SWOT Analysis

Strengths :

Brand image : 
Adidas is a well known sports shoe and apparel brand with a strong image throughout the world.
The company has maintained a strong brand image. Its focus on innovation, product quality,
style and marketing have enabled Adidas to build a strong image and high customer trust. Strong
brand equity in the shoe industry translates into higher sales and revenue. For past some years,
since Adidas grew its investment in marketing, its image and brand recognition have also grown
stronger. The brand is also investing in sustainability innovation and building sustainable
products to grow its popularity.

Supply chain management : 

Supply chain management of Adidas is also an important strength of the brand. The brand needs
good quality sustainable material to make the products it sells. To obtain the raw material, it
needs for producing shoes and apparel, the company sources from suppliers around the world. It
has managed its large and global supply chain responsibly.

 Adidas has also outsourced its manufacturing to external manufacturers. Adidas works with total
700 independent suppliers who manufacture Adidas products in more than 50 countries. The
supply chain of Adidas is global and multi-tiered and includes both direct and indirect
contractors.

130 manufacturing partners make most of its products. Out of these, 26 are strategic partners and
produce the majority of its products in 82 manufacturing facilities. Adidas offers its suppliers
continuous training and education. It also carries out regular audits to manage supplier
performance.
Focus upon innovation :
As a sports shoe brand, Adidas invests a major sum each year in research and development.
Customer trends in the shoe industry have changed fast and competition has also grown stronger.
This has resulted in growing need for product innovation. Brands need to keep bringing new and
stylish products to shelves to sustain the level of demand in the market. During the recent years,
Adidas has focused upon bringing more and more sustainable products to the market. The new
products launched by Adidas generated most of its sales in 2018. The company’s investment in
R&D was however, lower in 2018 than 2017. In 2018, the company invested $153 million in
R&D compared to $187 million in 2017. Moreover, the company is focused on manufacturing
innovation to grow its fast product design and development capabilities and to enable product
innovation. Another core focus of Adidas is digitalization.

Focus upon marketing: 

Adidas has seen faster growth in the last few years and one of the central factors driving its
growth is its increased focus on marketing. Nike is its nearest competitor and is also known for
its heavy focus upon marketing. Adidas is also trying more targeted and aggressive tactics for
marketing of its brand. In recent years, it has increased its investment in marketing and
promotion. Its marketing expenses in 2018 were 10% higher compared to the previous year. The
brand spent €3 billion on advertising and promotions as compared to €2.7 billion in 2017.

Adidas is using several channels for marketing. However, digital marketing and customer
engagement is a core focus in this area. The company also promotes its brand and products
through sponsorships, leading sports personalities and major sports events globally. Leading
events at which Adidas promotes its products include FIFA World Cup, UEFA Euro, the UEFA
Champions leagues, the Olympic games, the Boston and Berlin Marathons etc. Apart from these,
the brand targets football fans by sponsoring high profile football teams and individual players
like Lionel Messi. Adidas also tries to achieve the best results from its marketing investments
and doing more by investing less.
International expansion: 
Adidas is an international sports brand. In 2018, its core focus were North America and China
markets. North America is a priority market for Adidas. The brand is strategically growing its
investment in North America in assets, infrastructure and people. The company has divided its
business on a geographic basis. The geographic segments of Adidas include Europe, North
America, Russia/CIS, Asia Pacific, Latin America and the emerging markets. Apart from its
geographical reach through physical stores, the brand is also reaching its customers through e-
commerce channels. 

The brand has established a large and global network of physical stores. Worldwide, Adidas has
more than 2,300 company owned retail stores, more than 14,000 mono-branded franchise stores
as well as more than 150,000 wholesale stores. The ecommerce platform of Adidas sells to
customers in more than 40 countries. 

Large product portfolio made from sustainable material: 

Adidas has continued to expand its product portfolio over the recent years by introducing several
new models. These models were the primary driver of sales and revenue in 2018. In recent years,
the brand also made changes to its product portfolio to focus upon its core products including
shoes and apparel. In 2017, the brand completed the sales of its TaylorMade, Adams Golf and
Ashworth brands and CCM hockey business. It is also using more and more of sustainable and
recycled raw materials for the production of footwear and apparel. Both Adidas and Reebok
brands have adopted this strategy to grow their range of innovative products.

In 2018, Reebok introduced ‘Liquid Floatride Run’ made using Reebok’s Liquid factory
technology. The company produced more than 500 million shoes in 2018 using recycled plastic
waste. Adidas plans to double this number in 2019. 

Weaknesses :
Growing operating expenses : 
With growing prices of raw material and labor, the operating expenses of Adidas have also kept
growing. The revenue of Adidas has increased but so have its operating expenses. The company
has grown its investment in marketing and it reflected in the form of higher other operating
expenses. Other operating expenses of the brand grew past €9 billion in 2018 and were more
than €350 million higher than the previous year. Growing operating expenses can shrink profit
margins and affect net income adversely. 

Overdependence on external suppliers : 

Adidas depends entirely on external partners for the production of the products it sells. It has
outsourced nearly all of its production to external suppliers located in Asia and other parts of the
world. On the one hand, while it allows Adidas to focus on other aspects of business, on the
other it adds to operating costs. Adidas could bring costs down through backward integration.

Opportunities :
Athleisure trends :
Athleisure trends have led to growing sales of sports shoes and apparel. Not just men’s segment,
but sales in the women’s segment have also increased. People are looking for sports shoes and
apparel that are stylish. They like wearing them as casual fashion. Growing athleisure trends
present a wonderful opportunity of growth for the sports shoe brands. Adidas is investing in
product innovation to bring latest designs to the market and grow its sales and revenue.

Demand in Asian markets : 

Asian markets and particularly the emerging markets present a wonderful growth opportunity for
brands like Adidas. Increasing number of stores and distributor network in these markets will
help the brand find faster growth there. Apart from China, other Asian markets like India,
Malaysia and Singapore also present excellent growth opportunities.

Digital marketing & Customer engagement :

Proliferation of digital technology has brought attractive marketing opportunities for fashion and
sports brands who can attract more customers and grow their sales by using digital marketing
and customer engagement techniques. Adidas is focusing on digitalization. However, it must use
both content marketing and video marketing channels to grow customer engagement and develop
better customer relationships.

Backward integration :
Backward integration can reduce the operating costs of Adidas. Currently, the brand has
outsourced virtually all of its production to external partners. It should try backward integration.
This will enable the brand to reduce production times and bring latest designs to the market
faster. Product innovation can also be accelerated through the help of backward integration.

Ecommerce : –
Adidas sales from e-commerce channels are growing. In 2018, the global e-commerce channel
of adidas was among its fastest growing channels. There was 36% yoy increase in Adidas
ecommerce sales. However, to find faster growth, the brand must also utilize other ecommerce
brands including global and local ecommerce sites. Partnerships with ecommerce brands like
Amazon, Flipkart, alibaba etc can help the brand grow its sales worldwide. 

Threats :
Competitive pressure : 
Competitive pressure in the sports shoe industry has kept growing. Not just Adidas, but its rival
brands are also investing aggressively in marketing as well as research and development to grow
their sales and revenue. Higher competitive pressure also creates pressure on the bottomline by
driving operating expenses high. There are several competitors of Adidas in the market including
Nike, Under Armour, Puma, Fila, New Balance and several more. 

Market fluctuations :
Economic fluctuations in key regions where Adidas sells its products including North America,
China, and Asia Pacific may slow down Adidas sales and lead to decline in revenue. Decline in
economic activity in any of these regions can cause a decline in revenue and profits for the
brand. Fluctuations in currency exchange rates can also cause losses for the brand. A stronger
dollar is already hurting the profits of sports shoe brands.

Regulatory pressures :
Regulatory pressures are also adding to the problems faced by the sports shoe brands. These
companies are under immense pressure related to market expansion and compliance. Apart from
taxes and laws applicable in the areas of labor, product quality and environment, there are
several more laws that require compliance. Growing compliance pressure also adds to
compliance costs of the international brands. 

Growing cost of raw materials and labor :

The costs of raw materials are also growing each year and leading to higher operating expenses
for sports brands. Apart from raw material, the costs of labor are also growing which are adding
to the operating expenses. Moreover, Adidas sources only high quality raw material for
producing only superior quality products. During the recent years, it has grown its focus on
products made from sustainable and recycled raw materials. Overall, with costs growing higher
the pressure on the bottom line of sports brands is also high.