Strategic Analysis Adidas

A strategic diagnostic of the company: Adidas

Table of content

Executive summary:

1. Environment

GLOBAL ENVIRONMENT

PESTEL

Stakeholders

Opportunities / Threats

DIRECT ENVIRONMENT

Industry Competitive Structure analysis : Five Porter Forces

Driving forces

Key Success factors:

Attractiveness of the industry:

2. Firm

Diagram

Adidas Culture Values:

Adidas vision:

Adidas mission:

Visual Identity:

The core competencies of Adidas

Strategic segmentation

Competitive advantages:

3. BCG Matrix

4. Problems

5.Challenges

6.Recommendations

Executive summary:

Adidas, one of the main actors on the sportswear market in the world, has recently made the acquisition of Reebok. Thus, the Adidas group is now composed of three major brands: Adidas, Reebok and TaylorMade (mainly metal woods products). The goal of such acquisition for the sportswear giant was to overtake Nike, and therefore become a leader (medina, 2012).

The all issue of these paper will be then to determine the results of such merger and to analyze the current position of the group in the market.

To do so, the paper will first analyses the global and the direct environment of Adidas. The study sets that despite a strong rivalry and a potential pressure put from the buyers, the industry is attractive on a long-term and benefits from sustainable driving forces and opportunities.

Then, it conducts an internal analysis of the firm. It sets that Adidas has very strong core competencies and owns sustainable competitive advantages. They make profit with their Adidas category, but they have a very low market share (second behind Nike). However, the Reebok category is losing money. Their target market is not growing and represents a small market.

We would mainly recommend Adidas to sell out Reebok, to focus more on footwear and sport apparel, accounting for 80% of its revenues, to keep on innovating, to entry growing emerging markets, and to take the challenges of environmentally-friendly products development.

1) Environment:

GLOBAL ENVIRONMENT

• PESTEL analysis

Political:

The largest markets of Adidas benefit from a stable political environment: US, Europe. Indeed, they have democratic governments, and stable economies despite the economic recession.

However, Adidas wants to implement emerging markets, like Asia, Russia, and Latin America, because they less suffer from the economic recession than the developed countries (Adidas’s markets). But in these countries the political environments are not that stable: corruption, counterfeiting, currency instability that Adidas will have to deal with.

Economic:

Economic recession since 2007 has made the sporting goods industry a very difficult area to succeed. Indeed, as it’s not a primary need, consumers tend to reduce this kind of consumption. It caused a decrease in Adidas’ revenues since 2008, and especially in the Taylor Made-adidas Golf category. The number of golfers in the US decreased from $27 million in 1998 to 25.6 million in 2008.

Social:

On one hand, changes in society occur and require companies to adapt to new lifestyles in order to meet consumers demand. Even if sport style apparel is usually quite stable overtime; everyday apparel, associated with lifestyle, is always changing and needs adaptation from the companies.

On the other hand, changes in society also impact people’s ways of buying. It affects companies’ distribution systems. Definitely, an increasing number of people are buying apparel on the internet.

Technology:

Technology development is pretty important in this industry because it makes part of the innovation process. It enables the company to design more technologic products for sport participation which enables sport participants to improve their performance. Certainly, the company launched many products in each of its category (Adidas, Reebok, TaylorMade), that largely contributed to its success.

Legal:

Working conditions laws have been established, especially after the issues Nike got in its factories in Asia. Nike got a very bad image at that moment, as well as many other multinational companies.

Nowadays these laws are a constraint for the production costs, because obviously it enabled them to save a lot of money. However it’s a really good thing for the image of the companies of this industry because now they have applied these laws and public opinion is aware of this aspect. They must act more responsibly toward the social aspect and it will lead them to more Corporate Social Responsibility, what is currently trendy and sustainable.

Moreover, there are legal elements for advertising and communication. They need to be respect, according to each specific country.

Environmental:

The use of raw materials coming from animals for a lot of products could cause environmental issues and critics from the NGOs. Adidas should think about alternatives in order to get round this eventual problem.

However, the environmental issue is above all a positive aspect: Adidas can try to innovate with environmentally-friendly products as it’s becoming very trendy and seen as a sustainable policy.

• Stakeholders / change agents

Customers: Professional sport people, sport participants, sport lifestyle adherents (skateboarders, surfers).

Employees: Employees of the Adidas group

Workers: Workers in the production factories

Authorizers: Board of Directors, governments, trade associations, shareholders

Business partners: Suppliers, service provider, unions

Opinion-formers: Journalists, community members, special interest groups, NGOs

• Opportunities / Threats

Opportunities Threats

• Growing sport participation trend

• Health issue encouraging sport

• Increasing GDPs of growing emerging markets (Latin America, Asia).

• High sales growth rate of emerging markets (20% in Eastern Europe, 13% in South and Central Asia, 15% in China).

• Fast growing market of sport lifestyle apparel and footwear.

• Strong demand for athletic footwear and apparel in Asia and vast number of consumers.

• Increasing sponsorship programs: opportunity to show the brand and associate it with famous and appreciated professional sport people.

• The development of online shopping: can allow spreading the distribution and reaching more customers.

• Economic Recession (consumers react by saving rather than spending, especially on this kind of products, not meeting primary needs).

• High competition with Nike that holds a large market share

• Increasing Competition

• Low growth rate of its main markets (3% in North America, 2% in Europe).

• Decrease of the number of golfers in the US

• Increasing raw material prices

DIRECT ENVIRONMENT

• Industry Competitive Structure analysis

Five Porter Forces

Rivalry among competing sellers:

Fierce.

Nike is the leader of the global sporting goods industry (34.6% of market share in the US [2008]), compared to Adidas 8.5% market share.

Many other large brands: Puma, Fila, Umbro, Lacoste, New Balance.

Suppliers:

Weak.

Suppliers don’t have bargaining power in this kind of industry because it’s not difficult for Adidas to change supplier when they want, to find the lowest costs or better conditions (faster, more convenient…). The required raw materials are not difficult to find, so Adidas could change easily, and these suppliers are mostly dependant on the large brands for the health of their activity.

Even if Adidas reduced the number of manufacturers, they still have 300 factories. Therefore they have a strong bargaining power with them. Consequently, this force is quite weak.

Buyers / distributors (different from final customers):

High.

Large distributors represent a strong threat because they purchase in large quantities. So the cost for switching from the products of Adidas to another is low.

They put a lot of pressure on the sport brands, because they account for the majority of the final sales: the brand needs to be present in it, if not they will lose the market toward another brand that would have bargained better.

However, Adidas owns retail stores in order to control the distribution that can let them a leeway.

Potential New Entrants:

Moderate.

The market is already quite saturated because there are so many sport brands worldwide and several very well established. In addition , customers are in general loyal to their brand. That comes from the fact that a brand represents sports people like, teams or players sponsored they like, etc, and they often feel like in a “shared community” with this brand.

Moreover, Adidas and Nike benefit from huge economies of scales that would make very difficult for new companies to offer similar prices (high costs).

However, new companies could entry the industry but on more specific markets (new

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