Adidas SWOT Analysis

The sports shoes industry has several well known brands competing for market share. Leading this industry are Nike and its nearest rival Adidas which is a German brand. Adidas is also a well recognized brand in most corners of the world. However, the company enjoys significant popularity in the EU and the North American markets. It is among the most preferred sports shoes brands in the UK1 and generates a significant amount of its annual revenue from the United States.

2022 was a challenging year for Adidas. The company managed to grow its revenue by only one percent compared to the prior year. Increased competition, economic uncertainty in certain markets and other strategic factors including internal factors have affected its performance in 2022 when the company experienced declining demand in China, one of its key markets.

Like several more businesses from around the globe, Adidas has also decided to shut down its operations in Russia which led to the closure of around 200 Adidas stores.

The retail landscape has changed a lot since the pandemic. The shift towards digitalization in the retail sector accelerated with the pandemic. Adidas is also using digital channels for sales and marketing in a very large number of markets globally.

In this swot analysis of Adidas, we will analyze the key strengths and weaknesses of the footwear and apparel brand as well as the opportunities and threats affecting its market position.

Strengths:

Strong brand image:

Adidas is a leading sports shoes and apparel brand that has maintained a strong brand image worldwide. In most corners of the world, it enjoys strong popularity and brand awareness. The company enjoys particularly higher demand in the European region and North America. Adidas invests in product quality and customer loyalty. Its focus on product quality, innovation and customer experience are the key factors supporting its strong brand image worldwide.

Solid digital sales network:

A shift towards the digital has happened in the retail industry during the pandemic. However, even after the pandemic, a large number of shoppers are buying from the digital sales channels. Adidas has continued to invest in strengthening its e-commerce networks for faster growth and to grow its reach among customers globally. It serves customers in 65 markets through its own ecommerce channels. It has helped the company maintain sales, provide superior service and gain customer loyalty. In 2022, while the company did not experience any significant revenue increase, its revenue from the ecommerce channels grew by 10%. The company generated € 4,617 million from ecommerce sales in 2022 compared to € 4,193 million in the prior year2.

Strong customer loyalty:

Adidas is among the leading competitors of Nike and a global name in the sports shoes industry. The company has become one of the dominant players in the global footwear and apparel industry because of its focus on product quality and innovation. It also enjoys strong customer loyalty which is key to maintaining its market share. Its focus on marketing and various customer loyalty programs have also played a key role in helping the company gain higher customer loyalty. Adidas is also investing in building direct relationships with the consumers in various markets. Its Adiclub membership program has reached more than 300 million members across 50 markets.

Strong product portfolio:-

Adidas has continued to improve its product portfolio through product and design innovation. It sells footwear, apparel as well as accessories and gear to customers worldwide. The company also makes footwear and apparel for specific sports categories like running, football, basketball and outdoor categories. In some of these categories, the company is experiencing faster growth. It has also introduced a nice range of lifestyle products. Its largest product category is footwear which experienced 8% revenue growth in 2022. The company is also investing in making specialized products that enhance performance in certain categories including those directed at female consumers. It has introduced sports bras in 43 new styles and 72 sizes for various types of activities like running bras, training bras and studio bras.

Focus on innovation:-

Adidas has also maintained a strong focus on innovation which has become key to maintaining market share and finding faster growth in business. Creating innovative products that match the needs of athletes and consumers all over the world is important for Adidas to maintain its market leadership and demand level. The company invests a large sum each year in research and development to grow the attractiveness of its products and improve market share. Adidas spent 153 million Euros on research and development in 2022 compared to 130 million Euros.

It has brought several innovative products to the market in recent years which include Adizero Prime x Strung, 4DFWD 2, Adizero Adios Pro 3, and its NFT wearables collection.

Focus on marketing:-

Maintaining market leadership in the sports shoes industry also requires a strong focus on marketing. It is essential for maintaining strong demand for products, growing brand awareness and to encourage switching. The company relies on digital marketing channels for running campaigns. Its collaborations, sponsorships and other marketing activities also play a key role in helping it grow product demand. Each year the company invests a huge sum in marketing and sales promotions. Its marketing expenses remained € 2,763 million in 2022 compared to € 2,547 million in the prior year. Near the end of 2022, Adidas launched the Impossible is Nothing campaign which was a month long campaign and brought its most iconic brand partners together including Lionel Messi, Karim Benzema, Achraf Hakimi, Son Heung-Min, Jude Bellingham, Pedro ‘Pedri’ González López, Serge Gnabry as well as musician Stormzy. Its ‘Impossible is Nothing’ World cup brand campaign was a huge success. It reached 2.3 billion video views overall and became the most watched Adidas campaign of all times. Adidas is also using social media channels for promotions, running campaigns and to engage consumers from around the world.

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Weaknesses:

Demand declining in China:

China once used to be a growth driver for Adidas. However, the case is different since the pandemic. While large parts of the global economy have recovered from the coronavirus pandemic, strict lockdown measures throughout most of the year affected business activity negatively in China. Adidas experienced a decline in sales in this strategically important market. Significant inventory takebacks in China also had a significant negative impact on its sales development in 2022. Overall, while China is a strategically important market for Adidas, recovery is happening there at a slower than expected pace.

Outsourced manufacturing:

Adidas has outsourced its total manufacturing to external suppliers. While on the one hand, it will allow the company to control costs and operate more competitively and efficiently, it also means less control over the supply chain. In 2022, the company has also experienced growth in its supply chain related costs. Most of its production takes place in Asian countries like Indonesia and Vietnam. The company will need to invest in digitalization and development of technologies that will help it better manage its supply chain and manufacturing.

Opportunities:

Innovation:

Innovation is the primary growth driver in the sports shoes and apparel industry. Apart from making a brand more competitive, it is also a key driver of higher demand and superior consumer experience. Modern technologies like AI, machine learning and blockchain can help the company improve productivity, and develop new product designs that drive superior athletic performance and higher customer satisfaction.

Diversification:

Adidas can also bring faster business growth through diversification. It can diversify into new business areas to achieve superior growth. It is already a well known brand in most corners of the world and the company can use its existing brand awareness to launch new businesses and drive superior growth.

Acquisitions:

Acquisitions can also help Adidas expand its business faster. It is a financially strong brand and the company can acquire smaller brands that will help it strengthen its core business or help it expand into new business areas. It can make acquisitions to improve its ecommerce business and other aspects of its business operations.

Athleisure trends:-

Growing demand for athleisure products in both the sports shoes and apparel categories can also be a growth driver for Adidas. In most of the advanced markets of the world and in the Asia Pacific market, companies are experiencing higher demand for athleisure products. Consumer lifestyles have been changing and they are becoming more health conscious. By introducing more products in athleisure categories, the company could achieve higher sales.

Threats:-

Competitive pressure:-

The sports shoes and apparel industry is experiencing intense competition. The leading player in this sector is Nike followed by Adidas and other brands. While Nike is its leading rival, the company is also experiencing strong competition from several more brands including Puma, Lululemon Athletica, Asics, New Balance and others. Intensifying competition among the leading players is also adding to operating expenses. Adidas has to invest more in marketing and research and development as well as other operating areas to maintain its market share and leadership position.

Regulatory issues:-

Regulatory pressures and compliance related issues are also a major challenge before the footwear and apparel brand Adidas. Companies operating internationally like Adidas have to deal with several regulations in various areas including taxation, labor, product quality, safety and similar more. Adidas has a compliance management system in place that manages the operation of its global business in compliance with applicable laws in various markets. Noncompliance proves costly for business and getting involved in legal disputes affects reputation and also harms the firm financially.

Increasing costs of raw materials and labor:-

The costs of raw material and labor have kept increasing year over year. Adidas is facing supply chain management related risks including shortage of raw materials and the issues caused by the Ukraine conflict. HIgher costs of raw material and labor add to the operating expenses of the company and hurt the bottom line.

Changing consumer preferences:-

Consumer preferences have changed a lot since the pandemic. While people are growing more health conscious and spending more time on exercise and healthy activities, other changes have also taken place which are related to consumer behavior. People are buying more from the ecommerce channels.

Consumer expectations related to product quality and sales and service have also changed. Adidas has to address the needs of the millennials and the Gen Z mainly whose preferences differ a lot from the previous generations. Changing consumer preferences are also driving higher focus and spending on innovation for improved customer experience.

Counterfeiting:-

Counterfeits are also a major challenge before the market leading brands like Adidas and Nike. Adidas has to deal with counterfeit products in several markets. These counterfeits are available at much lower prices through unofficial retail channels. They hurt the company’s brand image and sales. However, managing the threat from counterfeits is a difficult task for Adidas.