Essay, Pages 6 (1433 words)
Adidas is an international firm founded in 1949 by Adi Dassler which has its headquarters in Herzogenaurach, Germany . The iconic three stripes on the shoe were the first product created by him and became a global success story.
In Europe, they are the biggest sportswear makers and globally they are the second biggest sports brand. It recently acquired Reebok ( Footwear and apparel company ), Runtastic ( Fitness technology company, Taylormade[Golf apparel company]) and also co-owners (8.33%) of the German football club . The company’s annual turnover in the financial year 2018 was 21.
915 billion .
The outlook for 2019, the sales are said to increase at a rate between 5% to 8%. According to recent reports, the gross margin is said to increase to around 52% and the operating margin is said to increase between 11.3%-11.5% (Rorsted, Auschel, Liedtke, Ohlmeyer, & Parkin, 2019).
In 2018 the capital expenditure was 794 million and is said to increase to a level of up to 900 million .
The strategy of the brand is to authentically push the boundaries of products, experiences and services which creates a brand desire and hence capitalizing on the growth opportunities not only in activewear but in sports-inspired casual wear as well (Rorsted, Auschel, Liedtke, Ohlmeyer, & Parkin, 2019).
Regional GDP Development in % :
Analysis of Adidas’s External Environment (PESTEL)
PESTEL analysis is a tool used to analyze the Macro (external) environmental factors that may have an impact on the company such as – Political, Economical, Social, Technological, Environmental and Legal (M & F, 1995).
Factor Development Impact
POLITICAL Adidas needs to take into consideration the political unrest and trade policies in different countries.
To continue its global presence and financial performance, the company needs to tackle such issues.
The company will lose time and money while delivering to different countries with different political issues.
The company has expanded into Asia and Latin America where the political domain remains stable since they are largely democratic. Recent reports have indicated that the issue in the US is the trump administration imposing import tariffs and restrictions on the company.
This implies that due to the democratic nature of the countries the government cannot pose undue restrictions or introduce impractical decisions. Adidas is unable to reach its goals and objective businesswise, the US is a huge market for sports and activewear .
The fluctuation of stock markets changes the interest rate and thus the growth rate of the company.
The profitability of the company will be affected due to taxation, inflation, unemployment, and per capita income.
Global unemployment, a decrease in domestic demand, wages, rates were a result when the recession hit the global economy. Currency fluctuations also play a huge role when the company is global on a large scale.
These factors hugely affected the business because of the global recession that happened in the past two years, the purchase of the goods from Adidas came to a standstill when people were living off their savings which meant that labour and manufacturing costs in Asian countries went up affecting the net earnings of the company Social Adidas needs to consider different cultures, religions, races for operating.
Adidas needs to consider different buying habits and lifestyles.
Marketers have to keep in mind the culture, religion and race because they impact the society. Adidas has a people strategy that consists of four pillars that create the culture and environment for their people.
Keeping this in mind Adidas has come up with a slogan ‘Impossible is nothing’ which captures the attention of the youth of today globally. The youth of today have a spirit that breaks barriers, wanting to seek adventure and exploits the full potential. These characters make the youth associate themselves with the slogan and the brand.
Technological Adidas must innovate products with unique technology to have a competitive advantage. These innovations will give the company recognition and a good customer base. The comfort, cushion, grip, performance, and weight are key factors that distinguish a Footwear and sportswear brand.
The Ultraboost’s and Yeezy’s are examples that Adidas is constantly working on innovation. The Adidas changed the game when Kenyan Patrick Makau set a world record wearing the Adidas Adios in 2012. In 2013 Adidas Ultraboost’s which were lightweight, had excellent grip and a soft sole hit the shelves. Adidas 4D concept offers midsoles crafted with light and oxygen which is a technology developed by carbon. This shows that Adidas is one step ahead in innovation and technology.
Environmental Adidas started the “Better Place” program in 2007 to use more sustainable products whilst making better quality products Adidas does not use restricted products and has worked towards reducing volatile organic compounds emissions.
Adidas is working towards reducing carbon dioxide emissions and has a target to attain the tag green company by 2020. It aims at banning restricted materials for the production of goods which is a great initiative by the company to take step towards conserving the environment. As a result of the Carbon Disclosure Project(CDP), Adidas was awarded a B-score in the Climate Change Submission.
Legal Adidas needs to consider legal constraints in every country to do business without obstacles. Adidas needs to be careful with the product name selection and their way of advertising the product.
When a sportswear brand has to enter the market in a lot of countries there are some legal barriers. A perfect example is when Nike was trying to enter the market in Spain there was a litigation case for over a decade when the Supreme court filed charges that the Nike name was a registered trademark of a distributor called Cidesport until 2009 when the judgment was reversed post-Nike’s appeal. Adidas is making sure it abides by all rules and regulations according to the Trade Descriptions act. Adidas I giving its retailers sufficient information about the products.
Porters Five Forces Analysis
This is an in-depth analysis of Adidas’s external market which determines the profitability of the industry and helps in strategy formulation. (Porter, 1996)
Threats of New Entrants- Low to Medium
A new company entering the footwear and activewear market is an advantage because of rising consumer expenditure on these goods. Although you need a small capital to enter the market, building a brand like Adidas requires a very big investment.
There are strict costs for investment like technology, marketing, advertising. Manufacturing and Transporting goods to different countries because of the different trade policies, taxation, and currency fluctuations also require a huge capital. So the threat of new entrants for Adidas is low to medium.
Bargaining Power of Buyers – Low to Medium
The Bargaining Power of Buyers is Low to Medium because the customers have a lot of brands as options to choose from and the customers are price-sensitive because of the wide variety. The switching costs are low. Adidas has put effort into building a strong customer base because of the quality, design, and performance of products it offers.
Bargaining Power of Suppliers Low
Adidas has a large number of suppliers. It is easy for Adidas to switch to new suppliers, hence a single supplier cannot exert pressure on Adidas. These suppliers will lose out on a great sum of business incase Adidas decides to move to a different supplier.
Adidas outsources its production and works with over 1000 independent suppliers and sets the product quality standards. Thus, the bargaining power of suppliers is very low. In 2018 Adidas delivered 78% of products on time and 90% in Greater China and Russia. Adidas outsources its manufacturing from Vietnam (44%) Indonesia (25%), China (19%), Europe (3%) in 2017.
Presence of Substitutes -Low to Medium
There a wide variety of substitutes who are local, small and large scale competitors but, most of them fail to match up to the quality of products and do not meet the marketing efforts made by Adidas on a global scale.
Adidas has invested a huge sum of time, money and energy into marketing its products in the metropolitan markets and dominated the industry resulting in the moderation of the threats for substitutes.
Competitive Rivalry- High
The competition is high in the footwear and sportswear industry because of the competitors like Nike, Puma and Under Armour.
All the top brands are investing millions in advertising and sponsorships, making it very competitive in the market. The top brands have also been in the game for a long time and are fighting for a huge market share raising the stakes. Adidas is predicting an increase in the currency-neutral sales of (5% – 8%) for the year 2019.