Adidas Pestel Analysis

Adidas is one of the leading brands in the sports shoes and apparel industry. The company enjoys strong brand awareness worldwide and has performed well amidst various types of challenges including a difficult economic environment. The well known German sports shoes brand is the leading competitor of Nike. It also enjoys a significant market share in the global sports shoes and apparel industry. The company is focusing on innovation and sustainability to accelerate its growth rate.

While 2022 was a challenging year for the company, it experienced solid performance in several operational areas. Adidas is also investing in technology to improve production, supply chain, marketing, sales and other operational areas. The net revenue of the company grew by around 1.25 billion Euros in 2022 compared to the prior year. Adidas had total net sales worth €22.5 billion in 2022. It is now investing in strengthening its ecommerce capabilities and improving its competitive edge. Given that Adidas is positioned against the market leader Nike, it will need to focus strongly on product and process innovation to achieve superior growth and expand its market share.

Adidas is operating internationally in a highly competitive market environment. Apart from Nike there are several more players like Under Armour, Nike, Puma, Skechers, New Balance and others that are competing with Adidas. Operating in the international environment can be highly challenging due to several factors.

In this pestle analysis of Adidas, we will discuss the macro environmental factors and their impact on Adidas’ operations and profitability.

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Political:-

Political factors can have a strong impact on businesses operating internationally due to the extent of influence these factors have on business operations, profitability and supply chain management.

Some of the leading shoe brands in the world including Adidas and Nike have a large part of their supply chains located in the Asian region in various markets. Government policies related to their supply chain operations can have a significant impact on the business of these shoes and apparel brands. Adidas has outsourced manufacturing to Asian suppliers as has its nearest rival Nike.

The governments and their policies in these markets affect the prices of raw materials and labor. An unstable political environment in key Asian markets can affect the supply chain operations of Adidas and its profitability. If government policies in these regions prove unfavorable, they will affect supply and sales as well as profitability of Adidas since the company depends completely on these suppliers for production.

Geopolitical factors can significantly affect operations. Several of the leading brands have experienced disruptions due to the Russian invasion of Ukraine and as a result either exited the Russian market or are in the process of shutting down their operations in Russia including ecommerce operations. Adidas had decided to completely halt its business operations in Russia in 20221.

In this way, the impact of political factors on businesses around the globe can be significant in many ways. Adidas has to maintain a focus on how political changes affect its business in various parts of the globe and accordingly form its strategy so as to avoid running into losses.

Economic:-

Economic conditions affect businesses seriously because they are directly related to consumer confidence and spending on various articles. If the economic situation of a market is very good and the local economy is flourishing, the employment level in such markets remains higher and people spend more on various products including fashion and leisure products. Its opposite happens when an economy is on a downward slide.

Adidas sells to customers in several markets across the globe. Its business operations and sales are also affected by the changing economic conditions of various markets. The global economy was affected during the pandemic and international businesses also felt its impact on their sales as people reduced their spending on non essential items. However, a switch to digital channels for sales also happened during the pandemic which proved profitable for businesses like Adidas.

The sales and marketing strategy of businesses for various markets need to be formed with the local economy’s performance in mind. Adidas operates in various markets across the globe and has to create local product, sales and marketing strategies for these markets based on their economic performance. Fast growing economies like the US and the UK experience higher sales of products made by Adidas. The company has also experienced significant sales in China which is another leading economy in the world.

Sociocultural:

Sociocultural factors affect businesses to a significant extent. Demographic changes and social trends affect various factors including the demand and sales of particular products and brands. Due to changes in the demographic composition of the global population, various products and brands have experienced significant ups and downs in demand and sales. The millennial consumers are the main target segment of sports shoes and apparel brands like Adidas. The company targets the millennials and Gen Z consumers through digital channels mainly since these generations are digitally inclined generations.

Worldwide the demand for several product categories can be higher or lower in different geographical areas based on the local societies and cultures. For example, while the demand for football related products including sports shoes, apparel and accessories can be higher in certain regions while in other regions basketball related products may enjoy higher demand.

However, globally health awareness across societies has increased since the pandemic and people are now focusing on remaining active and living healthier lives. It has led to a surge in demand for products including shoes, apparel and accessories that are dedicated to an athletic and active lifestyle. Growing athleisure trends have also made the demand for athleisure products grow. Adidas has also released a nice range of products in the athleisure category.

The company is also focusing more on digital sales and marketing channels since across various societies digital awareness and the use of digital channel for buying has sharply increased since the pandemic.

Technological:-

Cutting edge technology has remained the main driver of change in the 21st century across various industry sectors. Companies across all sectors are investing in innovation to strengthen their competitive edge and expand market share. Adidas has also been investing in technology to improve manufacturing, supply chain, product quality and for creating more sustainable products.

The use of modern technologies is now a primary focus of Adidas since it is driving significant changes across various processes from manufacturing to supply chain, sales, distribution, marketing and customer service. While innovative products are experiencing higher demand, the use of technology is also driving the costs of manufacturing and supply chain management lower for Adidas. Its investment in digital technology and strengthening its digital sales and marketing capabilities is mainly aimed at improving its competitive edge and responding to customer demand better. The use of data and analytics is helping the company improve customer experience and provide better service to customers. Adidas is creating more personalized experiences for its customers through the use of modern technologies like AI and machine learning.

Since the pandemic, the use of digital technology among customers has grown worldwide. Adidas’ main focus is to improve the sales of its products along the ecommerce channels and therefore the company is investing in improving its ecommerce capabilities to achieve faster growth and grow its competitive strength. The other players in the sports shoes and apparel industry are also investing heavily in modern technologies and digitalization due to its influence on demand and sales as well as customer experience.

Environmental:

Environment and sustainability have emerged as some leading concerns for businesses of all sizes across various industry sectors. Companies are investing in sustainability to create more sustainable and environment friendly products and operate in an environment friendly manner. Sustainability is among the primary concerns on the agenda of Adidas. Apart from making products that are more sustainable and environment friendly, Adidas is investing in making its operational processes more sustainable to reduce its carbon footprint and minimize wastage.

Adidas has created an ambitious sustainability roadmap to become a more environment friendly brand. The company is investing in recycling and reducing wastage as well as its dependence on virgin fossil material. It has set a target to make 90% of its products sustainable by 2025. The sports shoes brand is also working towards achieving complete carbon neutrality across its entire value chain. Adidas also plans to become carbon neutral by the end of 2050.

Not just in its own operations, but the company plans to reduce water consumption and minimize wastage in its supply chain operations also. It is investing in creating products that are more sustainable and can be easily recycled. Adidas plans to have achieved some significant milestones by 2030 in the direction of being a sustainable brand2.

Legal:

Legal issues represent a very complicated area for international businesses across various industry sectors. Moreover, the legal framework across various markets is different and companies like Adidas have to remain compliant across all the markets where they operate. From labor to product quality, patent related and several more areas, legal issues can be a great trouble for businesses like Adidas causing the loss of image and financial harm. However, the company has been focusing on remaining legally compliant in all the markets where it operates in all the applicable areas and therefore has been able to significantly avoid any heavy damage that could be caused by legal hassles. The company recently lost a lawsuit against American designer Thom Browne related to trademark infringement since Thom Browne also uses stripes for its trademark. Adidas had alleged that Thom Browne marketed confusing sportswear but lost the legal battle in a European court3.

Sometimes, the company can also face legal threats that are related to marketing and the company’s image. Recently, its shareholders have brought a class action lawsuit against Adidas alleging that the brand was aware of the potential harm that the behavior of Ye (Kanye West) could have caused the brand but failed to warn investors4. Adidas had cut ties with Ye in October 2022 following his antisemitic comments.

In this way, there are several areas where legal threats abound. However, the best possible method to avoid such hassles for Adidas is to conduct business operations ethically and in a legally compliant manner.