Adidas weans itself off discounting amid ‘better than expected’ performance

Adidas has admitted it has a “long way” to go on the performance of its brand and business, after a year weighed down by discounting.

Reporting its 2023 results today (13 March), the sportswear brand posted its first annual loss in more than three decades. The business suffered a net loss from continuing operations of €58m (£50m), while net sales on a currency neutral basis were flat year-on-year.

These results represent “better than expected” performance for Adidas in what had been anticipated to be a difficult year. The brand has had to face struggles with its Yeezy line after it cut ties with rapper Kanye West over anti-Semitic comments and faced a dilemma with what to do with stock.

Back in May, CEO Bjørn Gulden warned of a “bumpy” year ahead for the brand. At the outset of the year, it had expected an operating loss of €700m (£598m) for 2023. Today, it reported an operating profit of €268m (£229m), which is around €1bn (£854m) better than initially expected.

I can swear to you that you shouldn’t be worried that we will do anything to get growth that will take brand equity away.

Bjørn Gulden, Adidas

Despite this progress, Gulden acknowledged Adidas has a “long way to go” towards becoming a truly “healthy” business.

Speaking to investor, the Adidas CEO said the business had been weaning itself off discounting, despite a promotional environment. Elevated promotional activity weighed on Adidas’s gross margins at the beginning of the year. However, by the final quarter the business had significantly cut levels of discounting.

Adidas took the action “to lay the foundation for a better 2024”, it said.

Gulden indicated the company had continued its low level of promotional activity in the first few months of 2024, with discounting rates in the single figures. He added this rate was, if anything, “maybe too low, to be honest”.

After a year where promotional activity was higher than Adidas would have liked, Gulden sought to assure investors the business would not overly lean on the tactic in 2024. Brand equity will be a priority, he stated.

“I can swear to you that you shouldn’t be worried that we will do anything to get growth that will take brand equity away,” he said.

Driving ‘brand heat’

At the beginning of 2023 Adidas was thought of by some as being a weak brand lacking in innovation, Gulden said.

However, despite its challenges, the CEO claimed the sportswear brand has demonstrated those assertions wrong with innovations and plenty of “brand heat”.

He cited the popular casual “terrace” style trainers as an example of where Adidas is seeing that heat, with ranges like Gazelle and Samba proving popular in the year.

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That said, the business reduced marketing spend as a percentage of sales in 2023. Marketing and point of sales expenses reduced from representing 12.3% of sales in 2022 to 11.8% last year.

This is a lower spend as a percentage of sales than during the last five years, but does not represent a reprioritisation of marketing, Gulden claimed. Instead, it signifies less major sporting events in the year.

“When it comes to marketing, the strategy is to be visible in sports,” he added.

The company intends to be present in all sports, including smaller sports outside mainstream sports like football. Adidas indicated it will increase its marketing spend this year with the Euros and Olympics on the horizon, in a bid to continue building “brand heat”.