Bloomberg— Regardless of how Germany fares at Euro 2024 Over the next three weeks, an era of sorts will come to an end for the host country’s football team and for one of its best-known brands: He will play his last Euro Cup game in Adidas uniforms.
Adidas AG’s loss of such an important sponsorship to its archrival Nike Inc, announced earlier this year, would have been unthinkable not long agowhen the team and the sportswear manufacturer were united so CEO Bjorn Gulden once described it as an almost “emotionally inseparable” seven-decade relationship..
However, Before Gulden’s arrival last year, Adidas was accumulating setbacks and setbacks, From a boycott of Western brands in China until the demise of company’s partnership with rapper Ye following his anti-Semitic comments. Under the new CEO’s watch, other headaches have occurred, such as a controversy over the numbers on German football uniforms which were said to resemble the Nazi SS insignia and, this month, corruption accusations in China.
Also read: Adidas blocks sales of the German national team’s number 44 jersey due to Nazi symbolism
In its first 18 months, Gulden has been able to weather these problems, boosted by the good sales streak of the Samba sneaker. The Shares have more than doubled since his appointment was announced. But investors are increasingly wondering how far Gulden’s reliance on instinct, which has already led him to make some smart product range decisions, will take the company or whether it could create new vulnerabilities in the future.
“He is managing it more intuitively; “It is difficult to see a long-term strategic plan,” says Ingo Speich, portfolio manager at Deka Investment in Frankfurt. “Time will show if that’s enough going forward or if maybe you have to announce more details about where the growth is going to come from.”
The Norwegian contrasts with his predecessor, the Danish Kasper Rorsted, a numbers-focused executive who saw his complex strategy to squeeze profits crumble in the face of the company’s internal and external crises.
Arrived in January 2023 from Puma SE, its smaller rival, Gulden -who did not want to be interviewed for this report- He set out to restore optimism to the troubled company. He’s accelerated the introduction of new lines of footwear and apparel, rebuilt relationships with retail partners, and hung out with celebrities and elite athletes, both on the company campus and on his Instagram feed.
“Bjorn was the right person at the right time” says Justin Hance, a partner at Harris Associates LP in Chicago, a major shareholder. Hance praises Gulden’s efforts to focus less on financial goals and more on the changing desires of consumers and retailers. “It’s hard to imagine anyone coming in and doing much better in this period of time.”
Adidas overtakes Nike and Puma: Shares have rallied since Gulden’s appointment as CEO(Bloomberg)
The madness of Samba
From his early days at Adidas, Gulden insisted that the company had not stopped creating attractive products during the dark days.. He highlighted recent collaborations with luxury partners such as Gucci, Moncler and Balenciaga, although the brand had failed to capitalize commercially on the hype.
Gulden accelerated the launch of the classic Samba sneakerswhich had appeared on the feet of celebrities such as Bella Hadid and Kendall Jenner. Within months, it was clear that footwear -along with other similar “Terrace style” shoes, such as the Gazelle and the Spezial- would take off.
The Samba craze has helped Gulden advance another of his first goals: for Adidas to work with retail partners again.. The previous strategy focused on the channels of digital and direct-to-consumer sales of Adidas, where you do not have to share profits with intermediaries. The Frustrated retailers, who couldn’t get their hands on Adidas’ best products, turned to smaller brandssuch as On Holding AG and Deckers Outdoor Corp.’s Hoka.
“If you went to Dick’s Sporting Goods six months or a year ago, they didn’t have many Adidas,” explains Cristina Fernández, an analyst at Tesley Advisory Group in New York. “When trends started to pick up last year, retailers became more comfortable placing orders and thinking that since footwear was doing better, that was going to boost clothing sales as well.”
What’s more, after Gulden initially warned investors that Adidas might have to write off its $1.3 billion inventory of Yeezy footwear, much of it has been sold, helping it repeatedly surpass its conservatives. financial objectives. Adidas currently forecasts an operating profit of 700 million euros ($749 million) this year., after improving its forecasts from 500 million euros in April. However, the Analysts expect the figure to exceed 1 billion euros.
In the first quarter, sales increased 8% overall, and 5% if the decline in Yeezy stock is excluded.
Also read: Adidas CEO ruled out renewal of Yeezy after airport photo with Ye
Gulden has suggested that this momentum will pick up, but has also asked investors for patience. He has repeatedly suggested – although without putting a specific date – that Adidas should be able to achieve double-digit sales growth and operating profit margins of at least 10%.
Germany’s Florian Wirtz celebrates his goal against Scotland during their Euro 2024 group stage match on June 14(Photographer: Shaun Botterill/Ge/Shaun Botterill)
Concern about China
China is a possible obstacle. Consumer anger at Western brands’ concerns about cotton from Xinjiang, a province where China is accused of violating the human rights of the Uyghur minority, has been growing for several years. Besides, Adidas stated last week that it was investigating allegations of corruption among some of the country’s marketing staff.
National brands such as Anta Sports Products Ltd. and luxury brands such as Dior have gained market share. Adidas has stated that it is accelerating its supply chain in the country to meet changing customer tastes.
“When I was in middle school, I thought brands like Nike and Adidas were very pretty, it’s like a fashionable label,” said Chen Jingfang, founder of an influential Weibo account with more than 3 million followers. Now, she’s more likely to buy a pair from On or LuluLemon Athletica Inc, she said.
Adidas declines in China: net sales suffer due to boycott of Western brands(company annual reports)
There is also the question of how and when Adidas will try to continue its current sneaker successes and maintain its fashion. Gulden suggested earlier this year that the return of his retro Superstar basketball shoes would have to wait, due to growing demand for the football-inspired Samba..
Worldwide, Gulden wants to once again position Adidas as the “best sports brand in the world”, with the name visible in most Olympic sports and prominent in areas where he had success with Puma, such as cricket and Formula 1 car racing. But there is still work to do in three key categories: running, basketball and soccer.
Adidas scored a clear victory in the high-end running market with his Adizero Adios Pro Evo 1, a 138-gram racing shoe that costs $500 and is designed to be worn in just one race. Adidas launched the shoe in September – two years ahead of schedule – and, a few days later, Ethiopian Tigst Assefa wore them in Berlin while she shattered the women’s marathon world record. However, Ordinary runners have adopted shoes from brands such as On, Hoka and Brooks.
Then there is the basketballwhere Nike has dominated for decades. Adidas is currently benefiting from its best-selling product in years, the Anthony Edwards sneaker, which Foot Locker Inc. has highlighted as a best-seller.
When it comes to football, Nike, which has more money, has used its power to buy sponsorships. On losing sponsorship of the German team, Gulden has made it clear that his head won over his sports-loving heart, saying the $100 million-a-year commitment from the American rival far exceeded what his company considered wise.
“We have to accept that sometimes some pay too much”, he told shareholders at Adidas’ annual meeting in May. His company will exhaust its current contract, he said, “and then we’ll laugh.”
Poonam Goyal, an analyst at Bloomberg Intelligence, pointed to other big clubs such as Chelsea FC, which previously played with Adidas and now wears Nike. France has also changed. “Although they could recover some, they have to pay for them. And if Nike shows interest in the teams they are trying to get back, I think Nike will pay more.”
Nike overtook Adidas as the world’s largest sports brand in the 1990s and last year saw roughly double its total revenue.. Gulden may have a chance only way to shorten distances. The American company is struggling to release new products and reduce dependence on its Jordan brandand has resorted to staff cuts.
“Gulden can take advantage of this Nike weakness to get closer, so they are getting bigger and can pay for larger contracts,” says Thomas Joekel, portfolio manager at Union Investment in Frankfurt, one of the top 10 investors. “Gulden knows that scale matters in this industry and will likely try to take advantage of this opportunity.”
Read more at Bloomberg.com
