Of all Kasper Rorsted’s ambitious goals for Adidas, this is the crucial one: hitting €4 billion in annual revenue from Adidas’s online stores within two years. That would be a four-fold increase over online sales in 2016, when the Dane took over as CEO.
To make this happen, Mr. Rorsted’s e-commerce team began developing a new smartphone app 18 months ago. Since it launched in the United States and Britain last fall, more than one million customers have downloaded the “Adidas Sports & Style” app, which offers Adidas customers highly personalized offers and content. The hope is that these app users will eventually buy some of the sport shoes, t-shirts and baseball caps shown.
The online expansion should raise Adidas’ profitability, which has been historically lower than Nike’s profit margin. The German version of the app soft-launched last week and a massive ad blitz is on the way, Handelsblatt has learned. It is also available in France, Spain and Canada, and more markets will follow.
Adidas, which also owns the Reebok brand, already has an app called Runtastic. It advises people on their workouts and diets. Rivals have also launched similar programs, including Puma’s Pumatrac app, Nike’s Training Club and Under Armour’s Record and MapMyFitness. The apps could tie customers to brands and generate lucrative sales. Products sold on the web typically have much higher profit margins than those sold in stores.
Boosting digital revenue is crucial to reach Adidas’ enthusiastic earnings targets in 2020 (see graphic above). It should also help lift operating margins to 11.5 percent by 2020, almost two percentage points up on last year. The strategy is spearheaded by Mr. Rorsted, who was brought over to Adidas in 2016 after he successfully raised profitability at his previous employer, German detergent and glue maker Henkel. At Adidas, he has so far managed to increase the brand’s popularity in the US and was able to show an online revenue increase of more than 50 percent last year.
The digital push, however, does not come cheap. Adidas is investing massively in a chain of new logistics centers: it built two enormous warehouses last year, one in Germany and one in China, and a third one will be completed in Pennsylvania this year. If web sales don’t grow, these investments will hurt the sports shoe maker’s bottom line.
The online focus could also backfire for another reason: Experts warn against losing sight of in-store sales. “Online is the big growth area for sports manufacturers, but they mustn’t neglect brick-and-mortar stores,” said Mirko Warschun, consumer goods specialist at consultants AT Kearney.
Adidas still runs 2,500 stores of its own, along with 13,000 franchise stores. Around 150,000 shops stock its brand worldwide. Mr. Rorsted must be aware that not everyone is a fan of online shopping – especially on a small screen.
Joachim Hofer covers the sports, leisure and IT sectors for Handelsblatt. To contact the author: [email protected]