(Footwear News, May 2003)
Classic Look Remains Trendy For Adidas
Classic remains trendy - at least as far as the retro look in sport shoes is concerned. The classic design will continue to be in fashion, said the head of global marketing at Adidas-Salomon, board member Erich Stamminger. "Since the late eighties each time period has had its retro perspective," he said. "So I believe it will accompany us further, but with ever changing interpretations. The basis of the shoe will stay the same."
At its annual shareholders' meeting in Fuerth near Nuremberg on Thursday, Adidas-Salomon-CEO Herbert Hainer pointed to the record sales volume of 6.5 billion euros in 2002. In North America sales grew 8 percent to 2.0 billion euros. Net income for the group was 229 million euros, a ten percent year-over-year increase. Adidas expanded its already industry-leading gross margin by 0.7 points to 43.2 percent. The driver of this growth was the Adidas brand, mainly because of its expanded activities in flagship stores, a lower level of clearance sales, higher clearance margins, and an improved product mix. The Adidas-Salomon stock was the top performer on the German stock index DAX-30 for the second consecutive year, although its share price declined by 2 percent in 2002. Sales performance for the first quarter of 2003 was equally impressive, Hainer added.
Half of company sales come from its shoe business. Footwear in the classic look was especially successful: The "Sport Heritage Division," which encompasses original products targeted at trend setters and young lifestyle consumers, increased its sales by 23 percent to 904 million euros, thereby outperforming the "Sport Performance Division" selling sports gear for athletes. The latter, however, still makes up 80 percent of total sales. When the Heritage Division was founded in 2001, it accounted for only 500 million euros.
Stamminger said Adidas planned to market products of past Olympic games in the Olympic year 2004. In contrast to the retro look, it plans to expand the partnership with modern Japanese designer Yohji Yamamoto that was launched last year. The new "Sport Style Division" with Yamamoto-designed products shall make up 5 percent of total Adidas sales in the future. This partnership is unique in the market, Stamminger stressed.
The segmentation into three divisions (Heritage, Performance, and Style) has so far been executed in marketing and operations, and it will carry over to sales organization this year. Stamminger's personal goal is to introduce a substantial technology innovation every year. At the shareholders' meeting, however, he refused to answer questions about the development of electronic shoe, which could be a crucial innovation in the shoe business.
The sports gear firm plans to open new flagship stores in Milan, London, Barcelona, and several US cities. It also plans to reduce the high number of products (currently 30,000) by limiting regional product varieties and expanding worldwide collections like Clima Cool and the Signature basketball shoe. "We started with this strategy in 2000, and we will continue to pursue it," Stamminger said. Adidas-Salomon achieves 80 percent of total sales with 20 percent of its products. CEO Herbert Hainer cited this figure at the shareholders' meeting to stress the need for reducing product categories and varieties.
Although sales increased by four percent to 1.4 billion euros in North America in 2002, this market will remain a challenge for Adidas, which intends to become the global leader in the sporting goods industry. Hainer announced the company's plans to expand its share of the North American sports shoe market to 20 percent in the next three to five years. He conceded that the general market conditions are tough, with a poor consumer confidence, a sluggish global economic climate, and aggressive pricing by competitors. Among efforts to counter these challenges he cited increased advertising activities, enhanced visibility of Adidas products at the point-of-sale, and the introduction of new classic footwear models in the $60 to $80 price category, currently the level most in demand. Nevertheless Adidas will remain a brand for the upper and medium price range, he said. Stamminger added that Adidas planned to recruit more basketball stars to attack market leader Nike.
Two representatives of shareholders' associations asked about the danger of SARS for Adidas' business in Asia in case a Chinese factory needs to be closed. The company replied that each factory there produces no more than ten percent of the output. Therefore, such a situation would be manageable.