Link : https://canvas.newhaven.edu/courses/29266/files/5225325?verifier=2Jde8d9gX4UmvWSyja9Iz2dLDrtk0vFMG5KX7LQ9&wrap=1
Case Study: Adidas – Adidown and the Road to Recovery.
Adidas posts first loss in 30 years and warns on US (Reuters: March 13, 2024)
Introduction:
Adidas, a leading sportswear brand with a rich history dating back to 1949, has found itself in turbulent waters after parting ways with the controversial artist and business partner, Kanye West, and his highly successful Yeezy brand. The severing of this partnership, coupled with weak sales in the United States, its second-largest market, has led Adidas to report its first annual loss in over three decades. The company now faces the daunting task of regaining its footing and charting a course towards recovery.
The Yeezy Fallout:
The breakup with Kanye West, due to his controversial behavior and hate speech, left Adidas with an excess inventory worth $1.3 billion in Yeezy shoes. While the company has taken steps to donate a portion of the profits from selling these shoes to combat hate speech, the lingering effects of this separation have been significant. The loss of the lucrative Yeezy brand, which accounted for a substantial portion of Adidas’ revenue, has undoubtedly contributed to the company’s financial woes.
Weak Performance in the US Market:
Adidas’ struggles have been compounded by a 16% decline in sales in the United States, its second-largest market. This downturn is expected to continue in the current year, as the company grapples with an excess of inventory. The challenge lies in finding effective strategies to address this issue and regain consumer confidence in the US market.
The Turnaround Plan:
Bjørn Gulden, the new CEO of Adidas, has set forth a roadmap for the company’s recovery. With nearly a decade of experience at the helm of rival Puma, Gulden aims to transform Adidas into a “good company” by 2025 and a “really healthy company” by 2026. His turnaround plan, though understated, has already sparked a 55% increase in Adidas’ share price, indicating investor confidence in his leadership.
CASE DETAILS:
Below are the details of the company:
Adidown
After years in the black, sportswear giant Adidas has gone red. The German company posted its first annual loss in over 3 decades as the full effects of its breakup with Kanye West and his valuable Yeezy brand continue to hamper the apparel behemoth.
German sportswear giant Adidas (ADSGn.DE), posted its first annual loss in more than 30 years on March 13, 2024 and warned sales in North America would fall again as sportswear retailers in the U.S. struggle with high inventories.
Adidas has been battling to right itself after it cut ties with Kanye West in October 2022, suspending sales of the highly profitable Yeezy sneaker line.
In CEO Bjorn Gulden’s first year in the role, he resumed sales of Yeezy sneakers to clear remaining stock while seeking to boost popular products like Samba and Gazelle shoes, and improve relationships with retailers. Shares in Adidas have staged a recovery, outperforming Nike and Puma since he took over.
The company revealed a €14m net loss for 2023 — a far cry from the €638 million net income it notched in 2022, and even further from the €2.2 billion (~$2.4 billion) that it achieved the year before. Weak revenue in the US, its second biggest market, is driving the decline, with sales slipping 16% in 2023 — a trend that the 74-year-old company expects to continue this year as it battles with a glut of inventory.
“Although by far not good enough, 2023 ended better than what I had expected at the beginning of the year,” Gulden said.
Adidas shares were trading flat as of 1115 GMT.
This year North America will continue to be weak with Adidas expecting sales to fall by around 5% this year.
Lower demand and overstocked stores in the U.S. have weighed on sportswear and apparel companies, and Adidas said sales in North America fell by 21% in the fourth quarter and by 16% over the year.
Overall, Gulden said clearing stock through its outlet stores helped Adidas bring inventories down by 1.5 billion euros in 2023, a 24% decline.
Adidas has flagged shipment delays of two to three weeks due to the Red Sea crisis, and Chief Financial Officer Harm Ohlmeyer said on Wednesday that there could be an impact on working capital if the disruptions continue.
My beautiful dark twisted fantasy
When it cut ties with Kanye West in October 2022, Adidas still had some $1.3 billion worth of Yeezy shoes in its warehouses that it has slowly shifted over the last 15 months, donating some of the profits to fight hate speech, and the company now finds itself in a transitional period.
Soccer-player-turned-CEO Bjørn Gulden, who spent nearly 10 years at the helm of rival Puma, set out a pretty understated roadmap slogan, saying that Adidas should be a “good company” by 2025 and a “really healthy company” by 2026. Nonetheless, shares in Adidas are up 55% since Gulden took the reigns and implemented his turnaround plan.
Adidas is gambling that it can claw back market share from rivals even as consumers’ overall appetite for sportswear declines, sparking job cuts at Nike.
Adidas expects its underlying business – excluding Yeezy – to improve in 2024, with growth of at least 10% in the second half.
It has benefited from a trend for low-rise suede “terrace” sneakers like the Samba and Gazelle, and last year ramped up production. That trend helped footwear sales grow by 8% in the fourth quarter, while apparel sales fell 13%.
“Things have clearly been going in the right direction at Adidas since Bjorn Gulden took over,” said Thomas Joekel, portfolio manager at Union Investment. “Brand heat is increasing, which can also be seen from the fact that fewer products now have to be sold at a discount.”
In China Adidas expects a stronger recovery, with sales growing at a double-digit rate after an 8% increase in 2023.
Adidas last month set expectations low for its remaining Yeezy products, saying it would sell the sneakers “at least at cost”. It launched its latest drop on Feb. 26, but demand for the shoes is difficult to predict.
The Yeezy sales are “still a little bit of a wild card,” said Cristina Fernandez, analyst at Telsey Advisory Group, despite the company managing the sales successfully so far.
Adidas made 750 million euros in revenue from Yeezy sales last year, resulting in a 300 million euro profit. The company set aside 140 million euros for donations to charities fighting antisemitism and racism.
Adidas’ board will propose an unchanged dividend of 0.70 euros ($0.7650) per share on its 2023 performance despite a net loss of 58 million euros, its first since 1992.
($1 = 0.9151 euros) (As on 13 March, 2024)
Questions for Discussion:
1. Considering Adidas’ current situation, what specific strategies would you recommend to address the excess inventory challenge and revive sales in the US market?
2. How can Adidas effectively manage the transition and cultural change required to implement the new CEO’s turnaround plan? What steps should be taken to overcome resistance and foster a positive organizational culture?
3. Analyze the potential impact of the Yeezy brand separation on Adidas’ brand image and consumer perception. How can the company rebuild its brand identity and regain consumer trust?
4. What organizational structure would you recommend for Adidas to support its recovery efforts? Should the company consider a more centralized or decentralized approach, or perhaps explore alternative organizational designs?
5. Discuss the role of effective leadership in Adidas’ turnaround journey. What leadership styles and qualities would be most suitable for navigating the company through this challenging period?
6. How can Adidas leverage its strengths and core competencies to differentiate itself in the highly competitive sportswear market? What unique value propositions or innovations could the company explore to regain its competitive edge?
References:
https://www.reuters.com/business/retail-consumer/adidas-warns-2024-sales-decline-over-stocked-north-america-market-2024-03-13/
https://www.sportico.com/business/commerce/2024/adidas-earnings-q4-north-america-revenue-falls-1234770597/
https://www.france24.com/en/live-news/20240313-adidas-reports-2023-loss-on-kanye-fallout
https://www.reuters.com/business/retail-consumer/adidas-puma-bet-terrace-sneaker-trend-tough-market-2023-07-25/
Dear Students,
As we have covered various aspects of management and organization throughout our course, it’s time to apply these concepts to a real-world case study. In this case, we will examine the recent challenges faced by the sportswear giant Adidas and how the company can leverage the principles we’ve learned to navigate through this challenging period.
Applying Management Concepts:
As we analyze this case study, we can draw upon various management principles and theories covered in our course to devise potential solutions and strategies for Adidas. Here are a few areas where the concepts we’ve learned can be applied:
1. External Environment Analysis (Chapter 3):
Conduct a thorough analysis of the external environment, including economic, social, political, and technological factors, to identify opportunities and threats. This analysis can help Adidas adapt its strategies to address changing consumer preferences, market trends, and competitive landscapes.
2. Change Management (Chapter 4):
Implement effective change management practices to navigate the organizational transformation required for Adidas’ turnaround. This includes fostering a culture of innovation, managing resistance to change, and ensuring smooth transitions during the implementation of new strategies and initiatives.
3. Strategic Planning (Chapter 5):
Develop a comprehensive strategic plan that aligns with Adidas’ vision and goals. This plan should consider the company’s strengths, weaknesses, opportunities, and threats (SWOT analysis) and outline specific objectives, strategies, and action plans for achieving success.
4. Organizational Structure (Chapter 6):
Evaluate Adidas’ organizational structure and make necessary adjustments to support the company’s new direction. This may involve restructuring departments, realigning reporting lines, or implementing a more agile and responsive organizational design.
5. Human Resource Management (Chapter 7):
Engage in effective talent management practices to attract, retain, and develop the right employees needed to drive Adidas’ recovery. This includes fostering a positive company culture, providing training and development opportunities, and implementing performance management systems.
6. Team Building and Leadership (Chapters 8 and 11):
Cultivate strong teams and effective leadership at all levels of the organization. Encourage collaboration, communication, and shared responsibility, while providing clear direction and inspiration to motivate employees towards achieving common goals.
7. Motivation and Behavior Management (Chapters 9 and 10):
Understand and address the factors influencing employee motivation and behavior. Implement strategies to foster a positive work environment, recognize and reward achievements, and align individual goals with organizational objectives.
8. Monitoring and Control (Chapter 12):
Establish robust monitoring and control systems to track progress, identify deviations from plans, and make necessary adjustments. This includes setting performance metrics, conducting regular evaluations, and implementing corrective actions to ensure Adidas remains on course towards its recovery goals.
Through this case study and the accompanying questions, we can apply the management concepts and theories learned in our course to a real-world scenario. By analyzing Adidas’ challenges and proposing potential solutions, we can deepen our understanding of effective management practices and develop critical thinking skills essential for future leaders and decision-makers.
