The CEO of Adidas believes that the brand is currently facing a once-in-a-lifetime opportunity
How long can adidas’s momentum last? This question is hovering in the market air.
German sports giant Adidas announced its latest performance data on Tuesday, showing that the group’s third-quarter revenue increased by 6.3% to 6.44 billion euros, with a 10% increase at constant exchange rates. Operating profit surged by 46% to 598 million euros, and net profit reached 469 million euros, surpassing the 388 million euros expected by Visible Alpha analysts. The gross profit margin increased by two percentage points to 51.3%.
Adidas achieved growth in all markets, channels, and product segments. By category, footwear revenue increased by 14%, thanks to the widespread popularity of retro sneakers like Samba and Spezial in the market. Apparel product revenue grew by 5%, and accessories product revenue increased by 10%, with strong performance in sports categories such as football, running, and training. Currently, Adidas’ global footwear business still accounts for 60%, apparel business for 34%, and accessories business for 7%.
By region, revenue in the U.S. market fell by 7% to 1.36 billion euros, but excluding the impact of Yeezy inventory, it recorded an increase. Revenue in the European market surged by 18% to 2.15 billion euros, revenue in the Chinese market grew by 9% to 950 million euros, revenue in the Japanese and Korean markets surged by 18% to 360 million euros, revenue in the Latin American market grew by 28% to 680 million euros, and revenue in other markets fell by 28% to 29 million euros.
By channel, retail revenue increased by 7%, and by 17% excluding the impact of Yeezy, while wholesale revenue increased by 13%. Adidas expects full-year revenue to grow by about 10%, with an annual operating profit of approximately 1.2 billion euros.
After the financial report was released, adidas’s stock price rose by 3.59% to 220 euros yesterday, with a market value of approximately 39.9 billion euros.
At the same time as releasing the financial report, adidas also issued a statement saying that an out-of-court settlement had been reached with rapper Kanye West regarding the handling of the Yeezy brand. adidas CEO Bjorn Gulden stated that neither party owes the other anything, and whatever happened in the past is now history.
For adidas, the third quarter has undoubtedly become a turning point, as the clearance of old inventory increasingly clearly reflects the validation results of the current strategy under the leadership of the new CEO.
On the eve of the performance release, some market opinions began to question adidas’s long-term turnaround. Although the adidas brand is currently on the rise, and its biggest competitor Nike is in a performance trough and CEO transition period, in the current fiercely competitive market and under a clouded macro environment, whether adidas, relying on retro sneakers like Samba and Spezial, can sustain this fashion trend and whether it has any cards to play next has clearly become the focus of industry attention.
Sneaker retailers across major European cities have seen adidas Terrace sneakers essentially dominate their shelves. With its headquarters in Germany, adidas was the first to start this fashion trend in the European market, and now this momentum seems to have reached its peak, making the market’s skepticism appear reasonable.
Adidas Terrace sneakers have essentially dominated the shelves of European sports retailers
The retro terrace sneakers have indeed sparked a global craze, but in fact, this trend varies in different regional markets. For example, the U.S. market, which is deeply influenced by street culture, is noticeably lagging in embracing this European fashion sports casual trend, as it is still in the shadow period of digesting Yeezy inventory sneakers.
The financial report also confirmed this situation, with the U.S. market being the only one to record a decline in the third quarter. Bjorn Gulden admitted in the analyst meeting following the financial report that it is always more difficult for European sports brands to succeed in the U.S. market.
Outside of the United States, which is adidas’ second-largest market, the response to the Terrace trend in the Chinese market has also not yet reached its peak level.
Compared to the double-digit strong growth in Europe, the Chinese market has mostly seen single-digit growth over the past six consecutive quarters, with increases of 16.4%, 6%, 8.2%, 8%, 9.3%, and 9% from the second quarter of 2023 to the third quarter of 2024, respectively.
In the Chinese market, adidas refers to Terrace shoes as “T-head shoes,” but consumers prefer to associate adidas’s Samba with the broader trend of German training shoes. Although consumer demand for adidas Terrace shoes remains high, gaining popularity among female consumers and maintaining a visible presence on the streets, this trend of Terrace shoes in China does not seem to have elevated to the level of brand influence and market trend.
Especially when comparing this wave of popularity with the momentum of trendy sneakers in 2017, the gap in influence is still significant. In contrast to the European market’s enthusiasm for Terrace sneakers, the performance of the Chinese market appears quite moderate.
The current issue is whether the Terrace sneaker trend can continue to gain momentum in the Chinese market. If the Terrace sneaker trend in the Chinese market is merely lagging behind the European market, then the market will have more confidence in adidas’s future development. However, if the Terrace sneaker trend continues to remain moderate and gradually fades in the Chinese market, adidas’s current development ambitions may lose a crucial driving force.
Fashion trends are unpredictable, and the above questions are not easy to answer, but there is a new signal worth noting.
This quarter, adidas performed exceptionally well in the Japanese and Korean markets, with a growth rate of 18%. The growth rate for the first three quarters was 10%, indicating that the brand has achieved acceleration in the Japanese and Korean markets over the past few quarters.
In fact, the rise of adidas in the Korean market has already attracted attention from the fashion world. From Blackpink member Jennie wearing various adidas items in her latest MV and other occasions, sparking widespread market attention, to other Korean stars like Jay Park and the group BABY MONSTER wearing them, adidas is leveraging K-Pop culture to gain momentum.
Beyond the celebrity effect, the enthusiasm of Korean fashion bloggers for Adidas has further propelled this trend to new popular heights.
Not only has the DIY customization trend spontaneously emerged in the sneaker category, bringing feminine designs previously seen only in specific collaboration styles to regular models through beads and laces, but adidas apparel products have also showcased the adaptability and versatility of sports products in everyday life scenarios through innovative fashion styling.
The locally designed adidas Korea line has attracted the attention of the fashion trend industry
Although Blackpink previously served as ambassadors for adidas Originals, it seems that they did not fully unleash adidas’s potential in the Korean market. The increase in adidas’s business in Korea this year is mainly due to the localization of the business.
In January this year, adidas headquarters separated the South Korean branch from the Asia-Pacific region, no longer belonging to the Asia-Pacific market that includes Greater China, Southeast Asia, Oceania, and other regions, with the aim of adopting local Korean designs to quickly respond to the needs of Korean consumers.
In just three quarters, adidas’ Korean business has gained significant momentum. The operating profit of adidas’ Korean partner HWASEUNG reached 24.1 billion Korean won in the first half of the year, approximately 67 million RMB, surpassing last year’s 13 billion Korean won. According to FnGuide data, the company’s third-quarter revenue is expected to grow by 42.9% to 373.5 billion Korean won, with an operating profit of 21.3 billion Korean won.
An analyst at Daishin Securities stated that the increase in adidas sales has directly boosted HWASEUNG’s operational production, and it is expected that the production of its classic shoe models will significantly increase in the fourth quarter.
The independently designed adidas Korea line looks better, and this opinion has recently sparked discussion on social media.
adidas has opened the first Home of Sports concept flagship store in the Asia-Pacific region in Myeongdong, Seoul, which features a personalized customization area
At the beginning of the year, Adidas opened its first Home of Sports concept flagship store in Myeongdong, Seoul, which has become a testament to the brand’s current vibrant vitality. This flagship store covers the brand’s entire product line, and its customization area has become a core highlight, making it a destination for many local Korean consumers and tourists visiting Korea.
This also includes Chinese consumers who are sensitive to fashion trends. Compared to adopting European fashion trends, the Chinese market has a higher acceptance of Japanese and Korean trends, not only because of the closer proximity but also due to similar aesthetic preferences. As outbound tourism has increased this year, Chinese consumers have been engaging more closely with neighboring markets.
This means that adidas’s success in the Korean market is very likely to be transferred to the Chinese market.
Despite the initial spread of this fashion trend potentially benefiting adidas’s Korean market business through purchasing agents and travel retail, it also has the potential to boost local business in the Chinese market. Past experience has shown that many outdoor sports brands, including The North Face and Snow Peak, have gained popularity among Chinese consumers through their Korean lines.
Adidas is actually very clear that to fully tap into the Chinese market, a localization strategy is needed. The slogan “In China, for China” has been continuously mentioned after the pandemic.
Earlier this year, Bjoern Gulden stated at a conference in China that over 80% of products sold in China are locally manufactured, and the brand will continue to drive business growth in the Chinese market through innovative products and localization strategies.
Adidas previously also stated that it plans to win back Chinese consumers by incorporating traditional Chinese culture into product design, expanding partnerships with Chinese athletes, and increasing the proportion of products made in China.
Currently, adidas has established collaborations with domestic trend brands Song for the Mute and Edison Chen’s CLOT. Last year, Edison Chen switched from Nike to adidas, attracting close attention in the trend market. His latest sneaker release features a serrated sole and a vintage design on the shell toe, stirring up some waves in the long-dormant trend shoe sector.
However, objectively speaking, adidas has not yet shifted from localized manufacturing to localized creation in China, creating a collective effect like in the Korean market. If the fashion enthusiasm of the local Chinese market can be fully ignited, adidas will undoubtedly unlock the secret to explosive growth in this market.
Of course, the fashion business is just one part of adidas’s operations. This is also a key difference between the vast Chinese market and the relatively small markets of Japan and South Korea. To boost performance in the Chinese market, fashion is just an introduction; the larger sales volume will be driven by professional performance business.
According to the third-quarter financial report, adidas achieved balanced development across various categories, not only in the fashion and leisure business but also made progress in sports scenarios such as football and running.
Adidas is also attempting to explore the middle ground between fashion casual and professional performance scenarios. Bjorn Gulden stated yesterday that the company will focus on Lifestyle Running, including lifestyle versions of ADIZERO ADIOS PRO EVO 1, ADIZERO Aruku, and Climacool. Among them, Climacool sold out within 5 minutes after being released through the Confirmed App in the Chinese market, receiving a positive market response.
The lifestyle running is a new concept proposed by adidas to the market following the Terrace sneakers and thin-soled shoe trends, not ruling out that this move is to mitigate market doubts about adidas’s reliance on fashion cycles and vulnerability to market risks.
adidas will make efforts in the Lifestyle Running field
However, aside from this, Bjorn Gulden believes that adidas is currently also facing a once-in-a-lifetime opportunity, as the brand is capturing a new generation of consumers.
This group of consumers previously did not belong to adidas in either the fashion or performance sectors. They often chose a large brand for fashion-related purchases and opted for other smaller brands in fitness, ball games, and other niche sports scenarios. However, now they have come into contact with adidas for the first time because of popular high-end sneakers, which also presents an opportunity for adidas to further introduce these consumers to other adidas categories.
In the past few quarters, adidas has increased its focus on the Terrex outdoor series, tennis series, and even skateboarding, in addition to traditional sports like soccer, basketball, and running, which confirms this statement.
Bjorn Gulden admitted that adidas has not encountered such an opportunity for a long time. This is a generational change among consumers, a topic grander than a single regional market.
To make the brand great again, adidas bluntly states that the time is now, which means there is not much time left for the Chinese market.