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About Adidas

From famous athletes to school kids, adidas wants to help everyone get in the game. The company sells sports shoes, apparel, and equipment sporting its iconic three-stripe logo in 160 countries. The #3 sporting goods manufacturer (behind NIKE and Under Armour) focuses on football, soccer, basketball, running, and training gear and apparel as well as lifestyle goods including SLVR and Y-3 fashion brands. adidas’ wholesale division gets adidas and Reebok products to retailers while the retail group runs its own 2,445 Reebok and adidas shops. Other businesses include TaylorMade-adidas Golf, and Reebok-CCM Hockey. Founder Adi Dassler, brother of PUMA creator Rudi, began making shoes in the early 1920s.

Geographic Reach

Germany’s adidas rings up more than 40% of its sales in Europe. North America and Greater China contribute 20% and 12% of sales, respectively. It also sells and distributes its shoes and apparel in Latin America and other markets in Asia. Key growth markets for the company include North America, China, Russia, Latin America, Japan, and the UK.

Operations

Adidas produces more than 660 million products. Its brand shoes are the company’s cash cow, accounting for almost half of total sales. The Reebok brand and TaylorMade-adidas Golf each represent about 10%. While the company operates its own retail stores and sells shoes online, wholesaling is the bigger business, representing nearly two-thirds of total sales. The company supplies adidas and Reebok brand shoes to retailers.

The Retail segment comprises all business activities relating to the sale of adidas and Reebok products directly to end consumers through own retail and own e-commerce platforms.

TaylorMade-adidas Golf segment includes the four brands –TaylorMade, adidas Golf, Adams Golf and Ashworth. TaylorMade designs, develops and distributes primarily golf clubs, balls and accessories. Adidas Golf products include footwear, apparel and accessories. Adams Golf designs and distributes golf clubs and a small range of accessories. Ashworth designs and distributes men’s and women’s golf-inspired apparel and footwear.

Reebok-CCM Hockey designs, produces and distributes ice hockey equipment such as sticks, skates and protection gear, and apparel (mainly under the brand names Reebok Hockey and CCM).

Other brands include Y-3 and Porsche Design Sport by adidas as well as the business activities of the brand Five Ten in the outdoor action sports sector, and the adidas NEO label.

Financial Performance

In 2014 adidas’ net revenues increased by 11.4% due to the following : Wholesale revenues rose 6% driven by strong growth at adidas, while Reebok revenues remained stable; Retail revenues increased 21% as a result of double-digit sales growth at both adidas and Reebok (concept stores, factory outlets and concession corners were all up at double-digit rates); while eCommerce grew by 72% on a currency-neutral basis.

Offsetting these gains, revenues of Other Businesses decreased 19% due to double-digit sales declines at TaylorMade-adidas Golf, partially countered by sales growth at Reebok-CCM Hockey and other centrally managed brands.

Net income plummeted by 45% in 2014 driven by higher cost of sales and currency conversion, and depreciation and amortization increases, which strongly outpaced higher revenues.

In 2014 cash from operating activities grew by 11% due to higher payables to affiliated companies.

Strategy

In 2010 adidas unveiled its strategic business plan — called “Route 2015” — outlining its strategies and objectives for the next five years. The plan set ambitious total group sales growth targets of 45% to 50% (on a currency-neutral basis). Aiming to grow its bottom line faster than its top line, adidas hopes to grow annual earnings at a compound annual growth rate of 15% and reach an operating margin of 11% sustainably by 2015. (In 2014 its operating margin was 6.6%.) Three markets singled out for their growth potential are North America, Greater China, and Russia, which are expected to contribute about 50% of the total group growth under the Route 2015 plan. In the US, the company believes its brands have enormous opportunity to gain market share by focusing on improved distribution and launching more innovative products.

To fulfill its goal of growth in China, adidas says it will add 2,500 stores there by the end of 2015, putting upscale outlets in the large cities and teen-targeted, casual NEO shops in smaller markets. Other moves include expanding e-commerce, through a venture with China’s biggest online retailer, Taobao.com; sponsoring running competitions; and partnering with workout center chains. Growing its business in Asia, in 2014, adidas expanded its own-retail activities in Beijing/China.

Going forward, one of the company’s strategies for success is to continue offering products with both mass and niche appeal, allowing each of its brands to maintain a unique identity. Part of the innovation is a fashion and sport line of apparel from a deal with Giorgio Armani, to go with adidas’ SLVR and Y-3 lines. Another example is the mi line that combines technology and gear in customizable shoes, digital coaches, online support, heart rate sensing apparel, and mobile hardwear to connect it all.

In 2014 it extended its longterm partnership with FIFA (adidas dominates the soccer boot market) until 2030.

In 2014, due to the continued weakness in the golf market, negative economic developments in Russia/CIS as well as ongoing currency headwinds, adidas postponed the delivery of its top- and bottom-line Route 2015 targets. As a result, the Group has been undergoing a thorough review of its strategic priorities. To raise cash, that year the company announced plans to sell its Rockport brand (which designs and distributes leather footwear for men and women) to a new entity formed by Berkshire Partners for $280 million.