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Group Strategy Banner Fencing

Corporate Strategy

adidas strives to be the global leader in the sporting goods industry with brands built upon a passion for sports and a sporting lifestyle.

Everything we do is rooted in sport. Sport is central to every culture and society and is core to an individual’s health and happiness. With sport playing an increasingly important role in people’s lives, we operate in a highly attractive industry. Through our authentic sports brands, we push the boundaries of products, experiences and services to drive brand desire and capitalise on the growth opportunities in sport. The importance of sport, however, goes far beyond that: We believe that, through sport, we have the power to change lives. And we work every day to inspire and enable people to harness the power of sport in their lives.

OUR MISSION: TO BE THE BEST SPORTS COMPANY IN THE WORLD

It is our mission to be the best sports company in the world. Best means that we design, build and sell the best sports and fitness products in the world, with the best service and experience. Best is what our consumers, athletes, teams, partners and media will say about us. Once people are saying that we are the best, market share, leadership and profitability will follow.

To achieve our mission we focus on the following initiatives:

  • Authentic sports brands: Our brands are driven to create and innovate through a common passion for sport and a sporting lifestyle. At the same time, the adidas and Reebok brands each have a unique identity and focus on their core competencies. This approach allows us to develop and create products, experiences and services tailored to the individual needs and desires of a broad spectrum of consumers, increasing our leverage in the marketplace.
  • Investments focused on highest-potential markets and channels: As a company, we target strong market positions in all markets in which we compete. However, we have prioritized our investments based on those markets which offer the best medium- to long-term growth and profitability opportunities. In this respect, we have identified extensive growth opportunities in North America and Latin America and aim for dramatic market share gains. In addition, we place considerable emphasis on expanding our activities in Greater China and Western Europe to gain market leadership.
  • Creating a flexible supply chain: Speed and agility are key to outpacing the competition, providing a constant flow of new and relevant products for our consumers and high service levels for our customers. We are committed to meeting the full range of consumer needs by providing game-changing technical innovations for sport, creating and driving trends in streetwear through our sports-inspired lifestyle products, while ensuring constant product availability in the correct size and colour to the highest quality standards.
  • Innovation: We will continue to challenge the boundaries of functionality, performance and design by leveraging our extensive R&D expertise within the company and also by defining Open Source as a key strategic choice. In addition, enhancing services for customers and consumers alike as well as implementing improved internal processes and systems are other areas where our organisation strives to innovate.
  • Focusing on sustainability: We are committed to further striking the balance between shareholder interests and the needs and concerns of multiple other stakeholders, including our own employees, the people making our products and the environment. On our website, we provide detailed information on the steps we take to have a sustainable positive impact on society and the planet.
  • Creating long-term shareholder value: Creating long-term value for our shareholders drives our overall decision-making process. Therefore, we are focused on rigorously managing those factors under our control, making strategic choices that will drive sustainable revenue and earnings growth and, ultimately, operating cash flow. We are committed to increasing returns to shareholders with above-industry-average share price performance and dividends. 

STRATEGIC BUSINESS PLAN: CREATING THE NEW PUTS BRANDS FIRST

In March 2015, we presented our new strategic business plan until the year 2020 named ‘Creating the New’. At the epicentre of Creating the New is our ambition to further accelerate growth by significantly increasing brand desirability. Creating the New therefore focuses on our brands as they connect and engage us with our consumers. Its consumer-centric approach is already driving significant improvements in the desirability of our brands and has increased our relevance with consumers around the globe. We are gaining market shares in those categories, cities and markets that we have identified as future growth drivers for our company.

STRATEGIC CHOICES

Our new strategic business plan is based on our unique corporate culture and built around the three strategic choices that will support us in intensifying our focus on our consumers and will drive brand desirability in the years to come: Speed, Cities and Open Source.

Culture

At adidas, we are convinced that a corporate culture of confidence, creativity and collaboration is key to enable us to create the new. This culture is defined and inspired by our People Strategy, as our people’s performance, well-being and knowledge have a significant impact on brand desire, consumer satisfaction and, ultimately, our financial performance. We are proud of the strong level of diversity within our workforce, fostering different ideas, strengths, interests and cultural backgrounds, as this helps us to better fulfil the needs and multifaceted demands of our consumers around the world. In the future, our People Strategy will include a stronger focus on developing our internal talents and increasing women’s representation in leadership positions.

Speed

Driving brand desirability begins with putting our consumers at the heart of everything we do and serving them in the best possible way. This involves ensuring that consumers always find fresh and desirable products where and when they want them and with an unrivalled brand experience. This, in turn, means to us being able to anticipate what consumers want and react accordingly in a timely manner. Speed is therefore a very critical and powerful lever for us and we have set ourselves the goal to become the first true fast sports company by 2020.

Being fast will give us decisive competitive advantages. These include:

  • Improve product availability: Enable constant product availability and ensure faster delivery of products.
  • Decrease risk: Reduce the risk of overbuying and decrease end-season clean-up by creating more relevant product propositions.
  • Create additional net sales: Capture higher demand with shorter lead-time production and avoid seasonal product successes going out of stock.
  • Generate more contribution: Reduce markdowns on articles sold by increasing the share of volumes sold at full price.

Over the last years, we have built the foundation for Speed with adidas neo, in which a big proportion of the product range to date already runs on so-called ‘Speed programmes’. In 2016, we continued to adapt the learnings from neo and built Speed capabilities across all other categories for a defined share of their business, in particular the adidas brand’s key categories Running, Football, Training and Originals. In addition, from a market perspective, 2016 saw a further roll-out of Speed globally, with most markets currently able to participate in the Speed programmes.

We are using our industry-leading experience to re-shape our entire business model end-to-end, from range planning to product creation, sourcing, supply chain, go-to-market and sales. In this context, we base our Speed ambitions on three global and centralised initiatives that are deployed consistently across our markets and channels:

  • Never out of stock: We standardise and strengthen our existing ‘never-out-of-stock’ business proposition by setting a global, permanent offer with longer life cycles and continuous reproduction and replenishment. This ensures our most iconic and desired products are permanently available to our consumers.
  • Planned responsiveness: Based on sell-through data, which we receive and analyse at the beginning of the season, we can better read demand signals, re-order seasonal products on shorter lead times and deliver them within the season. By doing so, we are able to repeat seasonal product successes and fulfil higher consumer demand than initially forecasted.
  • In-season creation: We plan ranges to be created later in the season in order to create or capture the latest trends in the industry. This, in turn, helps us to create unexpected newness and drive brand desire to new heights.

The combination of these three initiatives will transform our current set-up to a new speed-enabled end-to-end business model, with the goal of winning the consumer with constantly fresh and desirable products.

Besides focusing on Speed in our current supply chain and production process, we also look into new, disruptive business models andtechnologies to make us faster. A prime example in this area is our Speedfactory project: using smart manufacturing instead of centralised production, it brings production to where the consumer is. It opens doors to the creation of products completely unique to the fit and functional needs of consumers, through a combination of the craft of shoemaking and cutting-edge technology. While the pilot Speedfactory was set up at the end of 2015 in partnership with industry experts to provide a testing ground for this model, 2016 saw the introduction of the first pairs of high-performance footwear to come out of the Speedfactory. Furthermore, in 2016, we announced the expansion of our Speedfactory production facilities in Ansbach, Germany, which will begin large-scale production in 2017. As a next step, we will open a new Speedfactory in Atlanta, USA, in 2017, to create products more quickly for and closer to the US consumer.

Our 2020 targets for Speed: Today, around 15% of our sales are generated on Speed programmes. It is our ambition to increase the share of speed-enabled products to at least 50% of our net sales by 2020, with all key categories contributing to this development. As these initiatives will put us in a position to provide consumers with appealing and up-to-date products, we expect this part of our business to achieve a 20% higher share of full-price sales compared to the regular range.

Cities

Major metropolitan centres are playing an increasingly influential role in shaping global trends and consumers’ perception, perspectives and decisions. By 2030, it is forecasted that around 60% of the global population will live in cities. Given this megatrend of urbanization and the dominance of a few global mega cities in terms of economic strength, population size, presence of media and degree of sports participation as well as their influence on global cultural trends, adidas has defined Cities as one of its strategic choices. Creating the New therefore focuses on six global cities: London, Los Angeles, New York, Paris, Shanghai and Tokyo.

Starting in 2015, adidas began to disproportionately invest into these cities in the areas of marketing, retail experiences and organizational set-up. The primary goal is to connect with the most influential consumers and elevate the presence and impact of our brands on the most important global platforms. We will constantly evaluate our activities and, if necessary, expand our focus of Cities beyond the initial six named.

We aim to deliver extraordinary experiences to consumers in these cities across all touchpoints by engaging more deeply with them in communities where they live, places where they work, fields, courts and streets where they play and doors where they shop. At the same time, we strive to create high synergies between our activation and commercial efforts. This also includes aligning our initiatives with similar activities of key retail partners.

It is our goal to create an end-to-end ecosystem that connects consumer communities to relevant products, activation and retail experiences through the lens of the various sports categories:

  • Consumer communities: We further developed our strong relationships with consumers who identify with key sports by cultivating sports communities and tribes directly through our own resources and in partnership with external groups. Together with the U.S. Soccer Foundation and the New York City Football Club, in 2016 adidas announced the launch of the New York City Soccer Initiative, a public-private partnership that will build and maintain 50 soccer fields in under-served neighbourhoods across the five districts over the next five years. Our efforts also include scaling successful models that were piloted in the past, such as the Paris Battle Runs, which helped us establish scalable running communities in France.
  • Products: We continue to drive a multi-pronged strategy of product introductions, focused across all six cities, including global campaign launches and exclusive collections. We amplify the impact of our product introductions through higher marketing investments and stock allocations of key strategic products to these cities, in addition to pursuing more innovative distribution approaches. Key successes in 2016 included the release of limited editions such as the adidas UltraBOOST Uncaged Parley or the Alexander Wang x adidas Originals collection, which both were exclusively available in our six key cities.
  • Activation: Based on our commitment to drive meaningful interactions and continuous engagement with our consumers, we adopt an ‘always on’ approach. In this context, our activation playbook highlights hyperlocal connections and a relentless delivery of value and inspiration to individuals and groups. Through our nine global newsrooms, which span across the entire world, we drive continuous dialogue with consumers while at the same time leveraging our global assets and local partners to create special moments for them. For example, in 2016, the launch of the new football boot concept ‘Glitch’ in London represented a new and revolutionary way to launch a concept digitally and in the most targeted way. Available through an app, Glitch is only accessible for an exclusive consumer subset that is invited to participate in the ecosystem by receiving an online code from one of the Glitch ambassadors or pro players who were seeded the boots in late summer.
  • Retail experiences: The environments where consumers find and interact with our products are important focus areas for us. We are committed to providing premium retail experiences to our consumers with executions that connect, engage and inspire them. We view our own-retail stores as a valuable point of sale to excite consumers, by setting high standards for our brand presentations and experiences. In 2016, the opening of our first flagship store in New York and the remodelling of key concept stores such as in our key strategic cities Paris and London were important milestones to further elevate our most important own-retail destinations. We will apply the learnings from these initiatives across our entire global distribution, including our wholesale partner doors.

Our 2020 targets for Cities: Our Cities initiative is off to a strong start, as indicated by improvements in key performance indicators such as NPS and market share. Across all six cities, NPS grew in the course of 2016 with a relative outperformance versus our key competitors. In addition, revenues increased at a strong double-digit rate in most of the six cities, resulting in significant market share gains. We remain committed to achieving a leading position within these cities, by doubling revenues by the end of 2020 compared to 2015.

Open Source

Open Source is a collaboration-based innovation model that aims to build brand advocacy by opening the brands’ doors to the creator and by inviting him in to help shape the future of sport and sports culture with us. Open Source is a mindset that is based on creativity, collaboration and confidence. It is about learning and sharing, about starting conversations between the brand, external experts and consumers and about giving them the chance to have an impact on what we do.

By defining Open Source as one of its strategic choices, adidas intends to:

  • Provide access for externals to tools and resources we use to create (e.g. materials, factories, data, experts, athletes, social platforms and business models).
  • Acquire and nurture creative capital, new insights, skills, competencies and specialised knowledge.
  • Explore new territories to create unprecedented brand value for the consumer beyond mere transactional businesses.
  • Strengthen the consumer’s perception of our brands as leaders in sport, by providing consumers access to the progress of our projects and creation processes.

We have defined three strategic initiatives for Open Source:

  • Creative collaborations: Creative collaborations are targeted on increasing our creative capital through new tools, new environments and new perspectives from outside creative thinkers. They are meant to give creativity a platform and provide the right tools for ideas to blossom. With the Brooklyn Creator Farm, a design space and creation hub, we offer young urban creative talent a platform and invite them in to fuel innovation in sport with their ideas, outside any regular seasonal product creation calendars. In addition, recognising the influence, success and global brand power that began almost two years ago with YEEZY for adidas Originals, we announced an unprecedented new alliance in 2016 with adidas + Kanye West, a YEEZY branded entity creating footwear, apparel and accessories for both genders across street and sport. The partnership – the most significant collaboration between a non-athlete and an athletic brand so far – aims at redefining the future of sport by uniting the technical, innovative expertise and capabilities of the adidas brand with the visionary imagination of Kanye West.
  • Athlete collaborations: The strategic initiatives of athlete collaborations aim to build communities of athletes that help shape the future of their sport with us. The adidas brand has a far-reaching history in sport, working with top athletes, and will continue to further strengthen its network around male creator athletes. In recent years, the brand signed long-term partnerships with two of the world’s most in-demand athletes – football icon Paul Pogba and basketball superstar James Harden – who are both recognised as two of the most creative athletes in world sport, on and off the pitch. In addition, we aim to further expand our roster of female influencers in the years to come. In this context, in 2016, we announced collaborative partnerships with supermodel Karlie Kloss, who joined adidas by Stella McCartney as the face of its fall/winter 2016 campaign, as well as style icon and fitness advocate Gigi Hadid, who joined Reebok’s community of inspiring women as the newest face of the brand’s #Perfect-Never movement. Lastly, to directly engage and interact with a broader consumer community, we continue to focus on our digital space (e.g. Runtastic) and physical space (e.g. Paris Battle Run) projects.
  • Partner collaborations: The strategic initiatives in the area of partner collaborations intend to open up our knowledge of sport to collaborate with the best partners in other fields. By exchanging core competencies, we will create unique value for our brands and ultimately also for our consumers. The consumer touchpoints in this field include sport, entertainment experience, consumer specialists, manufacturing and sustainability as well as sports health and monitoring. Our partnership with Parley for the Oceans serves as a prime example. As a Founding Member of the organisation, our support goes far beyond financial aid to fund beach clean-ups. In 2016, this partnership took the stage at the Rio Olympic Games, had football teams FC Bayern Munich and Real Madrid play in jerseys made of Parley Ocean Plastic and unveiled the UltraBOOST Uncaged Parley, the first performance footwear made out of the equivalent of eleven recycled plastic bottles. The adidas brand is committed to making one million pairs of running shoes using Parley Ocean Plastic in 2017 and has restated its ultimate ambition to eliminate virgin plastic from its supply chain.

Our 2020 targets for Open Source: With Open Source, our 2020 goal is to embed external creative capital in our processes to extend our possibilities in creating the future of sport. In the initial phase of Open Source until 2017, we have identified two key targets. The first is to drive brand heat and advocacy by inviting consumers to become part of our creative culture. By the end of 2017, our goal is that 30% of shared content on our brands through social media and other channels is user-generated content. Our second target is to grow the number of users in our digital ecosystem to over 250 million. This will ensure we are at the pulse of the consumer journey at key moments and touchpoints in their lives. By using the insights we will generate from these sources, we will craft better products and services for our consumers, driving improvements in Net Promoter Score, sales, market share and profitability.

‘CREATING THE NEW’ ACCELERATION PLAN

At the beginning of 2017, based on the initial success of Creating the New, which is reflected in the strong financial performance in 2016, we implemented a number of initiatives to foster brand momentum and accelerate the overall growth path:

  • Active management of brand portfolio: Going forward, the focus of our company will be even more on operating a limited brand portfolio with a clear focus on our core strength in the athletic footwear and apparel market. This will allow us to reduce complexity and pursue our target consumer more aggressively with both the adidas and the Reebok brand. In this context, in 2016 we announced our decision to exit the golf hardware market and therefore to sell the TaylorMade, Adams Golf and Ashworth brands. In addition, we have decided to also actively seek a buyer for our CCM Hockey business.1)
  • Sustain momentum for the adidas brand in North America: By authenticating the brand through sports, accelerating our existing initiatives and introducing new measures aimed at further elevating brand desirability amongst US consumers, we want to strongly improve our market position and significantly increase profitability in this all-important market.
  • Drive the digital transformation: Improving our digital capabilities along the entire value chain will enable us to accelerate building direct relationships with the consumer and drive direct sales through our eCommerce platform.
  • Pull value levers across the organisation: By leveraging our Brand Leadership model, increasing our marketing effectiveness and improving our overall operating efficiency, we aim to enhance profitability in the years to come.

1) The company refrains from providing detailed strategic updates for its TaylorMade-adidas Golf and CCM Hockey businesses, due to its focus on the adidas and Reebok brands.

FINANCIAL AMBITION UNTIL 2020

Our unique corporate culture and the three strategic choices will be step-changers with regard to brand desirability and brand advocacy. In combination with the initiatives that are part of our acceleration plan, this will enable us:

  • To achieve top-line growth significantly above industry average: We aim to increase currency-neutral revenues annually between 2015 and 2020 at a rate between 10% and 12% on average.
  • To win significant market share across key categories and markets: We have defined key categories within the adidas and Reebok brands that will spur our growth going forward. From a market perspective, we have defined clear roles for each of our markets, depending on macroeconomic trends, the competitive environment and our brand strength in the respective markets.
  • To improve our profitability sustainably: We plan to substantially improve the company’s profitability, growing our net income from continuing operations by an average of between 20% and 22% per year between 2015 and 2020, significantly faster than our targeted top-line growth.
  • To deliver on our commitment to increase shareholder returns: Creating the New includes a strong commitment to generating increasing returns for our shareholders. Given our firm confidence in the strength of the company’s financial position and future growth ambitions, we target a dividend payout ratio in a range between 30% and 50%.

OUR SALES AND DISTRIBUTION STRATEGY: FOCUS ON OMNI-CHANNEL

Our Global Sales function drives the commercial performance of the company by converting brand desire into profitable and sustainable business growth. It is our ambition to deliver the best shopping experience within the sporting goods industry across all consumer touchpoints.

ROLE OF OUR GLOBAL MARKETS

Our Global Sales strategy is crafted by a centralised integrated marketplace team which supports the flawless execution of our Global Brands strategies and drives operational excellence across our nine global markets. In a changing global landscape, our diverse market portfolio is an important asset in maximising the business, elevating our competitiveness and achieving our ambitions towards 2020. Clear roles have been defined for each of our markets:

Extend: In markets where we are currently the market leader, we plan to leverage and grow our market leadership. These are Russia/CIS, Japan and South Korea.

Lead: In markets where we are a strong player but not the number one yet, we aim for market leadership. These are Western Europe, Greater China as well as Emerging Markets.

Grow: In markets where we have identified extensive growth opportunities, we seek dramatic market share gains. These are: North America, Latin America and Southeast Asia/Pacific.

ROLE OF OUR CHANNELS

With more than 2,800 own-retail stores, more than 12,000 mono-branded franchise stores, over 120,000 wholesale doors and more than 50 own eCommerce sites, we have an unrivalled network of consumer touchpoints within our industry. By seamlessly integrating the channels within our market portfolio, we are uniquely positioned to pursue and succeed in strategies that not only deliver premium consumer experiences but also increase the productivity of our distribution footprint. As we replicate this model to capitalise on new consumer opportunities through own-retail destinations and wholesale managed spaces, we are able to create halo effects across all consumer touchpoints, resulting in further marketplace expansion.

In 2016, we advanced our Global Sales strategy with a number of initiatives focused on premium consumer experience, productivity of the sales platform and marketplace expansion.

1. Premium consumer experiences

In order to be ‘omni-present’ for the consumer and to capture the full sales potential by minimising occasions when consumer demand is not met, we continue to focus on the following omni-channel initiatives:

  • ‘Inventory Check’ which allows online shoppers to view in-store product availability.
  • ‘Click & Collect’ which allows consumers to purchase or reserve items for pick-up in a local store.
  • ‘Ship from Store’ which allows us to service consumers faster than before by turning our stores into mini distribution centres that are closer to consumers.
  • ‘Buy Online, Return to Store’ which not only provides consumers with a convenient way to return product purchases but also offers new buying opportunities.
  • ‘Marketplace & Partner Programme’ which expands our online offering to a larger group of consumers across several channels.
  • ‘Endless Aisle’ which provides in-store visitors with access to our full range of products through our eCommerce platform.

In 2016, we deployed a strategic mix of these capabilities in our own-retail operations in Western Europe, North America, Latin America and Russia/CIS. In this context, a major milestone was achieved in Western Europe, as we were able to integrate and expand our relationships with marketplaces and wholesale partners, including an innovative pilot programme in Berlin where our own-retail stores started to partner with a leading online retailer to deliver a premium, same-day shopping experience to our consumers. In addition, 2016 saw the successful introduction of ‘Endless Aisle’ to North America with the opening of our new adidas flagship store in New York City. In 2017, we will continue to roll out our omni-channel initiatives across the various markets. For example, in North America, we will start to connect to selected wholesale partners in order to create a truly seamless experience for our consumers, independent of where they shop. In addition, ‘Endless Aisle’ and ‘Click & Collect’ will be rolled out across the North American market.

2. Productivity of sales platform

We are committed to further driving productivity improvements across our sales platform through a multi-faceted approach:

  • Premium presentation: Our physical selling spaces are an important factor in driving Net Promoter Score (NPS) and fullprice sell-through. We further evolved the brand experience through the launch and expansion of premium store concepts such as Stadium and Neighbourhood for the adidas brand as well as FitHub for the Reebok brand. Our own-retail environments are designed for scalability and we continue to expand these concepts and benefit from their impact across channels, including our wholesale and franchise partners.
  • Consumer service excellence: In 2016, we further advanced our successful ‘Connect-Engage-Inspire’ service model, which was launched in 2015. The model helps us transform the culture and effectiveness of our own-retail teams, and consumers enjoy significantly elevated service levels which have proven commercially rewarding through higher conversion rates and increased average selling prices.
  • Personalised interaction: Our commitment to deliver a premium shopping experience is reflected online through our digital brand flagship stores, adidas.com and reebok.com. E-commerce and digital communication are powerful tools for our brands to engage with consumers. In 2016, we combined all our digital activities in a new function, Digital Brand Commerce, to not only accelerate our e-commerce business but also expand our effectiveness in all forms of digital communication.
  • Insight-driven decision-making: We continue to invest in our analytical capabilities and technical infrastructure to become faster and more insight-driven in decision-making. Leveraging data such as cross-channel product sell-through and consumer purchasing behaviours delivers actionable insights in areas such as assortment planning and product life cycle management.

3. Marketplace expansion

Our goal is to leverage and scale the success of our initiatives across our channels in order to better serve consumers. The key contributor to this approach is controlled space. Whenever we are able to actively manage the way our brands and products are presented at the point ofsale, the impact on the consumer is in most cases significant. We have the power to do so in own retail (including eCommerce), in franchise and in wholesale managed space. By 2020, we aim to generate more than 60% of our revenues through controlled space.

We leverage own retail as a catalyst to our controlled space ambition. We amplify our success in own retail by translating key learnings to franchise stores and expanding franchising as a business model in existing as well as into new geographies. In 2016, we successfully launched our adidas flagship in New York City, featuring the new Stadium concept, which was also implemented at selected wholesale partners. We expect the flagship to set new standards in terms of presentation, execution and service that will be replicated across all other channels. eCommerce will continue to be the fastest-growing channel that we operate, with revenues expected to grow from below € 1 billion in 2016 to € 4 billion in 2020. In wholesale, we will continue to expand our footprint with a keen focus on prioritised accounts, targeting important consumer hotspots and trade zones, especially those that are part of our Cities initiative. Strategic partnershipsto operate controlled space remain an important thrust of this expansion.

We are confident that our Global Sales focus on both markets and channels will realise significant wins in our key performance indicators – brand desirability, net sales, market share and profitability.