed to appeal to every athletic type of person. But, the brand has not set its limits to just athletes. The brand has ruptured onto the fashion market. With the signing of Kayne West and his signature line, it has really boosted Adidas. A lot of people wear Adidas shoes and clothes to be fashionable. They have done a really good job of marketing through famous people to help reach many types of people. Adidas’s main products that they focus on are their footwear. They have various different styles and uses for their shoes. They have specific shoes for everyday wear, walking, running, and various sports. According to their best seller page, one of Adidas’ most popular styles of shoes is their boost shoes (“Adidas Men”). These boost shoes are marketed as running shoes, but they also double as everyday tennis shoes. Along with footwear, Adidas also focuses on its clothing and apparel departments. Adidas shirts, shorts, and sweatsuits are among some of their most popular items. One sport that Adidas is very big into is soccer.

In other countries, soccer is a very popular sport – in many countries, it is the most popular sport. Western Europe is a huge target for Adidas because of soccer. In the past, Adidas’ revenue in Western Europe has been almost double its revenue in North America. It has changed as of late, though. Because Adidas has stepped into the fashion world, it has become more popular in North America. Adidas has several competitors. Because they are in the shoe and athletic markets, this puts them up against several others like Nike, Under Armour, ASICS, and many other smaller athletic brands. Their biggest competitor globally is Nike. This is because these two are rivals. Both companies are always trying to sign star athletes and come out with the newest things. However, there are other competitors stepping into the market. Under Armor is another huge competitor, especially in the United States.

Because there is a lot of competition, Adidas has to continue to better themselves in order to stay in competition with these other brands. Current Issues Adidas faces a lot of new challenges in the future and currently. The CEO who just left Adidas in September of 2016, Herbert Hainer, did a great job in helping grow the market value but failed in the United States to maintain a strong position in the market (Ritson). Nike and Under Armour both generated higher net income in 2017 than Adidas in the United States, putting them in the third spot for the biggest sports brand in the United States. After Hainer left, KasperRorsted took over the CEO position, and he had a lot of work to do. He must rethink some of the biggest marketing challenges for the company. In March, the company vowed to focus its marketing strategies in some of the biggest cities in the world, including Los Angeles, New York, London, Paris, Shanghai, and Tokyo. Judging from Nike’s successful distribution globally, speculators believe that focusing on these big cities may not be a good move and might not end up paying off in the long run (Ritson). Another huge hit to the company was its loss of many of the sponsorships it had with big names. Although Nike is struggling as well, especially with their recent controversial Colin Kaepernick contract, they still remain above Adidas in the world of sponsorships, which helps them succeed. One of the biggest struggles the shareholders of Adidas face is, without a doubt, profitability. Adidas needs to focus on growth in the United States to be able to overcome its competitors. The key to this growth in the United States is picking the correct sponsorship deals and understanding that these sponsorships will give them the foothold to profitability as people who follow these stars wear their brands. Adidas’ biggest target is the sports fans who enjoy sports gear more than the clothing and accessories that their favorite stars are wearing.

Adidas has all the right tools, but they need to find big sponsors to get them to where they would like to be (Ritson). Unfortunately, CEO Rorsted also has not been doing a good job with marketing since taking over in 2016 either. His tactic was to target the new digital age of media on the web and kill all other forms. This is good for the younger generation or those who are into Adidas just for the aesthesis since social media is very effective when marketing to these groups. However, while there is a decline in watching television by the younger generation, the big market of Adidas is the sports watchers. The sports brand needs to hit its target market, which is the problem with just casting out digitally. People mainly watch sports on television, and that’s where AdidasAdida’s biggest marketing ploy should be (Ritson). Just by looking at their website, anyone can see what job opportunities are available at Adidas. Viewers can also see which departments are hiring and which locations. They even have a job listings page to make it easier for candidates to apply. According to this site, Adidas currently has 1,674 jobs available worldwide. These jobs range from store workers to managers and executives for certain regions (“All Job Openings”). There seem to be a lot of opportunities for people to continue to grow within this company. Financial Issues Adidas has been a very successful company over the past few years. One can see that simply by looking at their financial statements. In 2014, they generated $14,534,000,000 in revenues. Their cost of goods sold was just slightly over half that amount, leaving them with $6,924,000,000 to cover their other costs. Their operating expenses totaled $5,949,000,000, and Adidas had an operating income of $975,000,000. After taxes, interest, and a $68,000,000 expense from discontinued operations, Adidas ended with a net income of $490,000,000 (“ADDYY Income Statement”). Adidas has proved itself successful, as they have continued to grow since then. By 2017, their net income had increased by 224% since 2014. At the peak of its success, Adidas had $21,218,000,000 in revenues, a 146% increase from 2014. As would be expected, when their revenues increased, their cost of goods sold increased as well.

Conclusion

However, they were able to limit this increase in costs of goods sold to 138%. In turn, this allowed their total gross profit in 2017 to increase to $10,704,000,000. Their total operating costs were just under $20,000,000,000. After taxes and interest, their net income was $1,097,000,000 (“ADDYY Income Statement”). A large portion of this increase in revenue was due to their marketing and management teams, but their financial teams also created ways to help cut costs which helped their net income become higher. Just like their net income, Adidas’ stock price has increased as well. This is most likely due to a higher demand for their products. Adidas started 2018 with a stock price of $99.65, the lowest it has been all year. It reached its highest price on April 16 at $130.78. The current stock price is $117.07 (“ADDYY Historical Prices”). So far, during 2018, they have only paid out one dividend on May 10. With the exception of 2016, which had two dividend payouts, Adidas has stuck to the pattern for at least ten years of paying one dividend per year sometime in early May (“ADDYY Historical Prices”).

As their company has grown, their dividends have increased, as would be expected from a company of their size. Based on financial statements and stock prices, Adidas seems to be doing great in its industry currently. Although Nike had a higher net income than Adidas in 2017, Nike’s net income decreased by 45% from the year before (“NKE Income Statement”). Adidas, on the other hand, is improving every year and is likely to continue improving during 2018. Adidas is most definitely a company to keep watching in the future as they are truly passionate about being the best company they can be.

References

1. History of Adidas. (n.d.). Retrieved from https://www.adidas-group.com/en/group/history/
2. Vestad, O. L. (2012). Adidas’ Sustainability Performance: Are They on the Right Track? Retrieved from https://www.researchgate.net/publication/323123202_Adidas_Sustainability_Performance_Are_They_on_the_Right_Track
3. Innovation at Adidas. (n.d.). Retrieved from https://www.adidas-group.com/en/group/innovation/

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