The adidas Group strives to inspire and enable people to harness the power of sport in their lives. Sport is our very purpose. Inspired by our heritage, we know that a profound understanding of the consumer and their journey in sport is essential to achieving this goal. To anticipate and respond to their needs, we continuously strive to create a culture of innovation and creativity. Through our portfolio of authentic sports brands, we harness this culture and push the boundaries of products, services and processes to drive brand desire. This, in turn, will drive value creation for our company and our shareholders.
We are convinced that sport is and will remain central to every culture and every society. It is core to health for an increasing number of people around the world. The importance of sport, however, goes far beyond that: We fully believe that sport has the power to change lives. Sport is therefore our very purpose. Everything we do is rooted in sport. And we also translate our competence in sport into streetwear and fashion because sport is also an attitude and a lifestyle.
We fill our purpose with life through the following strategic pillars reflecting our values rooted in sport:
- Portfolio of 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, each brand has a unique identity and focus on its 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.
- Developing a team grounded in our heritage in sport: Our culture is continuously shaped by influences from the past and the present as well as our future aspirations. We foster a corporate culture of performance, passion, integrity and diversity by creating a work environment that stimulates innovation, team spirit and achievement based on strong leadership and employee engagement.
- Investments focused on highest-potential markets and channels: As a Group, we target strong market positions in all markets in which we compete. However, we have prioritised our investments based on those markets which offer the best medium- to long-term growth and profitability opportunities. In this respect, we place considerable emphasis on expanding our activities in the emerging markets, particularly in Greater China and Latin America, as well as building our market share in the USA and Western Europe.
- 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 Group 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 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 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 through strong and consistent operating cash flow generation 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.
We need to be at the forefront of change as we adapt to new consumer demands, innovations in technology and the overall dynamics in the expanding sporting goods industry. The three main megatrends our Group is anticipating are:
- Digitalisation: We are convinced that everything that can be digitalised is being digitalised. There is an array of digital technologies that is involved in the creation of value: smartphones, data analytics, cloud infrastructure, etc. Digital services also offer completely new possibilities to connect and interact with our consumers.
- Urbanisation: We believe that the appeal and power of brands will be determined by their success in ever-expanding key cities. Since 1990, the number of megacities with more than 10 million inhabitants has tripled. These are the ‘halo’ locations, where the perception of brands will be shaped. From there, they will spread to the rest of the world.
- Individualisation: Consumers’ relation to brands is increasingly based on their individual experiences with a brand, a campaign or a product. This trend is growing in terms of importance and we are determined to cater for this trend with our brands.
Against the background of these three trends, 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. Our new strategic business plan is built around 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.
Our three strategic choices will be step-changers with regard to brand desirability and brand advocacy which, in turn, will enable us:
- To accelerate our top-line growth: We aim to increase currency-neutral Group revenues annually by a high-single-digit rate on average. This performance will be driven by high-single-digit currency-neutral growth rates per year on average at both the adidas and Reebok brand.
- To win significant market share across key categories and markets: We have defined key categories within our core brands that will spur our growth. 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 profitability of the Group, growing the bottom line by an average of around 15% per year, 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 Group’s financial position and future growth ambitions, we increased our targeted dividend payout ratio to a range between 30% and 50%. We will also increase the returns to our shareholders through our shareholder return programme. In total, we plan to return up to € 1.5 billion by the end of 2017.
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 new products where and when they want them. 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 our Group 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:
- Faster delivery of products, based on shorter lead times.
- Increased opportunities to react to short-term and in-season trends.
- Increased full-price share of sales, while at the same time reducing markdowns.
- Eliminating the risk of over-/under-stock building by supplying products in short periods of time.
We have built the foundation for our Speed ambitions with adidas neo, in which a big proportion of the product range to date already runs on so-called ‘Speed programmes’. In four categories – Running, Football, Training and Originals – we have started to adapt the learnings from neo and to build Speed capabilities for a defined share of their business.
We will use 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. We base our Speed ambitions on three global and centralised initiatives that are deployed consistently across our markets and channels:
- Planned responsiveness: Based on sell-through data, which we receive and analyse at the beginning of the season, we re-order products and deliver them within the season to fulfil higher consumer demand than initially forecasted.
- 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 will ensure our most iconic and desired products are permanently available to our consumers.
- In-season creation: We plan ranges to be created later in the season in order to create or capture the latest trends of the industry driving 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 consumers 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 and technologies to make us faster. A prime example in this area is our Speedfactory project: using automated manufacturing to bring production to where the consumer is.
Our 2020 targets for Speed: Today, almost 15% of our sales are generated on Speed programmes. As of 2016, we plan to start moving that business under our new end-to-end business model. It is our ambition to increase the share of speed-enabled products to 50% of our net sales by 2020. Our initiatives will put us in the position to provide consumers with appealing and up-to-date products. As a consequence, our full-price share of sales is forecasted to improve by 20 percentage points by 2020.
Major metropolitan centres are playing an increasingly influential role in shaping global trends and consumers’ perception, perspectives and decisions across a number of topics. Given this megatrend of urbanisation and the continued influence of cities, the adidas Group has defined Cities as one of its strategic choices.
Creating the New will therefore focus on six global cities: London, Los Angeles, New York, Paris, Shanghai and Tokyo. These six cities were chosen based on the size of their population, their landscape of sport, their level of economic and commercial activity and their concentration of global media, among others. Across the six cities, the adidas Group will disproportionately invest in marketing, retail experiences, leadership focus and the development of local teams with the singular goal of maximising consumers’ experiences with our brands. We will constantly evaluate our activities and, if necessary, expand our focus of Cities beyond the initial six.
It is our goal to create an integrated brand and business ecosystem designed to touch and enable all phases of the consumer journey. This includes:
- Product: Leading innovation and design, executed through global product launches and campaigns.
- Retail experiences: Holistic development of the omni-channel approach across the various consumer touchpoints.
- Activation: Activation of sports marketing assets and consumer communities.
We are refining our focus on consumers in key cities 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. And we further intend to create more synergies between our commercial and activation efforts and give our consumers tangible reasons to seek our brands, while offering them premium brand experiences in doors and destinations. This also includes aligning our initiatives with similar efforts of our key account partners.
Our 2020 targets for Cities: In 2015, we set the foundation for this strategic choice. We focused on creating visions and plans for each city, enabling them via new organisations and investment in systems and processes. At the same time, we started to execute on the strategy with first results of these efforts becoming visible across several key performance indicators. Going forward, we will continue to converge all of our major global initiatives in our key cities, including the other strategic choices Speed and Open Source. It is our goal to achieve a leading position within these cities by 2020 and we will track our impact via improvement in our city-specific Net Promoter Score and market share.
Open Source is a new mindset with regard to collaboration, inviting athletes, consumers and partners to become part of the adidas Group. We aim to open our doors to creative thinkers and creators, who influence the future of sport and culture through a collaborative approach and mindset. Defining Open Source as a strategic priority means that we intend to:
- Provide access for externals to tools and resources we use to create (e.g. materials, factories, data, experts, athletes, social platforms, business models).
- Acquire creative capital, as new insights, skills, competencies and specialised knowledge sometimes requires extensive resources to build. Collaborating allows us to get external know-how without the expensive overhead investment.
- Strengthen the consumer’s perception of our brands as innovative leaders in sport. We therefore intend to give our 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 to increase our creative capital through new tools, new environments and new perspectives from outside creative thinkers. This will be brought to life through initiatives such as our design studios, so-called ‘Creator Farms’, e.g. in New York City, where we will open doors in 2016 to fuel innovation in sports in a constant way, outside our own seasonal product creation calendars.
- Athlete collaborations: The strategic initiatives of athlete collaborations aim to build communities of athletes that help shape the future of their sport with us, such as our digital space projects, which will allow experiencing the stories of our brands and becoming part of our sport influencer community (e.g. newsrooms).
- 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 and exchange core competencies to create unique value for our brands. The consumer touchpoints in this field include sport, entertainment experience, manufacturing and sustainability as well as sport health and monitoring. Our partnership with Parley for the Oceans serves as a prime example.
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 increases in Net Promoter Score and market share.
Our Global Sales function drives the commercial performance of the adidas Group by converting brand desire into profitable and sustainable business growth. It is our ambition to deliver the best branded shopping experience across all consumer touchpoints. In 2015, we advanced our Global Sales strategy and identified three strategic levers to establish our organisation as the omni-channel leader in the sporting goods industry:
1. Leveraging scale of our point-of-sale (POS) network
With more than 2,700 own-retail stores, more than 11,000 mono-branded franchise stores, over 116,000 wholesale doors and nearly 50 own eCommerce sites, we have an unrivalled network of consumer touchpoints within our industry. This empowers us to deliver a premium consumer experience through the seamless integration across all channels.
We have launched four business models which enable us to be ‘omni-present’ for the consumer, capturing the full sales potential by minimising occasions when consumer demand is not met:
- ‘Inventory Check’ which allows online shoppers to view in-store product availability.
- ‘Click & Collect’ which allows consumers to 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.
- ‘Endless Aisle’ which provides in-store visitors with access to our full range of products through our eCommerce platform.
By the end of 2016, we aim to have largely implemented these capabilities in our own-retail operations in Western Europe, North America, Latin America and Russia/CIS. As of 2017, we will integrate selected wholesale partners to create a truly seamless consumer experience.
2. Driving productivity across our sales platform
We are committed to further improving productivity across our sales platform. Our approach is multi-faceted:
- Premium presentation: We will continue to further evolve brand experience through the development of premium store concepts such as HomeCourt and Neighbourhood for the adidas brand as well as FitHub for the Reebok brand. Our own-retail environments are designed with scalability in mind to create efficiencies and ease of implementation across channels. We will create consistency in the presentation of our brands by working closely with our franchise partners and through active management of branded spaces in key wholesale doors and cities.
- Consumer service excellence: In 2015, we re-energised our in-store consumer experience with the successful launch of our ‘Connect-Engage-Inspire’ service model. It represents a cultural shift in how we interact with and service our consumers and has already 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. eCommerce is a powerful tool for our brands to engage with consumers and, in the future, we will craft a more personalised experience with the support of our CRM initiative.
- Insight-driven decision-making: We are investing to further develop 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. Shaping our own destiny
Our goal is to deliver a premium experience through the seamless integration across all of our channels. The omni-channel capabilities will be fundamental to our success, but the key contributor to our commercial performance will be controlled space. Whenever we control the way our brands are presented at the point of sale, the impact is significant. We have the power to do so in own retail (including eCommerce), franchise and in wholesale managed space. By 2020, we aim to generate more than 60% of our revenues through controlled space.
We have ambitious retail expansion plans for full-price concept stores, while simultaneously reducing the number of retail formats we operate worldwide. This will ensure consistency in the way consumers see our brands, and will also allow us to open, close and operate stores at a lower cost. We will amplify our success in own retail by translating key learnings to franchise stores, and expand franchising as a business model into new geographies. eCommerce will continue to be the fastest-growing channel that we operate, with revenues expected to increase to a level of € 2 billion by 2020. In absolute terms, however, wholesale will remain our largest channel, driven by a keen focus on prioritised global key accounts. Strategic partnerships will enable us to deliver a premium consumer experience in a multi-branded environment, through the power of managed space.
Our Global Sales strategy is crafted by a centralised Sales Strategy & Excellence team, which supports the execution and drives operational excellence across our nine global markets. The markets are responsible for converting brand desire into profitable and sustainable growth, through the successful implementation of our omni-channel strategy. Clear roles have been defined for each of our markets.
Extend: In markets where we are currently the top player, we plan to leverage and extend our market leadership. These are Russia/CIS, Japan and South Korea.
Lead: In markets where we are a strong competitor but not 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 aim for dramatic market share gains. These are: North America, Latin America and Southeast Asia/Pacific.
We see significant growth opportunities for our brands across the globe and we will win by capturing the hearts of consumers with every interaction.