After eight years of double-digit earnings growth, revenue from the adidas brand is tipped to decline this year. Cost-cutting measures - including a hiring freeze, reduction in travel and external consultant expenses - are already underway across the organisation.
There has been some retrenchment in its marketing team, particularly at Reebok (which recently handed its business to DDB, see page 3), where, globally, 300 jobs have gone.
In fairness, adidas’ bleak outlook for the year reflects the difficult retail environment in many major markets.
This year, the sports apparel industry will be hit by the double whammy of a global economic downturn and a year without any major sporting events, such as the Beijing Olympics, which spurred demand last year. Rival Nike too has been forced to make cost cuts, including 1,400 jobs.
The full extent of the new directive from adidas’ HQ won’t be clear until mid-April. Just how far-reaching it is remains to be seen. All we know for certain is that there will be a shift of focus from global and a simplification of processes, with a senior adidas executive describing it as “nothing sensational”.
Rumours, unsurprisingly, have been circulating in recent weeks, both within the sports brand’s marketing team and its agencies. One in particular suggests that adidas’ global bosses have been mulling significant reductions in spend in key Asian markets - China, in particular.
Which perhaps isn’t all that surprising once you begin to calculate what adidas must have spent in the mainland market leading up to the 2008 Games in Beijing.
For the sponsorship title itself, it paid an unusually high price of about US$100 million in cash. Then there was the retail expansion and all necessary advertising surrounding the event. All of which could only have cut into the bottomline.
So, is adidas now paying for its pricey Olympic sponsorship?
That really depends on how the Olympic sponsorship return is calculated. But it’s worth looking at the non-sponsors of the Games. A particular thorn here is local brand Li Ning, which wasn’t an official sponsor but hijacked adidas’ limelight when its founder (in what can only be described as an incredible piece of state-sponsored ambush marketing) lit the Olympic flame at the opening ceremony.
Adidas may have paid millions to be an official Olympics sponsor, but Li Ning made $30 million on its share price and gained an estimated $20 million of global media exposure in the three short minutes when he lit the flame.
Another sweetener came last week when it revealed that its profit grew 52 per cent to Rmb 721 million (US$105 million) in 2008, with shoe sales up 60 per cent.
Li Ning wasn’t the only non-sponsor sports brand to benefit. Cash-rich Anta, a major domestic competitor to Li Ning, has also seen revenues climb (by 55 per cent) on the back of the Games.
Like adidas, the Chinese pair will be hit by rising costs this year. However, their retail expansion strategies, which have focused on the second- and third-tier cities, should hold them in good stead.
At a time when multinationals are cutting back on their international marketing expenditure, these Chinese companies, somewhat insulated in their domestic markets, appear to be shrugging their shoulders at the global economic downturn.
Indeed, for those that continue to invest, this slowdown could be exactly the opportunity they need to gain share.
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