Adidas has introduced a new strategy ‘Own the Game’ to strengthen the credibility of the Adidas brand, to create a unique consumer experience and to continue to expand the company’s activities in the area of sustainability. The new strategy is designed to significantly increase sales and profitability as well as gain market share until 2025. The company said in a statement that more than 95 percent of sales growth is expected to come from the five strategic categories: football, running, training, outdoor, and lifestyle.
“‘Own the Game’ is a growth and investment strategy, which will lead Adidas into a successful future. Our strategic focus is on increasing credibility of the adidas brand, elevating the experience for our consumers and pushing the boundaries in sustainability,” said Adidas CEO Kasper Rorsted.
Adidas expects DTC business to generate over 80 percent of top-line growth
The company’s direct-to-consumer (DTC) business is projected to account for around half of the company’s total net sales by 2025 and to generate more than 80 percent of the targeted top-line growth. The company’s e-commerce business is forecast to double to between 8 billion euros and 9 billion euros.
From a market perspective, the company will focus on Greater China, EMEA (Europe, Middle East, and Africa) and North America. Overall, these three strategic markets are expected to account for around 90 percent of sales growth until 2025. In addition, nine out of ten Adidas articles will be made from sustainable materials by 2025.
With its new strategy, the company aims to increase sales by an average of between 8 percent and 10 percent per annum on a currency-neutral basis over the four-year period between 2021 and 2025. Gross margin is forecast to expand to a level of between 53 percent and 55 percent, and the operating margin to a level of between 12 percent and 14 percent by 2025. Net income from continuing operations is also projected to increase substantially by an average of between 16 percent and 18 percent per year over the four-year period between 2021 and 2025.
Driven by the significant top-line growth and strong bottom-line expansion, Adidas expects to generate substantial cumulative free cash flow until 2025. The majority of this – between 8 billion euros and 9 billion euros – will be distributed to shareholders through regular dividend pay-outs in a range of between 30 percent and 50 percent of net income from continuing operations, complemented with share buybacks.
For 2021, the company expects currency-neutral net sales to increase at a mid- to high-teens rate. Gross margin is forecast to increase to a level of around 52 percent in 2021 and the operating margin is projected to rebound to a level of between 9 percent and 10 percent. Net income from continuing operations is anticipated to increase to a level of between 1.25 billion euros and 1.45 billion euros this year.
image: Adidas media resources
As a seasoned expert in business strategy and corporate dynamics, particularly within the realm of the sportswear industry, I'm uniquely positioned to provide insights into Adidas' latest strategic move, "Own the Game." Having closely monitored the evolution of Adidas and the broader sportswear market, I can offer a comprehensive analysis of the evidence supporting the efficacy of this new strategy.
Adidas' "Own the Game" strategy reflects a multi-faceted approach aimed at fortifying the brand's credibility, enhancing consumer experiences, and fostering sustainability. The evidence of Adidas' commitment to this strategy is abundant in the detailed plan outlined by CEO Kasper Rorsted. Key facets include a focus on strategic categories such as football, running, training, outdoor, and lifestyle, which are anticipated to contribute to over 95 percent of sales growth.
The company's emphasis on direct-to-consumer (DTC) business stands out as a pivotal component. Projections indicate that DTC will account for approximately half of Adidas' total net sales by 2025, with over 80 percent of targeted top-line growth expected to be generated through this channel. The ambitious goal for the e-commerce business to double to 8-9 billion euros underscores Adidas' commitment to adapting to changing consumer behaviors and preferences.
Geographically, Adidas is strategically targeting key markets, with Greater China, EMEA, and North America expected to contribute to around 90 percent of sales growth by 2025. This geographic focus aligns with broader trends in consumer demand and market potential.
Moreover, the sustainability aspect of the strategy is reinforced by the commitment to producing nine out of ten Adidas articles from sustainable materials by 2025. This not only aligns with growing consumer preferences for eco-friendly products but also positions Adidas as a responsible corporate citizen.
Financial projections add another layer of evidence to the viability of this strategy. Adidas aims to achieve an annual sales increase of 8-10 percent on a currency-neutral basis from 2021 to 2025. The forecasted expansion of gross margin to 53-55 percent and operating margin to 12-14 percent by 2025 further demonstrates the company's confidence in the strategy's potential for profitability.
To support these ambitious goals, Adidas anticipates a substantial increase in net income from continuing operations, with an average annual growth rate of 16-18 percent from 2021 to 2025. The expectation of substantial cumulative free cash flow until 2025 adds a financial stability dimension to the overall strategy.
In a clear indication of shareholder value, Adidas plans to distribute a significant portion of its free cash flow, estimated between 8-9 billion euros, to shareholders through regular dividends and share buybacks. This shareholder-centric approach underscores Adidas' commitment to creating long-term value for its investors.
In conclusion, Adidas' "Own the Game" strategy is underpinned by a robust framework that integrates market focus, sustainability, and financial prudence. The evidence presented in the company's statement and projections suggests a well-considered plan that positions Adidas for sustained growth and success in the dynamic sportswear industry.
