Although the current CEO, Rothsdale, has publicly admitted that he "made mistakes in China", Adidas still has a high market share in China and has a solid brand and user base
Photo/Visual China
Text | "Finance" reporter Xin Xiaotong
Edit | Yu Le
On August 23, Adidas' supervisory board announced that current CEO Kasper Rorsted will leave in 2023. That was three years earlier than the end of his original term.
Rothsted, a Danish native, has taken over as CEO of Adidas since 2016, after being CEO of the German daily chemical giant Henkel Group. The media was generally surprised by Rothed's early departure, and speculated that it was related to the sluggish performance of Adidas under the global epidemic.
A dozen days before announcing his departure, Rothstein confessed in an interview with the German newspaper "Business Daily": "We have made mistakes in China. This sentence is only a small part of the entire interview, but it has stirred up a lot of waves in China.
Prior to this, Rothsted had always blamed Adidas' sluggish performance in the Chinese market on external factors such as the epidemic and the public opinion environment, which was the first time he publicly admitted that the brand itself had made mistakes.
Data doesn't lie. At the beginning of August, the second quarter financial report was released, Adidas in the European and American markets showed a recovery trend, of which the North American market grew by 36.5%, leading the overall rise, but the revenue in Greater China fell by 28.3% (a decline of 34.6% after neutralizing the exchange rate factor). Greater China's revenue figures have been calculated separately from the Asia-Pacific region for only six quarters, but have fallen for five consecutive quarters.
Note: The revenue growth rate in Greater China in the figure is the figure before neutralizing exchange rate factors
Greater China is Adidas' third largest market in the world, accounting for 15.8% of Adidas' total revenue in the first half of 2022. Greater China, which once led Adidas global growth as a whole, is now the most dragging one.
Nike has also experienced a revenue decline in the Chinese market, but Adidas, which is smaller than its rivals, is still the one that skates faster. Nike Greater China fell 8% and 20%, respectively, in the two fiscal quarters from December 2021 to February 2022 and from March to May 2022.
In the face of questions from shareholders and the media, Adidas CEO Rothsdale said: "We are not good enough in understanding consumers [in the Chinese market], giving competitors room to play." ”
In the latest "five-year plan" launched in 2021, the Chinese market is placed in an important position, the most important goal is to double sales by 2025, but the status quo is that revenue has fallen again and again. Adidas still has a high market share in China, and has a solid brand and user base, and it is far from "failure". For the company, the biggest challenge now is to correct the "mistakes" and reverse the downward trend as soon as possible.
Product "obsolete": gradually deviating from young people
To be clear, this is not the first time Adidas has publicly acknowledged a decision-making error.
In 2019, Simon Peel, Adidas' global media director, said in an interview that Adidas sacrificed brand building by focusing too much on return on investment (ROI) and focusing on short-term efficiencies and benefits.
Peele said the company focused too much on performance metrics. For example, he said, for example, the company has strict requirements for sales, did not achieve high-intensity KPIs (key performance indicators), the company will be the market for excessive supply of products, in order to "go volume", the company often in the form of promotional sales, increase in revenue but may not increase profits, while affecting consumers' sensitivity to price.
This is also why Adidas is becoming more and more difficult to sell at regular prices in the Chinese market, and consumers have discount expectations. At the same time, "you can't sell without discounting", indicating that the attractiveness of Adidas's products to consumers is declining.
Once Adi is the representative of "fashion", wearing a pair of "Adi shoes" is given many meanings, is the expression of young people's attitude and the pursuit of trends. According to Euromonitor, after 2012, Adidas's share in the domestic market ranked second only to Nike, and showed a trend of increasing year by year, peaking in 2018.
But as Adidas' products gradually lost their personalization and lagged behind the front line of the trend, its aura gradually dimmed. Lin Cheng, a senior practitioner in the industry, said that Adidas has not brought bright products to consumers for nearly five years.
This point in time seems to be just in response to the change in Adidas's market share in China. In 2018, Adi's market share turned from rising to falling, and in 2021 it was only 14.8%, lagging behind Nike and ANTA Group (including BRANDS SUCH as ANTA and FILA).
In recent years, among the many evaluation dimensions of Adidas products, "lack of innovation" has become almost a common consensus. Cornelia Zimmermann, a sustainability specialist at Deka Investment, said at the annual shareholder meeting: "Creativity, which was originally Adidas's most reliable power machine, has recently suffered a failure, as can be seen in the number of product innovations. ”
Shareholders see this as a result of Rothsted's "cost- and profit-oriented" approach. Klaus Jost, an industry expert and former president of Swiss sports retail group Intersport, said: "In the sports and fashion industry, you have to be close to the market and willing to risk innovation to be Jobs instead of Cook. Jost believes that Adidas' market position is still very strong, but "the inventor gene is a bit missing."
In order to develop the sports fashion product line, Adidas has relaxed its product development efforts in the professional sports field. Today's Adidas is weaker than Nike in basketball and running shoes, which can be seen from the proportion of equipment for athletes in professional competitions. Nike continues to improve its running shoe technology, the most obvious example is that Many of Vaporfly's top running shoes were once "banned" by the IAAF, calling them "technical stimulants".
Adidas is difficult to catch up with Nike, and there are brands such as Under Armour and Li Ning behind it. Li Ning's basketball shoes have gained a good reputation among domestic consumers.
Adidas has also made great achievements in the field of basketball, and its spokespersons , NBA star Harden, Rose, and Trae Young are not lacking fans. "In recent years, these generations of star signature shoes feel like they lack sincerity, like trimming scissors on the same mold, adding one piece or subtracting one piece." Zhou Lei said. He was a former professional basketball player and now works in design.
"Professional basketball shoes also have subdivisions, forward shoes, guard shoes, materials and designs are different. Several of Adidas's home stars are defenders, but its defender shoes are not cost-effective, and the same quality domestic basketball shoes can also be achieved, and they are much cheaper than it. ”
"If you don't believe it, you can go to Tiger Poker to see what netizens say, and positive reviews are not nothing, but they are rare." Zhou Lei said, "Some people say that Adidas basketball shoes will not be broken for 10 years, and domestic shoes will be worn for one or two years at the top." But who would pay a high price for a pair of basketball shoes that can be worn for 10 years? ”
More importantly, in addition to the quality of domestic sneakers, the design is also catching up quickly, and Adidas has been impacted in both the fields of technology and trends.
The fashion sports series that Adidas focuses on promoting is getting smaller and smaller in China. In recent years, the only popular footwear styles that can be counted are the traditional classic clover "shell head" and the music producer and designer Kanye West's "coconut" (yeezy), and the clothing is becoming more and more "basic".
Left picture yeezy; Picture on the right "Shell Head"
Liu Shan, who previously worked in the Asia-Pacific selection department of Adidas' fashion sports brand Clover (now transferred), told Caijing that in recent years, the selection of clover has been dominated by conservative models such as "black and white gray" because dealers like it. If the style is too avant-garde, dealers cannot sell it in the sinking market. However, Adidas' brand positioning determines that it should not cater to the sinking market, but lead the technology and fashion trends in first- and second-tier cities.
For a long time, Nike and Adidas have been the model of global selection, and there is no dedicated supply chain and product line for the Chinese market. However, according to Adidas' speech at the fourth quarter of 2021 conference call, 30% of the products in the Chinese market will be designed by Chinese designers in the future, making the products more local.
In an interview with the German newspaper Shangbao, when asked what kind of products Chinese consumers want, Rothst replied that "they want 'Chinese elements' (Chinese Touch). In previous interviews, Rothleth described it as a "standing collar T-shirt and a Kanji motif."
Liu Shan heard that nike marketing people will have the task of going to chat with different "toe caps" (sneaker collectors and enthusiasts), artists and designers in the industry every year to judge the trend ahead. "But Adidas won't do it."
"It's not the time for Adi to do what the consumer buys." Li Jie, who works for a domestic sports brand, said.
Channel aging: over-reliance on dealers, poor channel control
The selection of products that caters too much to dealers is another problem exposed by Adidas - long-term dependence on dealers is lacking in the retail field.
From Adidas's 2021 financial report, it can be seen that Adidas's global dealer channel still accounts for 62%, Nike's data is 58% (54% in Greater China), and compared with domestic brands, Li Ning has dropped to less than 50%, and ANTA is a little more than 30%.
There is nothing wrong with the channel itself, and the dealer channel is a powerful means for the rapid expansion of the brand. Brands do not need to face the market themselves, and more people help to sell goods together, saving manpower and material resources. Once the market encounters a crisis, there are also dealers who go to the bottom to help enterprises share the burden. In the early years, when there were no e-commerce channels or underdeveloped e-commerce channels, shoe and apparel brands relied on dealers to go farther and larger markets, and even to the world.
But in this era of "retail is king", the disadvantages of dealer channels are gradually emerging: poor flexibility, long turnaround time, and frequent bad debts.
Credit Suisse called Adidas' channels an "outdated wholesale distribution structure." At the domestic order meeting, the partial delivery cycle of Adidas is close to one year, which is much higher than the six-month or so of domestic sports brands.
Under the guidance of "pursuing short-term benefits", the price of products in the hands of dealers has become uncontrollable, and it is not excluded that prices will be depressed in order to complete performance. There is also malicious competition between dealers.
The misfortune is that in 2020, the outbreak of the epidemic, Adidas is in a state of high inventory and low cash flow, and the inventory problem is greater than other brands. Caijing learned from a dealer that in order to encourage ordering, Adidas's strategy is to recycle the dealer's inventory and sell it online at a discount. This is due to too much inventory backlog in the hands of dealers, they are busy clearing inventory, and the purchase volume of new goods is getting less and less. If there is the same competition with offline stores, Adidas will also make up the difference to alleviate the contradiction with dealers.
However, brand recycling inventory and resale is not a good strategy, and the recycled inventory is sold through another channel, which still has an impact on dealers. The market is fixed, consumers buy Adidascu inventory goods, the new goods for their attractiveness is greatly reduced.
Adidas' inventory crisis remained indigested this year, with the only reassuring cash flow rebounding to €3.828 billion from more than €800 million in 2019, including €2.1 billion in revenue from the sale of Reebok.
Adidas' control of different channels is also relatively weak. For consumers, Oleai, e-commerce, and store models do not see much difference. Nike and domestic sports brands have done a little better. Nike's positioning on different platforms is different, and domestic brands often provide customized models for e-commerce platforms, which can only be purchased through e-commerce channels.
Lin Cheng said that judging whether a brand's channel strength is strong enough, it can be seen from two dimensions, one is whether different channels have differentiated products to match. "For example, the unit price of Douyin is 200 yuan, so does the brand have the ability to develop a batch of products specifically for the Douyin market to sell?" Online and offline, different cities and different regions, the consumers are not the same, and now the brand is eager to put the products you need in front of you, rather than consumers taking the initiative to find.
Lin Cheng believes that the second dimension is the linkage within the channel, he takes the direct sales system as an example: some domestic shoe and clothing brands will upload the sales data of different regions and different stores in real time, and the main products are also different, if some stores sell well, some sell badly, the goods can be exchanged, which makes the whole system very efficient.
Adidas is already aware of the problems involved, especially when the epidemic hits and online marketing is growing rapidly. In the latest five-year plan of Adidas in 2021, Adidas proposed to double the sales of e-commerce channels, the physical transformation of self-operated stores, and so on.
Marketing is single, over-delivering in the same way
In an interview with The German "Business Daily" this time, the reporter asked "will you worry about the damage to the brand strength in China", Rothed said that he was not worried, he gave two examples, one is Adidas has more than 12,000 stores in China, the other is "Chinese on TV to watch the United States NBA and European football games, they will always meet Adidas."
I don't know if Rothst is casual and careless, if he is serious, it does expose his lack of understanding of the Chinese market.
At present, Nike, lululemon and Chinese domestic sports brands are trying new marketing methods, through the form of various communities to accurately deliver, increase user stickiness, and Adidas still focuses on signing endorsements and shooting advertisements.
"Adidas doesn't care about the impact of these stars on the brand image, but they care more about the buying power of the fans behind them." The aforementioned former Adidas executive said.
However, not all spokespersons are suitable. For example, Liu Shan has two spokespersons for the post-80s xiaohua, one person will be hot in the market, and the other is "the same as whether there is her endorsement or not.". She mentioned that some of the shamrock spokespeople's fans are young, mainly students, more than 800 yuan of single products, fans are difficult to buy.
After March 2021, the spokespersons in Greater China have terminated their contracts, causing Adidas, which has been overly relying on these spokesmen, to suffer heavy losses.
In the advertising content it serves, Adidas also shows the problem of not knowing enough about Chinese consumers.
"If you look closely at some of Adi's materials in the past two years, so-called posters and videos, you will find that he blindly emphasizes hilarity and color, but their slogans, including the so-called product interest points, have not hit Chinese consumers." Li Jie said.
Now Adidas is also trying to communicate with consumers in a young way, for example, the "glory of the strongest running shoes" ULTRABOOST theme exhibition was recently held in Sanlitun to attract many consumers to participate. "Adidas's influence and appeal still exist, take ten thousand steps back, the problems in the Chinese market will not shake its foundation," Li Jie said, "perhaps Adi still needs to regain some attitude, but also need to show a little sincerity." ”