PORTER’S FIVE FORCES ANALYSIS OF ADIDAS
Key Facts
| Name | Adidas AG. |
| Industry | Clothing, Shoes, Sports Equipment |
| Founded | 18 August,1949. |
| Headquarters | Herzogenaurach, Germany |
| CEOs | Kasper Rorsted |
| Revenues | € 21.234 billion for 2021 and € 17.306billion till third quarter 2022.(unaudited) |
| Profit/(loss) | €2.116billion for 2021 and € 1.124billion till third quarter 2022.(unaudited) |
| Year end | 31st December. |
| Competitors | Foot Locker, Reebok, New Balance, ASICS, Skechers, VF Corporation, PUMA, Under Armour, Nike and HanesBrands. |
Company Overview
Headquartered in Herzogenaurach, Germany Adidas operates in Clothing, Shoes and Sports Equipment.On August 18, 1949, Adi Dassler started at the age of 49, registered the ‘Adi Dassler adidas Sportschuhfabrik’ and set to work with 47 employees in the small town of Herzogenaurach. In the same year, he registered a shoe that included the registration of the soon-to-become-famous adidas 3-Stripes.Its reported revenues are € 21.234 billion for 2021 and € 17.306 billion till third quarter 2022. Sports company Adidas was valued at over 14.3 billion U.S. dollars in 2021, by Statista.
Porter’s Five Forces Analysis
Porter’s Five Forces Analysis is a widely used model to evaluate companies’ strategies in reference to its industry for neutralizing the competition and increase the margins, it is developed by Professor Michael E. Porter in 1979, at Harvard Business School.
Adidas Rivalry among Existing Competitor
- Adidas Business Segments: Adidas operates predominantly in one industry segment – the design, distribution, and marketing of athletic and sports lifestyle The company has 67 distribution channels and outsource from 114 independent manufacturing partners that were producing in 234 manufacturing facilities.The five major operating segments includeEurope, Middle East, Africa(EMEA), North America, Greater China, Asia-Pacific, and Latin America.
- Adidas Global Operations Year 2021:To make their production costs competitive, almost 100% of their production is outsourced to independentmanufacturing partners. Cambodia is the largest source for apparel, China is the main source for accessories and gear andIndonesia is the largest footwear sourcing country. In total, there manufacturing partners produced approximately 482 million units of apparel in 2021.
The highest revenue generated in 2021was fromMiddle East, Africa(EMEA)37%, North America largest market 24%, Greater China 22%, Asia-Pacific 10% and Latin America 7%.
Revenues in Running were driven by the latest iterations of adidas’ successful running franchises, including Adizero and Supernova, which both grew more than 50% during the quarter of 2022.
PUMA is a major competitor with a revenue of € 6,268.5 million and net profit of € 352.1 million for third quarter September 2022. With sales being up 24% in Euro terms at € 2,354 million and EBIT up 13% to € 258 million, it was the best quarter in PUMA’s history. During the first nine months, we achieved sales growth of 24% in Euro terms(18% ca) to € 6,269 million and an EBIT of € 600 million.The Americas region recorded a strong sales growth of18.8% (ca). Sales in Middle East, Africa(EMEA) were up 18.5% (ca), driven by strong growth across almost all keymarkets in Europe. The Asia/Pacific region recorded sales growth for the first time this year(+9.8% ca). China, other key markets in Asia/Pacific delivered strong growth. Sales in Footwear were up33.2% (ca) and Apparel grew 9.9% (ca), driven by continued strong demand for Performance categories like Running & Training, Teams ports and Basketball, as well as forSport style.
PUMA and Manchester City host their first-ever metaverse jersey launch on Roblox to unveil the new 3rd kit for 2022/23
PUMA and WNBA star Breanna “Stewie” Stewart launch the Stewie 1, the first new women’s signature basketball sneaker inover a decade.
Nike is also a major competitor withrevenue of US $ 46,710million and profit of US $6,046 million as at fourth quarter of 2022, which were up 7 percent compared to prior year and up 11 percent on a currency-neutral basis. Wholesale reported revenues for the fourth quarter were $6.8 billion, down 7 percent compared to prior year and down 3 percent on a currency-neutral basis. Gross margin for the fourth quarter decreased 80 basis points to 45 percent. Diluted earnings per share was $0.90 for the fourth quarter.Revenues for the NIKE Brand were $11.7 billion, down 1 percent on a reported basis and up 3 percent on a currency-neutral basis, led by 20 percent growth in EMEA.Revenues for Converse were US $593 million, down 1 percent on a reported basis and up 3 percent on a currency-neutral basis, due to wholesale revenue declines offset by growth in our direct to consumer business.
- Investment in Research & Development-Marketing Cost and Brand ImageThe existing competition among the brands isthe challenge toprovide high quality products with features such as breathability, rapid drying, static resistance, heat resistance, and chemical resistance requires high investments in research and development to better design the product for an accelerated customer satisfaction. Adidas also needs to focus the marketing cost to increase the brand image and better customer loyalty.
Adidas Threat of New Entrants
- Global Footwear and Sports Equipment Industry:Revenue in the Athletic Footwear segment amounts to US $59.95bn in 2023. The market is expected to grow annually by 4.11% (CAGR 2023-2027). In relation to total population figures, per person revenues of US$7.80 are generated in 2023.In the Athletic Footwear segment, volume is expected to amount to 580.9m prs. by 2027. The Athletic Footwear segment is expected to show a volume growth of 3.4% in 2024.The average volume per person in the Athletic Footwear segment is expected to amount to 0.1 pairs in 2023.
- High Capital Investment:Thesportswear and shoes industry largely constitutes of few big organizations, composition shows that the mainstream sportswear is not favorable for new entrants unless the organization have high financial backup.
- High Research & Development Cost:High research and development cost is required for launching any new product in the current shoes and sportswear industry due to the specialized nature of the product.
- Distribution Channels:Adidas global distribution network consists of 67 distribution centers. They operate with 26 distribution centers in EMEA, eleven in Greater China, 14 in Asia-Pacific, seven in North America, and nine in Latin America. Of the 67 distribution centers that make our global network, 27 are owned and operated by adidas, and 40 are owned. New entrants will not have excess to such distribution channels thus, making high barriers to entry.
Adidas Bargaining Power of Suppliers
- Large Number of Suppliers:There is low level of differentiation and there are many suppliers in the industry. Majority of the manufacturing operations are outsourced to under developed countries, where suppliers strive to get contract with big brands. Therefore; suppliers have less influence.
- Suppliers Collaboration:Adidas has a supplier network ofmore than 500 independent factories from around the world that manufacture products in 46 countries .The company has close ties and collaboration with its suppliers. In 2021, they worked with 114 independent manufacturing partners (2020: 132) that were producing in 234 manufacturing facilities (2020: 277). The majority (71%) of independent manufacturing partners are located in Asia (2020: 68%).
Adidas Bargaining Power of Buyers
- Low Product Differentiation:The buyers of sportswear industry holds low power. When shifting from one leading brand to another customers may receive similar quality and price ,thus switching does not bring a significant change in the product that customer needs due to low product differentiation.
- Customer Satisfaction – After Sales Services: In case of shoes and sports equipment industry customer satisfaction include prompt reply to complaints, timely return and exchange etc. , as it is a high-end product customer feedback, customer satisfaction and continuous innovation is important to retain the market share. With an American customer satisfaction index score of 79 for its athletic shoes, Adidas outranked Nike in 2021. That year, Adidas had a score of just one point higher than Nike, while the roles were in fact reversed in 2020.
Adidas Threat of Substitute Products or Services
- CounterfeitProducts: The brands that are selling sportswear can act for each other as customer can switch from brand to another. In addition the counterfeit products being sold at lower prices threaten the position of original producers who can loose customers who value low prices over quality.
- Brand Loyalty: As due to the nature of the product segmentation of shoes, clothing and sportwear the company attracts a niche market so any substitution can only be replaced at the cost of brand loyalty.
References:
- Forbes|Adidas name and its history. Available at Forbes
- Statista |Global footwear market – statistics & facts| Available at Statista | Statista
- Statista (Jan 17,2023) | The American customer satisfaction index scores for athletic shoe companies in the U.S. from 2010 to 2021 | Available at Statista | Statista
- History of Adidas| Available at Adidas
- Adidas Global Operations| Available at Adidas Group
- Statista(July 27,2022)| Global brand value of Adidas from 2016 to 2021|Available at Statista| Statista
- Adidas Group Annual Financial Report 2021| Available atAdidas Group
- Nike Financial Information for 2022|Available at Nike
- Puma Third Quarter Financial Report 2022| Available at Puma
- Adidas Group Third Quarter Financial Report 2022| Available at Adidas Group
