A commitment that was repeated by several managers in Herzogenaurach last week is that the U.S. market has become a priority for Adidas. While the group's performance last year was affected by its troubles in Russia and in the golf market, it was shaken by Under Armour's rise as the second-largest brand in the U.S. market.
Adidas described it as an imperative to raise its share in this market. It has started with a brand advertising blast, with one major campaign to run in every quarter in the U.S. until the end of 2017. Other investments are underway in sports marketing as well as retailing and management.
The new targets call for sales in North America to increase by more than 50 percent by 2020. Mark King, president of the Adidas group in North America, says the company has come to realize it could not gain substantial market through its leadership in soccer and thus has to invest more in other categories, such as running and other team sports. King estimates the Adidas brand's market share at about 3.5 percent in running and he aims to lift that to 15 percent by 2020, with an increased emphasis on medium price points.
Regarding basketball, Adidas has ended discussions to extend its partnership with the NBA after the 16/17 season. The company said the deal was yielding insufficient returns in terms of sales and was not enabling the Adidas brand to build up its basketball footwear business. Nike and its Jordan brand are estimated to take up more than 95 of the U.S. basketball footwear market.
Adidas has apparently been holding talks with the NBA about an extension of the agreement since 2012. The talks weren't conclusive and the German company walked away when it found out that the NBA was going to open talks to other bidders. Nike is regarded as the most likely next partner for the NBA. The discussion may be complicated by the issue of allowing other companies to advertise on NBA team jerseys.
However, the move could also be regarded as one of the important strategic decisions taken by the company as part of its five-year plan. Instead, it wants to multiply endorsement deals with high school and college teams, as well as U.S. team sports players. The new strategy calls for Adidas to double its roster of NBA players from 70 to 140, to sign up 250 Major League Baseball (MLB) players and 250 National Football League (NFL) players by 2020.
Retailing is another area of major investment for Adidas in the U.S. market. About 55 store openings are budgeted for the next 30 months, to focus on New York, Los Angeles, Chicago, Miami and Atlanta.
King also promised vast improvements in the display of Adidas products in other U.S. stores, which was criticized by investors in most outspoken terms. Plans have been agreed or are under discussion to develop branded retail space in Dick's Sporting Goods and Foot Locker stores.
While some aspects of the plan are familiar, King emphasized that the level of commitment is unprecedented for the Adidas group, in terms of marketing as well as human resources. Apart from the recruitment of U.S. designers, more than 60 members of the global team have moved to Portland to make sure that more decisions are influenced by the interests of the U.S. market.
Auschel said that North America, Latin America, Western Europe and China together are anticipated to deliver about 80 percent of the group's sales growth in the next five-year period in absolute terms. He projects high-single digit annual sales growth in constant currencies in markets where Adidas wants to lead, such as Western Europe, China and emerging markets. Double-digit growth is targeted in North America, Latin America and South East Asia, where the group has more ample space to expand. The growth should reach mid-single digits in markets where it already has leadership, from Russia to South Korea and Japan.
The group's performance in Western Europe has already been buoyed by structural changes made last year. The regional operation has become more efficient since it was integrated into one single organization, working with a single range of products.
Gil Steyaert, who heads up that organization, said that the group has already achieved double-digit growth in orders in constant currencies this year. European sell-out for the second half of February jumped by 50 percent at Foot Locker, 14 percent at JD and 10 percent at Sports Direct.
Again, the running category was singled out as a major target for growth in Western Europe. The key cities picked for development in the region are Paris, London, Barcelona, Berlin and Milan.
The Adidas group's five-year plan envisages a sales jump of 50 percent in China over the five-year period, with the opening of about 2,000 stores, building up to a network of 11,000 mostly franchised stores. Adidas has narrowed the gap with Nike in China in the last two years and wants to snatch the market leadership by 2020.
The targeted 50 percent sales increase also applies to Latin America, where the Adidas group wants to expand its store network from 300 to 500 stores and establish Reebok as the third-largest brand in the region – after the planned takeover of its distribution in Brazil, Argentina, Uruguay and Paraguay from Vulcabras in January 2016 (see the article on Vulcabras further down in this issue). Reebok is currently generating only between 10 and 15 percent of its sales in Latin America, according to an official of Adidas Group.
