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Supply chain problems slow Adidas' sales growth

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Supply chain problems slow Adidas' sales growth

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Missed Opportunities At Adidas 

If you think that fast growth in the retail world is a piece of cake, you better think again. Adidas’ experience growing sales fast to catch up with sportswear competitor Nike has proven exactly the opposite. 

That a large public company doing over €21 billion in annual sales would struggle to accommodate a fast spurt in growth indicates how challenging the problem can be. As you grow your own retail business, you can take a few lessons from Adidas supply chain failures.

Retail Growth Challenges

The story of Adidas’s failure to keep up with growth appeared in Reuters and other media sites like Euro News. The German sportswear retailer announced that supply chain problems had led to missed revenue opportunities for the 2018 fiscal year. 

Breakneck sales growth in Adidas’ North American business left it with less margin for error when it came to managing the supply chain. CEO Kasper Rorsted is on record saying, “The volume grew quicker than anticipated and we didn’t respond quickly enough to that demand signal.” 

A 200-400 Million Euro Blunder

To understand the importance of Adidas’s failure to forecast demand and secure supplies in time, you need to look at the financial impact. 

The company sells over 450 million pieces of apparel each year. The bulk of this is produced in Asia, in particular, China, Cambodia, and Vietnam. Lack of capacity at plants in these locations left Adidas unable to fulfill surging orders in North America. 

As a result, the company was unable to book around €200-€400 million worth of orders in just the first half of 2018. Since then, the lost business opportunity could be much bigger.  

How Adidas Makes Money 

Growth problems like Adidas has been experiencing are a sign that the German manufacturer is doing well in at least one area: brand growth. Adidas has been investing in growing its brand and sales in order to become the leading sports brand over the last decade.

Adidas Is Raking In The Money 

With €21.915 billion revenue in 2018 and growing rapidly, Adidas is raking in the money. The company enjoys spectacular margins on its products. 

For the better part of the last decade, gross margins for Adidas have hovered between 46% and 50%. These margins show that consumers are willing to pay a healthy premium for the brand’s products. 

The Adidas brand makes money on sports as well as sports-inspired active-wear as well as casual-wear.  

Going “Open Source” With Product Design

As part of its strategic growth drive to 2020, Adidas is stepping up how it develops and markets its products. 

On the marketing front, the company is spending aggressively in marketing. This involves taking marketing spend to $3.5 billion in 2018, about 14% of total revenue.

In addition, Adidas’ Open Source initiative involves launching products in collaboration with outside designers and high profile athletes.

Adidas’ Battle With Nike

While Adidas has a strong footprint in Western Europe, it has lagged competitors in other markets. This has been a sore point for Adidas, especially in North America where it trails its much bigger competitor Nike for sales and brand recognition.

The battle between these two brands around the world represents one of the most compelling business struggles in modern times. The numbers put Nike at an advantage but Adidas is moving fast.

The Matchup 

Adidas was founded by Adi Dassler in 1924 and has gone through a series of changes over the years. It has always enjoyed a much stronger European presence, though it has begun to focus on other regions of late. 

Nike, with revenues of $39 billion in 2018, as reported in Forbes, is about twice as big as Adidas. The US company is one of the most recognizable brands around the world and performs well in its home market. 

Playing Catchup

Recognizing that it needs to step up performance in the American market, Adidas has been rolling out initiatives to do just that. One of these is a partnership with American rapper Kanye West based around the “Yeezy” line of sneakers.

The footwear segment is particularly important for both Adidas and Nike since it comprises the lion’s share of business for each of them. Nike is seeking growth in new markets in Asia, particularly China. 

Notably, Nike’s recent 6% average annual growth rate has lagged the 11% growth seen at Adidas.  

How To Manage Supply Chains For Growth 

In the context of Adidas’s efforts to compete better in the American market, its growth challenges should be, perhaps, expected. The company’s supply chain is highly globalized in nature, and this is a scenario that more retailers will likely face in the future. 

Global Supply Chains

Adidas does most of its product manufacturing across Asia, with the top sourcing countries for Adidas footwear as follows:

  • Vietnam - 44% of Adidas footwear

  • Indonesia - 25%

  • China - 19%

The single largest supplier factory accounts for 10% of all Adidas footwear production. Managing such a complex supply chain, however, is a uniquely challenging task.  

Mitigating Supply Chain Risks

As Adidas experienced, supply chain vulnerabilities can cost your business real sales. As you look at your own supply chains, the following approaches can help mitigate risks:

  • Review scenarios and capabilities regularly - Take stock of your supply chain’s capabilities ahead of time to spot problems early.

  • Set up a supply chain council - Your supply chain likely involves many outsiders. Have a council that can share best practices and enforce them.

  • Help with staffing - Make sure suppliers have adequate staffing, especially in times of high growth. 

Keep Tabs On Your Competitor’s Capabilities

Besides beefing up your own supply chain’s capabilities, you should be keeping tabs on your competition’s capabilities. 

As we saw, even a global retailer like Adidas does not operate in a vacuum. It has to keep track of competitors like Nike and see where they are doing well or badly and position itself to take advantage.

Know What Your Competitor Is Selling

The first area of competitor monitoring for retailers is inventory monitoring. Fortunately, this is an area of focus in our retail intelligence solution, Competitor Monitor. Our software provides you full insight into the products your competitors are selling so you can keep up. 

You can see their full product assortment as well as, crucially, pricing and promotions for these products. This lets you price competitively and spot new sales opportunities in real time. 

Other Areas Of Competitor Monitoring 

Beyond product monitoring, you should also be running other competitor analytics to gain insight into competitor capabilities. QuickSprout recommends using Google Alerts and SpyFu to track both brand mentions as well as website backlinks.  

Planning For Growth 

Adidas’s supply chain problems are an example of the kinds of challenges that come with high growth. It’s ultimately worth it to grow your retail business as that unlocks the next level of business opportunity. 

From a practical perspective, you should be making use of analytics to spot problems and opportunities ahead of time. Competitor Monitor can help. Our product does pricing intelligence, inventory tracking, competitor analysis, and much more.

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