nuun
nuun
May 12, 2015

Paul Sherratt of Solutions for Sport analyses adidas and Nike’s latest development strategies

Having spent the last few months on the road, I have found myself in many retailers discussing the trade in general and, in particular, the changing fortunes of Nike and adidas.

While Nike was recently reporting revenues up 15 per cent to $7.4 billion (approximately £5 billion), adidas chief executive Herbert Hainer was admitting: “We had to accept in late 2014 that we’d not met all our financial ambitions, which we’d set ourselves in light of the strategic business plan Route 2015 five years ago.”

Similarly, as adidas roll into a 10-year, £750 million deal with Manchester United, Nike, which had been given a period of exclusivity to negotiate an extension with United and also retained the right to match any other offer, decided not to exercise either option, claiming the terms: “Did not represent good value for Nike’s shareholders”.

Are these isolated examples or part of a broader change in the way the two brands are approaching the market?

For years, Nike and adidas’ development and marketing strategies appeared to share some common ground. However, it seems we are starting to see a noticeable strategic shift in terms of their marketing and business development strategies.

Getting closer to the market
One of the areas where the approach is changing is within the manufacturing processes - driven not least by a desire to get new products to market quicker and to be closer (on all levels) to the market.

adidas is to move the manufacturing of some goods from Asia back to Europe, alongside investing in talent and marketing in Los Angeles, New York, London, Paris, Shanghai and Tokyo.

While the ‘act global, think local’ drum has been banged by many a business historically, Roland Auschel from adidas underlined this approach recently when he said: “Global brands are created in global cities. If we win running in New York and Los Angeles, we will win running in the US.”

The brand is also testing automated production units that would speed up manufacturing and allow customers to personalise their purchases.

The latter element of this strategy is gaining momentum across the UK retail trade and high street brands such as Zara are undoubtedly benefiting from increased production speed.

More is doing less
From a ranging point of view, adidas’ strategy during the next five years is to do more by doing less, aiming to carve out efficiencies from a stretched product range that was eating into margins due to surplus stock and muddled line-up.

Eric Liedtke, head of global brands at adidas, explains: “The place we want to cut down on is models. If we do a hoody and it’s black, that’s one product. If we do it in 30 colours, that’s 30 SKUs, but it’s still one model. That’s what a consumer wants - they want to see variation of a single model. That cuts [things] down from a workload perspective, so that we can make more efficiencies as a brand because it’s just one hoody in a factory with different dyes.”

adidas plans to make cuts to its product line by 2016 and will repeat over and over until it gets the right balance to be competitive with equipment and apparel that drive the market.

Future plans cost money
Conversely, Nike continues to invest, with its spending plans higher than ever. Its push to drive higher retail revenues through bricks and mortar stores has resulted in higher expenditure. The hi-tech premium image the company puts across also means a higher investment on store roll-outs.

The company also spends considerable sums on enhancing the digital experience for customers and increasing ecommerce sales, while research into innovative manufacturing technologies - which could ultimately result in lowering the cost of production - requires ongoing investment. In addition, Nike’s capital expenditure is set to rise from just above two per cent to approaching four per cent.

So where does this leave us? Five years ago, adidas presented its ambitious Route 2015 business plan, which targeted sales of €17 billion (approximately £12 billion) by the end of 2015. While it ultimately failed to hit this target, it gave the brand a foothold in emerging markets and increased revenues by more than 40 per cent since 2010. But did adidas lose consumer connection along the way?

Nike, on the other hand, has seen market share and revenues rise during the same period.

Are we at a crossroads in the evolution of the sports trade’s two most powerful brands where, while there’s still some common ground, their areas of focus are moving in different directions?

What is clear is how the consumer connects with these brands in the future will change - whether it’s a forced change through technology or one that’s driven by strategy - and with the industry moving faster than ever, it’s difficult to predict who will benefit most.

The digital touch points will be critical, but most importantly, the consumer must be at the heart of everything brands do.

Consumers want to shape their preferred brands in a way they have never been able to do before. The brand that empowers us to do so, while maintaining its development objectives, will be the one that ultimately succeeds.

brand1

Get all the latest news free straight to your inbox

Insight Update
Future fit - How to make the sports store deliver more value for retailers and their customers

Future fit - How to make the sports store deliver more value for retailers and their customers

The modern sports store has a lot of work to do to communicate with and sell to a customer whose expectations have never been more demanding, particularly since the great shift to digital during 2020.

read article
BB Sports Distributors

BB Sports Distributors

29A Apple Lane Trade City, Exeter , EX2 7HA

view profile
  

Magazines:

  

Magazines:

  

Works With: