SWOT analysis of Adidas
Some strategic changes during the recent years have helped Adidas find faster growth. Apart from revamping its marketing strategy, the brand has retained its focus on product innovation and some other key areas of business. The result has been the start of a great new year financially. In 2017, Adidas had a great start where its major brands Adidas and Reebok posted double digit sales across key markets. Apart from a 16% increase in currency neutral revenue the brand also saw its operating margin improve from 0.9 pp tom 11.1%. In North America, Greater China and Japan, the revenue growth was particularly stronger. 2017 has opened on a favorable note for Adidas and based on the first quarter’s performance the brand has confirmed a favorable outlook for 2017.
Last year, it adopted a new three pronged marketing strategy where it has focused its efforts on the metropolitan areas where most of its target market is found. Its collaboration with Stella McCartney also continues. On the other hand, Adidas football announced a long term partnership with Juventus Turin Mid Fielder Paul Pogba, one of the world’s most south after footballers. Adidas recorded many other critical achievements in 2016 too. However, the challenge from Nike is tough and Adidas would need to sustain its recent performance. Here is a brief SWOT analysis highlighting its strengths, weaknesses, opportunities and threats. Read on….
Brand image: Adidas is a brand with a mission to become world’s best sports brand. The brand has maintained a great image which also means high level of popularity and brand recognition.
Market presence – A strong market presence in the key markets globally is another major strength of Adidas. In the North Americas, Greater China and Japan its performance has already been great in the first quarter of 2017.
Growth through acquisition : Adidas acquired Reebok in 2006 and that led to a growth in its market share. Earnings and growth have caught momentum during the recent years at both Adidas and Reebok. Currency neutral revenues grew at Adidas 26% and at Reebok 6%.
Sponsorships and partnerships: The brand has used partnerships and sponsorships for long for marketing purposes. It announced a partnership with Wander Lust, the largest yoga lifestyle events producer in the world. Adidas has partnered Juventus Turin Mid Fielder Paul Pogba and like Adidas Reebok is also into key partnerships with several groups.
Innovative marketing strategy:
In the recent years Adidas has revamped its marketing strategy and focused it on the metropolitan cities where most of its target market lives. This strategy has been effective and the results are visible in the form of great financial results.
Focus on product and design innovation:
Adidas has focused on product and design innovation. It launched Boost X, a running shoe made for women by women. Reebok, on the other hand launched a shoe named Z pump fusion 2.0 that can provide custom fit and fit to the athlete’s foot for a better running experience.
Great financial performance in 2016:
2016 has been a year of great financial performance for Adidas where it saw its earnings and profits increase sharply.
Spur in marketing investment:
Due to increased focus on marketing, the group’s marketing and operating expenses have increased. In 2015, its point of sale and marketing investments were at 13.9% as a percentage of its sakes. This also means high operating expenses overall.
Tough competition from Nike resulting in customer retention related pressure:
Nike dominates the shoe market and therefore the competitive pressure on Adidas is high. Switching costs being low, customer retention is a challenging area.
Product and design innovation :
Continuous product and design innovation is good for sales and revenue. It helps attract and retain customers.
Increase in demand for athleisure products:
The demand for athleisure products has increased which means apart from utility in sports, the products are expected to be good looking ad stylish. Making such products can result in higher sales and revenue.
Expanding in the emerging markets:
Adidas is doing well in greater China; it must also focus on India and other emerging markets for sharper growth.
Reduce dependence on suppliers by focusing on back ward integration.
Market dominance of Nike is the biggest threat. Competitive pressure from other brands like Puma and Under Armour also remains.
Political tensions and economic uncertainty arising from Brexit: Brexit has resulted in both political and economic uncertainty which makes the situation challenging for Adidas in a few of its key markets.
Economic uncertainty in key markets: There is economic uncertainty in some important markets including Russia which is affecting financial performance. Moreover currency fluctuations and a stronger dollar too threaten profits.
Over dependence on suppliers: Adidas’s dependence on suppliers is high and over dependence on some of the in the long term can be risky for its business. It has focused on building long term and strong supplier relationships and still over dependence on them can be dangerous.
Conclusion and recommendations:
Overall, 2016 was a quite successful year for Adidas and 2017 opened on a strong and favorable note. The brand’s financial performance has improved owing to its increased focus on marketing in the recent years. The financial highlights also prove that outlook for 2017 is favorable. Apart from the economic and socio political challenges, the market dominance of Nike is the only major challenge before Adidas. The brand would have to continue to focus on its marketing and product innovation to stay competitive. Some competitive threat also exists from the other brands like Puma and Under Armour. For further growth, it must focus on the emerging markets like China and India. Its performance in greater China and Japan was great and India also holds potential as a market. Moreover, the athleisure trends bring great opportunities for brands like Adidas. Its new three pronged marketing strategy is already generating wonderful results.
Adidas First Quarter 2017 Results