Adidas, the German sportswear giant, has released its Q3 earnings report which showed that the company’s net income declined 1% from last year. This news comes as Adidas’s partnership with celebrity rapper Kanye West has been dissolved, and the company has experienced a slump in sales in China.
Adidas had announced its collaboration with Kanye West, a hip-hop artist and entrepreneur, in 2013, in an attempt to revive the brand’s popularity in the United States. West created the Yeezy line under his name for Adidas, which included footwear, clothing, and accessories. The sneaker line, in particular, was a hit among sneakerheads, causing the shoes to sell out within minutes of their releases. However, in recent years, there were rumors that the collaboration had begun to sour, and it was later confirmed that the partnership had come to an end.
The breakup with Ye has come as a significant blow to Adidas’s fashion and lifestyle segment. Though the brand is known for its top-of-the-line athletic wear and shoes, it was hoped that the Yeezy line would attract consumers outside of the typical sports enthusiasts. Adidas had invested a lot of money in the partnership, and while the Yeezy line did prove to be popular, the business model did not seem sustainable.
Moreover, the slump in sales in China has added to Adidas’s woes. The sportswear company had been doing well in the Chinese market, with sales growing at a remarkable pace over the past few years. Adidas had taken bold steps in the Chinese market, by opening new stores, building new partnerships, and introducing new products to cater to China-specific tastes. However, in the third quarter of 2021, Adidas’s sales shrank by 6% year-on-year in Greater China, signaling a setback for the brand.
The dramatic dip in earnings in the Chinese market can be attributed to a host of factors. Firstly, the COVID-19 pandemic has played a significant role in reducing people’s buying power in China. With many people losing their jobs or facing salary cuts, they have been more frugal with their spending. Another factor is the increasing competition from other sports brands, such as Nike and Puma, which have been making inroads in the Chinese market. Their aggressive marketing campaigns and innovative products have attracted Chinese consumers away from Adidas.
In addition to these external factors, Adidas’s pivot towards sustainable fashion also seems to have a role to play in its decline in China. The brand has been promoting environmentally friendly initiatives, such as using recycled materials and minimizing waste, which is laudable. However, many Chinese consumers pride themselves on sporting luxury brands, and they may not be as sensitive to the sustainability issue as their Western counterparts. This is particularly relevant in the sneaker game, where Chinese consumers will pay a premium for a hard-to-find or rare sneaker, regardless of its sustainability.
What’s more, social media gossip has claimed that Adidas executives have been under-staffing their presence in China, limiting their ability to face off against competitors. The company has since issued a statement that it has 600 employees in China, including senior executives for Shanghai and Beijing, and the company is actively looking for other talented people to join the team.
Adidas has tried to regain its edge in China with targeted marketing campaigns, new styles of footwear, and signing new athletes to showcase its products. However, the challenges it faces are considerable, given the changing attitudes of Chinese consumers, new competitors vying for the same market share, and the economic climate globally.
Moving forward, Adidas will need to find a way to re-establish itself in both China and the United States. The dissolution of the partnership with Kanye West offers the company the opportunity to re-evaluate its strategies without being reliant on a single line. It can focus on its core strengths, creating high-quality sportswear and footwear that meets its customers’ needs. In terms of China, Adidas needs to overcome the challenge of competing with Nike and Puma as they are equally focused on bringing high-quality sportswear and footwear to the Chinese market while also promoting sustainable environmentally friendly products. The company will need to find a way to set itself apart from these competitors and capture the imaginations of Chinese consumers to regain its position as a top brand for sportswear and sneakers.
In conclusion, Adidas’s recent Q3 earnings report has highlighted the challenges the brand faces in both the United States and China. The breakup with Kanye West and the declining sales in China are both setbacks for the company, underscoring the need for Adidas to refocus its strategies and realign its resources. It will require healthy doses of creativity, innovation, and investment for Adidas to return to its former glory and satisfy its stakeholders’ expectations.