Having spent the last few months “on the road” I have found myself in many retailers discussing the trade in general and, in particular, the changing fortunes of “the big two” – Nike and adidas.
Whilst Nike were recently reporting revenues up 15% to $7.4 billion, adidas Chief Executive Herbert Hanier was admitting “We had to accept in late 2014 that we’d not met all our financial ambitions which we’d set ourselves in the light of the strategic business plan Route 2015 five years ago”
Similarly as adidas roll into a 10 year £750M deal with Man United, Nike, who had been given a period of exclusivity to negotiate an extension with United and also retained the right to match any other offer, decided not to exercise either option, claiming the terms “did not represent good value for Nike’s shareholders”.
Are these isolated examples or are they part of a broader change in the way that the two brands are approaching the markets?
For years the development and marketing strategies appeared to share some common ground for both companies, however it does seem that we are starting to see a noticeable strategic shift in terms of marketing and business development strategy.
Getting closer to the market
One of the areas where the approach is certainly changing is within the manufacturing processes – driven not least by a desire to get new products to market quicker and to be closer (on all levels) to the market.
Adidas is to move the manufacturing of some goods from Asia back into Europe alongside investing in talent and marketing in Los Angeles, New York, London, Paris, Shanghai and Tokyo
Whilst the “act global, think local” drum has been banged by many a business historically, Roland Auschel from adidas underlines this approach commenting “Global brands are created in global cities. If we win running in New York and Los Angeles, we will win running in the US.”
The brand is also testing automated production units that would speed up manufacturing and allow customers to personalise their purchases.
The latter element of this strategy is certainly gaining momentum across the UK retail trade and High Street brands such as Zara are undoubtedly benefitting from increased production speed.
More is doing less
From a ranging point of view the adidas approach to 2020 is “More by doing less” and aims to carve out efficiencies from a stretched product range that was eating into margins due to surplus stock and muddled lineup.
As Eric Liedtke, head of global brands at Adidas, explains: “The place we wanted to cut down on is models. If we do a hoody and it’s black that’s one product. If we do it in 30 colours then that’s 30 SKUs but it’s still one model. That’s what a consumer wants, they want to see variation of a single model. That cuts [things] down from a workload perspective so that we can make more efficiencies as a brand because it’s just one hoody in a factory with different dyes.”
Adidas also plans to make the cuts to its product line by 2016 and will repeat over and over until it gets the right balance to be competitive with things that drive the market.
Future plans cost money
Nike, on the other hand, continues to invest with their spending plans higher than ever.
Its push to drive higher retail revenues through bricks-and-mortar stores has resulted in higher expenditures. The hi-tech premium image that the company puts across also means a higher investment on store rollouts.
The digital experience and e-commerce – The company spends considerably on enhancing the digital experience for customers and increasing e-commerce sales.
Research on innovative manufacturing technologies– This would ultimately result in lowering the cost of production, but requires on-going investment.
Capex expenditure is set to rise from just above 2% to approaching 4%.
So where does this leave us?
Five years ago Adidas presented an ambitious Route 2015 which targeted sales of €17bn by the end of 2015. While it ultimately failed to hit the target, it gave the brand a footing in emerging markets and increased revenues by more than 40 per cent since 2010.
However did they lose the consumer connection along the way?
Nike, have seen market share and revenues rise during that same period.
Are we at a crossroads in the evolution of our two most powerful brands where, whilst still some common ground, their areas of focus are moving in different directions.
What is clear is that how the consumer connects with these brands in the future will change – whether a forced change through technology, or a change through strategy – and with the industry moving faster than ever its difficult to predict who will benefit most.
The digital touch points will be critical but most importantly the consumer must be at the heart of everything that the brands do.
Consumers want to shape their preferred brands in a way that they have never been able to before and the brand that empowers us to do so, whilst maintaining their clear development objectives, will be the brand that ultimately succeeds.