Adidas will cut its marketing spend in the next few quarters as it attempts to mitigate the impact of the coronavirus outbreak on the business.
The sports brand kept its marketing investment stable in the first quarter at €704m (£616m) as it executed the majority of its consumer marketing and product activation during the first two months of the year. It also accelerated investments to support its ecommerce business as more countries around the world went into lockdown, forcing the closure of the majority of its stores.
However, Adidas says marketing spend will be down year on year in the second and third quarters in absolute terms, meaning a “significant” fall on a full-year basis. This is partly due to the cancellation of physical events and a reduction in endorsement spend.
But it will continue to increase investment in digital and ecommerce, and remains committed to sports marketing contracts and brand marketing.
“Overall, marketing spend will be down year on year,” says Adidas CEO Kasper Rorsted, speaking on an analyst call following the brand’s first quarter results. “[The decline] will accelerate in the second and third quarter but digital is up. Spend will be significantly down on a full-year basis.”
Despite this, Adidas says its #hometeam campaign, which it launched in response to the coronavirus outbreak, has been its “most effective ever” at engaging consumers. The campaign – the brand’s biggest ever – has used 60% of its global assets and introduced new ideas and content every day.
Adidas also says the coronavirus outbreak has accelerated a shift to digital, both in terms of its marketing and sales. Ecommerce sales were up 35% in the first quarter, up 55% in March and up triple digits at the beginning of April, as more countries went into lockdown.
“We are clearly seeing a huge business migration towards ecommerce,” Rorsted added.
To cope with that, Adidas has had to shift resources towards digital both in terms of products and the customer experience. It is also using its digital ecosystem to maintain brand awareness and awareness of product launches. For example, it is offering consumers free access to its premium running and training apps.
“We know when people engage through our apps, we have a higher conversion rate,” explains Rorsted.
The focus on costs and the shift to digital come as Adidas warns its sales may fall by up to 40% in the second quarter as the majority of its stores remain shut. In the first quarter, revenues were down 19% year on year, while net income was down 97% to €20m (£17m).
Adidas has also seen its operating margin slump, falling from 14.9% in 2019 to 1.4% in the first quarter of 2020.
Yet despite the challenges, Rorsted said he sees long-term opportunities for the brand as consumers become more interested in fitness and wellbeing, and shift online.
He concluded: “Despite the current situation, I am confident about the attractive long-term prospects this industry provides for Adidas. Consumers are developing an increased appreciation of wellbeing. They want to stay fit and healthy through sports.
“Our focus on accelerating our own-retail and digital business will serve us even better in the future. We are well positioned as a global company with strong brands.”