Business is like warfare, and in the realm of sports brands, the rivalry between Adidas and Nike is particularly thrilling. Now, Adidas has charged into Nike’s territory—let’s see how Nike responds.
Surpassing Under Armour and closing in on Nike, Adidas showed strong momentum in the third quarter.
Launching a fierce offensive on Nike’s North American stronghold
Adidas has just released an impressive third-quarter earnings report, with particularly standout performance in the North American market. The report shows that, excluding currency effects, global revenue for Adidas grew by 12% in Q3 this year. Among this, revenue from the Adidas brand increased by 13%, driven by double-digit sales growth across running, outdoor, Originals, and neo series; Reebok brand revenue grew by 1%.
In terms of channels, all distribution channels for Adidas achieved growth in the third quarter, with e-commerce performance being particularly outstanding, surging by 39%. In euro terms, global sales for Adidas rose 9% to €5.677 billion in the third quarter.
Rolf Dietrich, Global CEO of Adidas, stated that in Q3, the company’s strategic growth areas—North America, Greater China, and e-commerce—once again served as key drivers of strong revenue growth. Dietrich said: “Our robust growth momentum is mainly reflected in significantly improved profitability in the third quarter. We have once again delivered an excellent earnings report and are steadily advancing toward our ambitious financial goals for 2017.”
The report shows that Adidas’ gross margin in Q3 increased by 2.4 percentage points year-on-year to 50.4%. Adidas’ gross margin has now surpassed Nike’s. The latest quarterly gross margin reported by Nike was 43.7%, down 1.8% year-on-year.
This rise and fall reflect the current momentum of the two brands, and nowhere is this more evident than in the North American market. The report shows that in Q3, Adidas achieved double-digit strong growth in North America, with revenue up 23% year-on-year. Among this, the Adidas brand saw growth as high as 31% in the North American market. Meanwhile, Nike’s latest quarterly report shows that the brand faced setbacks in North America, with revenue declining by 3% year-on-year.
“To become the world’s No. 1, you must first take the No. 1 spot in North America,” this was the sentiment expressed by Mark King, President of Adidas North America, in a media interview in April this year. “In terms of trends, media, and hype, the center of sports is in the United States.”
The North American market is Nike’s stronghold, one that Adidas has long coveted. But Mark King admitted that the North American market has always been a tough nut to crack for Adidas.
However, this situation began to change about two years ago. This is partly due to the slowdown in growth of main rival Nike in the North American market, and partly thanks to Adidas’ aggressive push. Two years ago, Adidas held around a 5% market share in North America—now it has risen to 11%.
Data released by NPD Group shows that in August this year, Adidas surpassed Nike’s Jordan Brand to become the second-largest sportswear footwear brand in the U.S. That month, Adidas basketball shoe sales grew by 40%, while Nike’s comparable products fell by 20%. In the first eight months of this year, Adidas’ market share in the U.S. nearly doubled, reaching approximately 11.3%.
Although in the first eight months of this year, Nike remained the top player in the U.S. market, holding a 45.5% share. Nike and Jordan brands accounted for 37% and 9.5% of the U.S. market respectively, but compared to 39% and 9.4% in the same period last year, growth has shown signs of fatigue.
In the seesaw battle between Adidas and Nike, 2015 was a critical turning point. At that time, Adidas was going through a painful transformation. From 2011 to 2014, Adidas suffered continuous setbacks in the U.S. market, even issuing a profit warning in 2014 when it lost its No. 2 position in the U.S. to Under Armour. In FY2014, hurt by the decline in U.S. business, Adidas’ North American revenue dropped by 6%, making it the only region where Adidas saw a revenue decline that year.
By restructuring its North American operations, Adidas managed to stop the decline in 2015, showing clear signs of recovery with revenue growing by 5% year-on-year—but compared to Nike, it was still “a small fry,” with a growth rate only half that of Nike. At the time, among the top 10 best-selling sneakers in the U.S., nine were from Nike and one from Under Armour.
At the time, Nike was at the height of its popularity. Whether in terms of revenue growth or stock performance, Nike was the undisputed king. In FY2015, Nike set multiple financial records, with revenue reaching $30.6 billion, up 10% year-on-year. From FY2010 to FY2015, Nike maintained overwhelming dominance in its home market of North America, with an average annual revenue growth rate of 10%.
At the 2015 Investor Day, Nike CEO Mark Parker boldly declared the goal of achieving $50 billion in revenue by 2020.
Yet, in just over two years, the competitive dynamics between Adidas and Nike in this key battleground of the sports brand industry have shifted dramatically. In their latest quarterly reports, Adidas posted double-digit revenue growth, while Nike saw an unusual decline. So, how did Adidas manage to do this?
The answer is simple. In the words of Adidas CEO Rolf Dietrich, “We offered the right products to the right consumers at the right time”; in the words of Adidas North America President Mark King, “We focused on what consumers think and want.”
This is particularly evident in Adidas’ grasp of the casual fashion sports trend. Adidas was the first to detect the arrival of this trend, acted early, and thus gained the upper hand.
Behind this, Adidas’ “Creating the New” strategy played a significant role. In 2015, Adidas launched its global “Creating the New” strategic framework, focusing on significantly enhancing brand appeal, driving strong sales growth, and strengthening profitability.
Guided by the “Creating the New” strategy, Adidas launched an aggressive push in the U.S. market.“As of Q3 this year, we have achieved growth of over 30% each quarter in the U.S. market. We expect to maintain strong growth in Q4 as well, and it’s clear our market share in the U.S. will continue to rise.”said Rolf Dietrich.
It seems Adidas is not content with its current “No. 2” position. Speaking about the U.S. market, Dietrich stated that they are far from reaching the level they aspire to in the U.S., there is still a long way to go, so they will continue to invest heavily in the U.S. market.
When analyzing the reasons behind the shifting fortunes of Nike and Adidas in the North American market, Wedbush Securities analyst Christopher Svezia noted that Adidas has done better in innovation and marketing, invested heavily in North America, while Nike has fallen short in innovation and set product prices too high.
Strong Performance in Greater China
In addition to launching a fierce offensive against Nike in the North American market, Adidas has also delivered commendable results in another key market—Greater China.
Excluding the impact of exchange rates, Adidas' sales in Greater China grew by 28% in the third quarter of 2017, driven by the continued strong momentum of both the Adidas brand and the Reebok brand.
Kasper Rorsted, CEO of Adidas Group and Managing Director of Adidas Greater China, said that the strong double-digit sales growth recorded by Adidas Greater China in the third quarter of 2017 once again demonstrates the increasing appeal of the Adidas brand to Chinese consumers. We are steadily advancing under the guidance of our "Creating the New" strategy for Greater China by 2020.
"For the remainder of 2017, we will continue to focus on 'Sporting Creativity', further intensify our efforts in key areas, allow consumers to truly experience the Adidas brand philosophy, provide them with an outstanding shopping experience, and continue expanding in emerging and key cities while implementing our digital strategy," said Rorsted.
This year marks the second year of Adidas' implementation of the "Creating the New" strategy, which aims to make Adidas the leading sports brand in Greater China by 2020. Under this strategy, Adidas is focusing on five key categories: football, running, women, children, and Originals. To achieve this, Adidas has established three strategic pillars: core cities, speed, and open resources.
The impressive results prove that this strategy is effective in Greater China. Excluding the impact of exchange rates, Adidas' sales in Greater China grew by 29% in the first three quarters of this year. The Adidas brand revenue increased by 29%, primarily driven by double-digit growth in running, training, outdoor, basketball, Originals, and neo. The Reebok brand revenue grew by 16%, mainly benefiting from double-digit growth in training and running.
In the first three quarters of this year, Adidas' gross margin in Greater China improved by 0.1 percentage points year-on-year to 58.1%, reflecting improvements in pricing, product mix, and integrated channels, as well as lower input costs.
Whether in terms of revenue or gross margin, Adidas' performance in Greater China is commendable. As a key market for Adidas, Greater China—especially China—holds a pivotal position in Adidas' global strategy.
When explaining why the Adidas brand is so popular in the Chinese market, Rorsted summarized it as more stores, more franchised distribution rights, and e-commerce.
Given the strong performance in North America and Greater China, Adidas expects its global revenue growth rate, excluding the impact of exchange rates, to reach 17%-19% this year, with both North America and Greater China achieving double-digit growth. If all goes well, Adidas is expected to further narrow the revenue gap with Nike, and the global battle among sportswear brands will see further shifts.
Source: Internet + Sports