Adidas: SWOT Analysis Essay
Adidas: SWOT Analysis
* Distinguished Brand Name
Adidas AG has been in the market for more than 60 years and is still renowned as one of the world’s biggest sports clothing and accessories provider. It’s a company that is known to provide high quality products and makes sure that their customers are comfortable with what they wear. And now, Adidas AG has been very popular that everyone in the world knows the three stripes company.
* Customer Loyalty
As the years go by, the said company showed its customer their loyalty by providing them products that are suitable with their preferences and that ensures their satisfactions. With this, Adidas AG also gained positive remarks from their customers and until now, they are still being patronized.
* Partnership with Sporting Events
Being the sponsor for many sporting events like the FIFA, UEFA as well as the NBA, Adidas proved another edge with its competitors. This shows that this company is really trusted worldwide. In FIFA, Adidas even designed a ball for the 2010 World Cup which was held last 2010. In UEFA, Adidas became the partner for the event until 2016. They were contracted to provide balls, equipment, staff, officials and even referees for the said event. While in NBA, they will be the uniform providers until 2017.
* Adaptability to Change
You will see a venture seeking company in Adidas AG. As we saw in its timeline, Adidas AG is not afraid to adapt to certain changes in its company structure like acquisition and innovation. They are not afraid to step out of their comfort zones just to produce products that would keep up with the trend without sacrificing the ideals of their customers as well as the community.
Adidas AG comprised of TaylorMade as well as Reebok and these subsidiary companies are also very renowned worldwide like Adidas AG. They also provide the consumers with satisfactory products and are able to compete with large scale businesses in their own line of business.
* Diversification of Products
Diversification is a major issue nowadays. Because of the fast changing world, the consumers are more and more asking for something new that’s why the said company now involved itself in the competition of diversifying its products. Adidas is not only selling sporting accessories and clothing. Because of their subsidiaries, they are also providing other fashionable items that are suitable for different generations and for those people who are not really into sports and just want comfortable clothing.
* Support for Athletes
Adidas was built not only for profit but to also provide comfortable shoes to people and right now, Adidas is concerned with athletes all over the world. They are consistently doing their best in order to produce products that can help improve the performance of athletes while making them comfortable with what they wear at the same time.
* Corporate Social Responsibility
Nowadays, making your product better than the other is not only what the consumers are seeking for. They are now patronizing products which are environmental-friendly and are able to keep the community in good condition. Like in Adidas, they broadened the use of recycled materials for their packaging as well as other parts of their products to promote their “better place” project which is to ensure that the environment would be saved.
* Efficient Management and Operations
A company wouldn’t be successful without the help of their number one asset which would be their workforce. Adidas’ management ensures that the operations going around Adidas is worked efficiently and effectively while being able to keep up with their objectives. Aside from that Adidas introduced a new forecasting approach in order to improve their business planning and decision making processes. The technical staff of this company plays also a major role in its success. The product lines of Adidas comprise of products that are able to enhance the ability of the user and these are made possible because of the technical expertise of the people of Adidas. The processes by which they make their products are complex and sensitive in order to provide their consumers with satisfaction.
* Extensive debt financing
AG has an extensive long term debt were in most of its assets were financed by the creditors paving the way for AG to have a high degree of financial leverage and risk of indebtedness. By assessing the solvency rating of AG using Debt ratio it shows a decrease in debt ratio (total liabilities/total assets) from 64.33% (6133/9533) in the year 2008 to 57.45% (5099/8875) in the year of 2009 which is a net decrease of 7% in its debt ratio. Initially this improvement in debt ratio is favorable to AG but still it is regarded as weakness primarily because the creditors of AG still owns more than half of the company’s assets garnering a 57.45% equity when in fact AG must maximize shareholders’ value. Meaning to say out of 100%company’s assets, 57.45% of those assets are equity of AG’s creditors leaving only 42.55% (100%-57.45%)equity to shareholders of AG. This is a weakness to AG in such a way that prospective investors might not invest their money to AG because of high risk of indebtedness.
* Inefficient Use of Company’s Assets
Exhibit 9 of the case discloses the return on assets ratio of AG and its competitor NIKE. AGNIKE
Return on assets 2.8%11.2%
Returns on assets ratio assess the efficiency of company’s assets to yield optimal level of profit. In the facts given it is clear that AG is inefficient with the use of its assets because its ROA is only 2.8% whereas its competitor is 11.20%. it is weakness in the part of AG because this could be improve and develop to become strength if only AG will find ways to maximize the efficiency of its assets. This is considered weakness rather than a threat because it has something to do with the internal operation of AG.
* Extensive goodwill
Goodwill is classified as company’s assets but, having too much goodwill is not that good especially goodwill are being test for possible impairment which in case can be a additional loss to AG in the exhibit 9 of the case the goodwill decrease from 1499 to 1478 there is an assumption that we can draw that goodwill was impaired for 21 million euro which is an impairment loss for the company.
* Stick to Sports Brand
Adidas has been known to provide sports brand and not really to provide stylish fashion accessories and clothing to its consumers. Yes they have some but only a minor percentage of what they provide the public. This is a weakness for them since their other competitors are starting to broaden their not-so-sporty product lines to keep up with the modern trend.
* Expand product lines
Adidas is producing almost all kind of the product for the athletes, boxing, swimming, football, body building, golf etc, making all kind for products to give them comfort and confidence that they are wearing a reliable product. All of these sports consume high level of energy while their every day workout or during training session. As a highly reputed company if Adidas introduce such product then it will increase its market and an addition to it sport industry.
* Favorable macroeconomic developments
Since AG are a consumer goods company, consumer confidence and spending can impact their sales development. Therefore, better than initially forecasted macroeconomic developments, which support increased discretionary private consumption, can have a positive impact on their sales and profitability.
* Increasing consumer demand for functional apparel
Consumer demand for functional apparel has increased significantly in recent years as consumers realize the benefits of functional apparel over traditional cotton sportswear. Improved heat and moisture management, superior ease of motion and increased comfort are all factors encouraging consumers to switch to high-performance apparel. The design and development of functional apparel requires significantly more expertise, product and material research as well as production know-how compared to low-tech apparel. Therefore, very few companies are able to supply high-end functional apparel. AG’s resources and their positioning as a sports performance leader enable them to constantly develop innovative products and capitalize on them commercially
* Leveraging strong market positions worldwide
The adidas Group is the market leader in numerous countries around the world. This strong competitive position offers AG many advantages in terms of global brand visibility, market power and the ability to effectively expand position in emerging markets. As a result of their strong partnership portfolio and marketing efforts, consumers around the globe are highly aware of their brands and are receptive to their brand messaging. This makes demand for their products more stable compared to smaller competitors. Hence, many retailers consider their products as core to their offering. Furthermore, with their global retail coverage and distribution network, AG are able to leverage their infrastructure to introduce and more rapidly expand their brands and product offerings to markets where they previously did not exist. The adidas Group can therefore compete more effectively for retail space.
* INSTABILITY OF GLOBAL ECONOMY
With the continuous remarkable turn of events, change has been constant in our global economy nowadays. Predominant changes that affected several individuals and entities have been occurred such as fluctuation in currency rates, unemployment rates, tax rates, restricted credit extension policies and much more. The instability of the economy has become a threat to many corporations and it even affected their major decisions. In the case of Adidas AG, it has brought them into an ordeal situation wherein they have to decide whether to acquire the Armani Group or not despite of the global recession. The decision of the company will either make or break the business in the future. Should have been the global economy stable, it would be easy for the Adidas AG to decide regarding the acquisition.
Competition has been rampant in the world of sports clothing, equipment and footwear. It has been a difficult encounter for Adidas AG to face its competitors in the midst of their phenomenal success. Such competitors like Nike, Under Armour and Callaway Golf have given Adidas AG the threat of losing in the market because of the competitiveness and quality of products that its competitors also provided to customers. Adidas has been, in fact, threatened with the tight competition it faces right now. So the company continuously is thinking of strategies which are long-term and at the same time flexible so that it could beat its competitors to maintain its highly regard reputation in the market.
* TRENDS IN PATTERN OF CONSUMER BUYING BEHAVIOR
The economic fluctuations in the world have been a “domino effect” in every sectors of the macroeconomic environment. The economic status of individuals which was based on their employment has affected the trends of consumer pattern of buying behavior. With this scenario, it has given a threat to Adidas AG that their customers might tighten their budget and just use their money on the other things which are more valuable such as food, necessary clothes and shelter. Even though most customers of Adidas AG belong to the upper and middle level, it would still affect the market because customers now will minimize their spending to match with the income that they received.
* THREAT OF OUTPERFORMING EXISTING PRODUCTS BECAUSE OF THE INTRODUCTION OF NEW PRODUCT LINES
Acquiring another company such as Armani Group would result to the introduction of new product lines in the company. This new products might reduce the sales of other products which gives a threat to Adidas AG. In financial management, this situation is refer to as“cannibalization” wherein new product lines eats the market share of the existing product lines making it to outperform among the products and others will be left behind
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 11 October 2016
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