“Whoever moves the fastest wins,” predicted Herbert Hainer, chief executive officer of Adidas, adding that the Herzogenaurach, Germany-based sporting goods giant was on its way to become “the first fast sports company” in the world.
He wasn’t kidding.
Speaking during an eight-hour marathon on the group’s Investors Day, during which he was joined by the entire senior management staff, Hainer said Adidas was to reduce production lead times significantly by bringing manufacturing back from Asia and speed up in-season creation, based on trends and bestsellers.
The company is taking cues from its young fast-fashion label NEO in the matter, able to serve up new products within 45 days versus 12 to 18 months, the industry’s standard.
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Future Adidas stores would be directly linked to production facilities, possibly employing robots, the group said, allowing customers to have a personalized pair of sneakers ready in 15 minutes while they are enjoying a cup of cappuccino.
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“This is going to rock the industry,” forecasted Roland Auschel, in charge of Adidas’ global sales, noting the sporting goods maker would become the first company in the field to apply this new business model, which is expected to increase full-price sell-through by 20 percent, while keeping low the risk of overbuying.
“We will deliver products faster [and] we will deliver them better through premium presentations across our unrivaled controlled space network, which we want to represent more than 60 percent of total sales by 2020. All this is going to happen across a [25 percent] tighter product portfolio, while increasing our marketing spend [and] the per product investment,” added Hainer.
But speed is not the only pillar of the ambitious five-year growth plan that Adidas presented on Thursday.
The group said it would focus on six relevant metropolises — Los Angeles, New York, London, Paris, Shanghai and Tokyo — noting that its business in those key cities is larger than in some countries. “If we win running in New York and Los Angeles, we will win running in the U.S.,” Auschel gave as an example, adding that 50 percent of the global population lives in key cities, and together they generate 80 percent of global GDP. “These are the incubators for the new,” he rallied.
As part of the strategy, Adidas is also eager to engage more directly with its end-consumer, aiming to become “the first sports brand that invites athletes, consumers, partners and customers to be part of it,” according to Hainer.
“We are already working with some of the most creative and innovative people. Our successful co-operation with Kanye West is just the most recent example of this openness. Kanye loves to work with us because — to use his words — we give him the ‘oxygen’ to live his creativity while his former partner just wanted to put his name on their shoes,” said the ceo.
By 2017, the firm wants 30 percent of its content to be created by consumers.
The sports giant further expects to quadruple its e-commerce business to more than 2 billion euros, or $2.2 billion at current exchange, by 2020.
As 60 percent of all purchases involve a digital device, according to Auschel, the group is investing heavily in full digitalization, including click and collect, ship from store and what he referred to as “endless aisle” allowing the company to showcase its full range of product, which would never run out of stock thanks to shorter production lead times.
Auschel noted that click and collect, which was introduced in 20 stores in Moscow recently, saw a 30 percent increase in sales in one week. “That’s significant,” he judged, adding the format would roll out to 200 units by the end of August.
Adidas, which swung to a loss at the end of 2014, said net income was set to increase by 15 percent on average a year under the new five-year plan, while currency-neutral sales are to grow at a high-single-digit rate on average per year until 2020 via 500 to 600 additional stores.
The company learned from past mistakes, conceded Hainer. “We lost brand desirability because we did not focus on the needs of the consumer. We were too static.” But as the sporting goods industry is growing 7 percent a year, ahead of consumer electronics (6 percent) and beauty and personal care (5 percent), he remarked: “This is very good news for us.”
Adidas has been particularly struggling to step up its game in America, which represents 30 percent of the global sporting goods market and where it lost to rival Nike, whose offering is considered cooler and more desirable.
As Mark King, president of Adidas for North America put it: “We don’t own the hearts and minds of athletes and consumers in America.”
He admitted Adidas has relied too much on its strength in soccer, which generates more than 2 billion euros per year in sales, making Adidas the global leader in the category, but has failed to capture “the unique mind-set” of the U.S. consumer.
“If you want to be strong in America, you can’t just dominate soccer. An average U.S. high school has 15 team sports. A college has 35 team sports. In other countries one sport dominates, here it’s many. Sports define society.”
To start a grassroots movement and increase visibility on the field, Adidas plans to focus more on basketball, baseball, volleyball, lacrosse and, most importantly, U.S. football, which boasts the largest fan base. “They don’t drive much revenue,” said King, “but they get into the heart of the consumer. And we need to get into that locker room. Adidas is cool — that’s the message we are after.”
King cited Adidas’ recent collaboration with Eastbay catalogue “where every serious high school athlete buys its gear” as a positive example. “Since it launched, our U.S. football cleat became the best-selling item,” ahead of Nike and other competitors. “So if you ask: ‘Can we make a difference?’ I say ‘yes, we can.’ We just have to go get it, it’s right in front of us,” he cheered.
In addition, Adidas would sponsor individual athletes rather than whole teams, following the expiration of its NBA partnership, and rethink its retail model. “Today we have 30 stores spread across the U.S. with 25 different formats and they don’t tell one story,” King lamented.
Another problem Stateside is the price point. “If we want to be strong in America, we need a strong franchise in the mid-price point between $70 and $100,” said King, singling out “Bounce,” which has been a success for the brand and whose sales jumped from zero to seven million pairs in two years.
The running category, which the group plans to double globally — and “dramatically” in the U.S. — will play a crucial role in America, also helped by Reebok’s growing popularity in the region.
Hainer smashed rumors on Thursday of Adidas wanting to get rid of the brand. “No doubt, Reebok is one of our three main brands [along with Adidas and TaylorMade-Adidas golf]. We have been hammered for the past seven years about it, but we turned the brand around. We would be stupid to sell it now.”
Reebok’s president Matt O’Toole conceded that the turnaround took “too long,” but that “the work was done” and that it was time to bank in on the 76-billion-euro fitness industry of today. His main target: the new “fit generation,” a college educated consumer that works out four times a week, mixing three different activities. “They represent 20 percent of the active population, 33 percent of global fitness spend, spending 40 more than the average consumer,” O’Toole said.
The focus, once again, will be on key cities, where Reebok opened 443 so-called FitHubs, which performed 27 percent better than their preceding retail format, and open source. “We want consumers to become cocreators. The future of fitness will be crowdsourced,” said the brand’s president, identifying combat training as the fastest-growing business within the training unit.
Adidas also needs Reebok to win over a larger female clientele, which currently represent 40 percent of revenue at Reebok, a number that is slated to rise another 10 percent by 2020.
“Women are the chief purchasing officer in the household. They buy 100 percent for themselves, 91 percent for their kids and 67 percent for men. They are active in all sports and dominate social media,” noted Eric Liedtke, head of global brands at Adidas, adding: “She also buys 80 percent of the running product — this is our greatest opportunity.”
Running, after football and training, is Adidas’ third strongest category. It grew double-digits for the fourth consecutive year in 2014, with the “Flux” shoe emerging as the fastest growing product in the industry, according to Liedtke.