Adidas Overview:
The company Adidas has roots in Germany, but it is truly an international company. The organization is involved in designing, developing, product, and marketing with a vast range of athletics as well as sports lifestyle products. The organization operates via its operating segments of North America, Western Europe, Latin America, Greater China, Japan, Russia, South Korea, Middle East, and Southeast Pacific. The company operates in the retail, wholesale, and distribution segments for the sale of the Reebok and Adidas brands in the retail and end consumers. The company owns around 2800 retail stores and 12,000 mono-branded franchise stores and 50 e-commerce sites with 120000 wholesale doors (Financial Times, 2018).
Adidas has over 65000 employees and every year it produces over 900 million sports lifestyle products through its manufacturing partners worldwide. The company has generated over €21.218 billion in revenue in 2017. The company’s core brands Reebok and Adidas are dedicated to changing the lives of people via sports. The company showed an operating margin of 9.8%. The sustainability efforts of Adidas have enabled it to be selected in the Dow Jones Sustainability Indices for the 8th time. 93% of its cotton was better cotton. The company’s 99% of products were PFC free, and the 1 million pairs of the shoes were sold with the parley ocean plastic (Adidas Group, 2018).
Porter’s Five Forces Analysis:
Competition of Industry:
Adidas has been successful in surviving the competition and challenges of the industry and has built its reputation for the high-quality product. The company is second best to Nike Inc. It is investing heavily in the Research and development to challenge its rival Nike Inc. The company Nike Inc is developing new advertising and marketing strategies for expansion in its product lines. The competitors like Puma and New Balance are also making their position strong as these also own a small chunk of the market.
Potential of New Entrants in Market:
The company has outsourced its operations in Asia and other developing countries to gain access to cheap labor and reduce its costs of shipping. The company manufactures 35% of its products in China. The import regulations, tariffs, and taxes in Chinese market play an important role in the success of the company. The dependence on China is a high-risk venture for the company Adidas, as the quality of the goods can be a concern. The new entrants have a high cost of entry in the market. It shows the low possibility of entrants in the market. The presence of Adidas and Nike in the market shows that the cost of getting to the same level would be high, causing high barriers for entrants in the market. With the successful brand reputation of the company, with advantages like economies of scale and access to established distribution channels, it lowers the threat of new entrants in the market.
Power of Suppliers:
The booming business of the brand has attracted some suppliers in the industry. The threat of the suppliers is lower because of the higher number of suppliers in the industry. As the raw material is found in bulk in the market, the supplier power is low in the chain while the company is depending on these; the manufacturing cost is more than the buying cost of the company products.
Power of Customers:
The power of the customers in the Adidas industry is lower as the company has a market in which the consumers are looking for high-quality products with standardization. The consumers are not knowledgeable enough to decide on high-quality products, and thus the brand decides for them. The huge number of purchasers who are consumed with the desire to own the brand of Adidas and need association with the brand to showcase their lifestyle choices lowers their power. However, the wholesalers who are aware of the costs of the products have higher bargaining power as they can also switch to other products available on the market.
The Threat of Substitutes:
The threat of the market to switch to substitute products in moderate and more towards the lower side as only a few brands of such reputation are present in the market for sports accessories and apparel. The threat of new entrants does not influence the company prices. However, the threat of substitute products in the shape of the cheaper sports brands is relatively high for Adidas.
SWOT Analysis:
Strengths:
The company’s decades of legacy and heritage has created its reputation for establishing itself as a youthful brand. The company brand started in 1949 and has come a long way to establish its reputation. The diversified portfolio of the company has shown multiple ranges of footwear and sports accessories under its Reebok and Adidas brands. The company strong financial position is a strength for the company. The established distribution network of the company gives it the competitive edge on new entrants. The celebrity endorsements and the major event sponsorships increase the awareness of the product in the market with a targeted customer base. The membership of the company in organizations like international labor organizations, etc. gives the competitive advantage against its competitors.
Weaknesses:
The high price of the products of the Adidas is because of the use of innovative production methods and technology. The high price makes the product affordable to only a limited customer base, more specifically in developing countries, it has a small market. The company, 93% of the production, is outsourced to independent manufacturers in Asia. It is being done to reduce their costs of distribution and production. However, the company is always facing the risk of low-quality products from these Asian manufacturers. The limited line of products is also a limitation for the company increased dependency on one market segment (Borowski, 2011).
Opportunities:
The changing lifestyle of the customers with the increased saturation of the developed economies and the changing preferences and taste of the developing economies offers a high demand in premium goods and services. Market development helps the company to develop its market in the developed economies which have, however, high competition in the market already. The expansion of the product line of the brands of Adidas is one opportunity which can be used for further market development. The demand increment of the premium products is also another opportunity for the company. The Indian market offers growth rate of 33% in the demand of the premium products. The company can adopt backward integration for the securing of its patent rights and for integrating research in its operations (Fontana, 2012).
Threats:
The high competition offered by Nike Inc in the premium product segments along with the high competition from the market penetrators, substitutes, and local players can become a threat to the company. The dominance of the suppliers in the outsourced independent manufacturers can increase their bargaining power and become a potential threat to the company. The government regulations can be another threat for the company as about 35% of the products are made in China while 93% of all production are done in Asia. It can become a threat to the pricing of the company.
References:
Adidas Group. (2018, November 30). PROFILE. https://www.adidas-group.com/en/group/profile/
Borowski, A. (2011). Adidas Marketing Strategy – An Overview. GRIN.
Financial Times. (2018, November 30). ADIDAS.
Fontana, E. J. (2012, August 1). Adidas in 2009: Has Corporate Restructuring Increased Shareholder Value?
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