A COVID setback for adidas, but digital foundation remains intact
- With stores shuttered in lockdown, adidas CEO Kasper Rorsted remains committed to digital expansion.
Digital is and will continue to be our most important commercial and brand driver.
That was the message from adidas CEO Kasper Rorsted as he announced a 34% drop in sales during lockdown, but predicted that the firm’s digital foundation would enable a rapid bounce back:
At the beginning of 2017, we made digital a strategic priority for the company, and named our dot com [business] the most important store in the world. And since then, we have built a strong digital foundation.
The work on that foundation has evolved significantly since then with focus shifting to apps, first announced at the Dreamforce conference in 2017. Rorsted explained:
Until a couple of years ago, we did not have any apps. We came from the dot com site. The apps we had come out are fantastic, [but] were not commercial-driven. Right now we are seeing over-proportional growth from our adidas app landscape. We’ll continue to build more apps with more functionality and more advantages for key consumers, ie give them access to, what I call, restrictive launches or launches with very limited volume.
Our capability to capture consumer, address consumers with the right products in the right moments has proven to be very fundamental for us. So today, we have a much more data-driven setup than we had 3 years ago, where it was a more transactional driven setup…When it comes to systems, the more data-driven we become, the more it pays out. You can see that we have a much higher trading when we get people into app landscape.
With stores shuttered around the world, adidas is the latest in a line of retailers to cite a change in consumer trends towards online. Rorsted said:
We're seeing a fast-forwarding of the digital transformation. The lockdown has led to a step change in digital penetration. Consumers are shifting to online faster than before. In the first half [of our fiscal year], more than 1/3 of our sales, [both our] own e-com and partners, were digital. [It is] a fast forwarding of the digital transformation that also will play into the long-term attractiveness of our industry.
We saw e-com nearly doubling triple digit growth in April and May, sales more than doubling in many markets. And the growth is remaining at exceptionally high level despite store openings in many countries…We probably don't think that we're going to maintain the growth at the same level moving forward because you are seeing an opening up of more and more stores coming up. But there is no doubt that the consumers that have moved online will continue to be online and will continue to, where they're getting a good experience, shop at that space.
Digital in action
Rorsted cited a number of examples of the digital ecosystem in action:
Platforms enable us to connect to consumers and get them into our ecosystems. We had 400 million video views for the #hometeam campaign. The training app users [numbers] more than tripled in the lockdown period between March and May, and this pool of connected consumers fuels our commercial platforms. We increased our adidas app sales by more than 4x year-to-date. Creators Club members purchases account for more than 6% of the online sales. A [digital] customer we know is a more valuable customer. Our Creators Club members have a 2x lifetime value compared to the non members. And we again added millions to members in the second quarter, which will contribute to future commercial success.
Digital is more than e-commerce, he added:
As part of our digital transformation, we launched our first ever Rapid Creation Product pack last month. In just under 48 hours, teams created a 3D-rendered product based on the latest consumer research data. The Rapid Creation Pack launched in July performed very well as the tropical colorways match current consumers' taste as we had inferred from our data. It's a major step to enable digital creation end to end.
Over the past couple of months, physical showrooms were closed, but we still wanted to hold productive selling meetings with our wholesale partners. And to make these meetings possible, we used our digital showroom tool that combines 3D-video previews and augmented reality to bring our products to life virtually. We have seen a tenfold increase in the number of wholesale partners using this tool.
While lockdown has seen a slowing down of a number of IT projects, Rorsted has clear priorities for future digital investment:
Moving forward, you will see us consistently invest more and more systems in AI, in infrastructure that allow us to deal better with the consumer…The opportunities that we are looking at is more at data science, and it's the Artificial Intelligence that we can build on this one in the future. This is still something where we are looking for the right expertise in how we deploy that across many markets, but that’s one opportunity that I would call out - data science, Artificial Intelligence going forward. But the foundation is laid out.
I don't think you're going to have a stopping point. I think that the winning formula is the more you can invest, the better you can understand the data, the more competitive advantage you will get. I think that's where the big companies have a huge advantage over the smaller ones because we have the capability to invest more than 200 IT people overnight into our digital space and accelerate a number of development projects that smaller companies cannot do….I'm very, very optimistic about the future aspects of it. This [sales drop] is a setback. But I think that the underlying work we've done in the last many years will be very beneficial for us for.
COVID-19 has taken its toll on sporting events and for retailers whose business model is so closely aligned to them there is an inevitable knock-on impact. That is, as Rorsted says, a setback when it comes to achieving adidas’ oft-stated objective of generating €4 billion a year from digital sales. But the direction of travel is set and the investments that the firm has made in expanding its digital ecosystem position it well for the future.