German sportswear giant Adidas has seen incredible growth in the second quarter of this year, having boosted sales by 20 percent to €5 billion, up from €4.1 billion in the same period last year.
Digital sales are driving a lot of the growth, with eCommerce revenues up 66 percent across the board (whilst reaching as much as 80 percent in the US). CEO Kaspar Rorsted has said that he wants Adidas’ digital sales to reach €4 billion annually by 2020, up from €1 billion seen in 2016.
In the second quarter we saw a number of strengths and weaknesses. We continue to see very strong ongoing brand momentum with double-digit growth in all key regions China 28%, North America 26%, and Western Europe 19%. The decision to really aggressively push eCommerce has proven to be right based on the work that Harm [Ohlmeyer – CFO] has done in the last five to six years and we’re seeing accelerating momentum with the income growth of 66%.
We are satisfied with the progress that we’re making in our e-comm business through the acceleration that we’re seeing; North America almost growing 80% and China more than 100% in our e-comm. It’s clear that the consumer is moving online and the importance of online will be immensely important moving forward.
We still believe there is tremendous opportunity ahead of us to ensure that we build the right digital franchise for our consumers to address…[and are] making the first minor steps towards our target of €4 billion in 2020.
CFO Ohlmeyer said that the company’s €4 billion target is “pretty aggressive” and did note that the eCommerce business is a variable one, when you consider credit card fees and shipping costs. This is particularly true given that Amazon is driving what most of the customer’s expect from an experience point of view, which includes things like free shipping and a personalized experience – all which can have an impact on cost. Ohlmeyer said:
Of course, from a channel mix point of view, it will be attractive for us and that’s why we are prioritizing it. But within that channel, we have limited leverage given the nature of the variable cost that is driving most of the expenses now.
Ohlmeyer added that he expects sporting goods to account for 30-35% of Adidas’ online business over the next few years. He said that “I believe the consumer is going more and more online from what we estimate probably today 20% to 25% towards the 30% to 35% by 2020.”
The question, Ohlmeyer added, is whether this accelerates or levels out by 2020 – but he wasn’t willing to take a guess at this stage.
Rorsted said, however, that regardless of what the final figures are, it’s important that Adidas continues to invest in digital, including social media, so as to better understand the customer. He said:
You can’t grow the eCommerce business if you don’t have a better understanding where the consumer’s living nowadays and that is in social media.
But we are investing over proportionally in the digital side of the brand. There is nothing specific that I want to highlight, but having an understanding of how the consumer is consuming brands today is fundamental to the growth not just in digital, but for the brand overall.
Finally, responding to a question from an analyst, Rorsted said that because digital is going to play such a key role to Adidas’ business model going forward, it needs to work hard to attract the right people. Key to this has been the investment in centres of expertise around the world. He said:
Just as an example in the U.S., in the first six months we had 330,000 applications alone in the U.S. Last year we had more than a million for the company, and clearly the brand is helping us to do so. So we need to continue to attract and built more knowhow in our organization when it comes to digital, not only e-commerce. It’s big data, it’s analytics, etcetera.
Today we have a very large setup in the Netherlands, we also have a setup in Spain. So clearly we’re not seeing that the people for the digital space, the hubs or the centers of expertise needs to be in Herzogenaurach [HQ, Germany], we will make use of our global presence and create the hubs where it’s most appropriate to get hold of the right talent.
Clearly we need to have hubs, we have no intention to have 25 different hubs. But as I said today we have a very large setup in the Netherlands and Amsterdam. We have a strong setup in Zaragoza in Spain and we’ll continue to ensure that we have hubs where the right level of talent is to ensure that we do actually hire that talent into our company. We are a global company. We don’t believe that global means that everything has to come out of the headquarter.
Image credit - Image sourced from Adidas website