Adidas reveals investment in digital transformation and online sales target

German sportswear company Adidas announced its growth strategy that involves investment in digital transformation to improve online sales.
Adidas efforts in digital transformationAdidas aims to double its e-commerce sales by 2025 as part of a 5-year strategic plan to lift profitability closer to that of rival Nike. The online sale of Adidas surged 53 percent in 2020 to more than € 4 billion, accounting for more than 20 percent of total sales.

Adidas doubled down on e-commerce through consumer marketing, product launches and prioritized supply chain management in 2020. Adidas said this focus was reflected in e-commerce sales growth accelerating to triple-digit rates during several months in 2020, and remaining at elevated levels even as retail stores reopened.

Adidas is targeting online sales of up to 9 billion euros or $10.7 billion a year by 2025 with an operating profit margin of 12-14 percent, up from the 11.3 percent achieved in 2019 before the coronavirus crisis knocked sales and profitability, Reuters reported.

The company has reopened 95 percent of its retail stores after coronavirus lockdowns, it said earlier on Wednesday. Adidas forecast sales growth rate in the mid-to-high teens, rising to as much as 30 percent in greater China, the rest of Asia and Latin America, in 2021.

Nike, the world’s biggest sportswear brand, said people have logged on to its workout and store apps en masse, driving significantly higher online sales over the past year.

Adidas will invest more than 1 billion euros in the company’s digital transformation and aims to make nine out of 10 products more sustainable by 2025, using more recycled and biodegradable materials.

CEO Kasper Rorsted said e-commerce will account for more than 40 percent of the industry’s sales by 2025, with online growing three times faster than offline, adding that more than 70 percent of consumers say sustainability is an important consideration when making a purchase.

Fourth-quarter sales rose by a currency-neutral 1 percent to 5.55 billion euros ($6.59 billion) while operating profit slipped slightly to 225 million euros.

About half of its stores were closed in Europe in the period, but online sales grew 43 percent.

Rival Puma last month said it expects the financial impact from lockdowns to last well into the second quarter but that pandemic-driven growth in running should support a strong improvement after that.

As part of the new strategy, Adidas will manage greater China as a separate market from the rest of Asia and it has integrated Europe, Russia and emerging markets into a new Europe, Middle East and Africa (EMEA) region.

Net income from operations is projected to rise to between 1.25 billion and 1.45 billion euros in 2021, up from 429 million euros in 2020 but still below the 1.9 billion euros in 2019.

Adidas expects a hit of about 250 million euros to operating profit from costs to make its struggling Reebok brand a standalone company, with a third of that in 2022 but none in 2023, before a planned sale or spin-off of the business.

Marketing and point-of-sale expenses declined 15 percent to € 2.573 billion (2019: € 3.042 billion) as Adidas took on a disciplined approach regarding physical marketing activities, while keeping up digital marketing investments to support its e-commerce business.

As a percentage of sales, marketing and point-of-sale expenses were almost flat at 13 percent (2019: 12.9 percent). Operating overhead expenses decreased 2 percent to €6.656 billion (2019: €6.80 billion). Adidas posted lower expenses for travel and IT projects, which offset increased logistics costs resulting from the exceptional growth in e-commerce.

Digital plans

Adidas’ own-retail stores will be digitized with fully-fledged omnichannel capabilities. The focus on increasing digitalization will be expanded to the company’s wholesale partners to ensure a seamless experience for the consumer across all touchpoints.

Adidas plans to invest around € 1 billion more into the brand in 2025 compared to 2021. By 2025, the digital transformation of the company will have been driven forward with investments amounting to over € 1 billion as well.

The company’s digital transformation is driven by investments of more than € 1 billion until 2025. Core processes across the entire value chain will be digitalized: from the creation process with 3D design capabilities, via the sourcing of its products to selling it to customers and consumers.

In 2025, the vast majority of adidas’ sales will be generated with products that were created and sold digitally. The company will expand its data and technology expertise internally and increase the size of its tech team. In 2021 alone, Adidas will hire more than 1,000 tech and digital talents. The company is also investing into the new ERP system S/4HANA from SAP.

Baburajan Kizhakedath

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