Adidas’ clamp down on discount retailers is about protecting brand legacy

Adidas’ refusal to supply Sports Direct with Chelsea replica kits next season is an attempt to distance itself from “pile it high sell it cheap” apparel sold by discount retailers as it pushes to assert its brand desirability during a competitive World Cup year against Nike.

AdidasChelsea-Campaign-2013_460
Chelsea is one of three clubs premier clubs Adidas sponsors in Europe alongside Baynern Munich and Real Madrid.

The sportswear maker is understood to be demanding more from retailers in terms of minimum requirements around branding, range and pricing in fear of the brand being eroded by value retailers and poor in-store experience. It is said to be pulling back from retail partners it believes are not supporting the brand, something Adidas expressed concern about over its dealings with Sports Direct.

The decision is focused on establishing both the price point and brand associations for Adidas’ key products ahead of the World Cup, which it has predicted will deliver record football sales of more than €2bn (£1.7bn) in 2014. The row with the retailer has reportedly escalated since it was first announced last week (13 December) with the sportswear maker threatening to pull Argentina, Germany and Spain football shirts from shelves.

Adidas said of the Sports Direct decision: “Like all manufacturers, we regularly review, season by season, where our products are distributed. We determine distribution channels for all products based on criteria such as in-store environment and customer service levels. This season, we’re implementing a new distribution strategy across Europe for key products in football and other sports.”

The strategic shift is supported by Adidas developing retailer programs with outlets such as JD Sports and Footlocker, which both operate at the more premium end of the retail sportswear market. It is running separate festive campaigns with both companies ahead of exclusive promotions for its Boost and Adidas Originals ranges next year.

Adidas has ben hinting at major changes to its distribution strategy since 2012 when it banned sales of its products on Amazon and eBay in the hopes of gaining greater control over how its products are marketed and sold online. The company’s declining fortunes in recent months in contrast with Nike’s record sales has put added pressure on its efforts to grow its retail footprint.

Industry experts say the German company’s decision to pull away from discount retailers could be “strategically beneficial” in the run-up to next summer’s tournament in Brazil but warned it needs to avoid pushing some fans away to its rivals with “overpriced products”.

Nicola Marsh, research manager at consumer insight firm River Research, says: “Consumers are moving away from discount and value offerings, and are seeking something more aspirational. Adidas joins brands like Burberry and Tesco in altering their retail strategies to capitalise on this trend. Supporters will be prepared to increase their investment to identify themselves with their teams. Also, the quality of shopping experience in buying their team’s kit for the event will also have a lasting impact on consumers’ relationship with the brand.”

Kelly Williams, director of consulting at sports marketing agency Sports Revolution, adds: “Customers of Sports Direct accept the market stall environment as part of getting a good deal. If Adidas commit to fair pricing, and insist on better customer service in a negotiation to sell shirts then it’s a win win for the end user who probably just wants to support a team around the World Cup and not be forced to buy shirts at top whack.”

The changes come ahead of Adidas plans to update its ecommerce offering in 2014. It expects online sales to play a key role in its target – dubbed “Route 2015” – to generate global sales of €17bn (£14.4bn) by 2015.

With Adidas limiting all sales to preferred retailers and franchised sites, the brand is making a bold statement about its strong sporting heritage. However, what remains to be seen is if making the change quite so political may turn out to be a little short-sighted.

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