Adidas ramps up marketing spend after trimming profit forecast
Adidas is pumping more funds into day-to-day marketing and retail channels across all its sporting categories after warning it will miss profit margins for the year.
The sportswear brand cut its full-year target today (7 August) just a week after revealing poor demand for its golf products and low sales in Russia had forced it to lower its sales forecast. It now expects gross margin to come in at between 48.5 per cent and 49 per cent, down from a previous forecast of 49.5 per cent to 49.8 per cent.
Additionally, the business scrapped its operating margin goal of 11 per cent, still below the 13 per cent posted by Nike for the year to May. Group revenues were better than expected but still down by 2 per cent to €7bn in the first half of the year.
Adidas said marketing spend would increase “modestly” compared to last year to hit the revised margins, which could push investments for the next 18 months beyond the €2bn barrier for the first time in several years. The adjusted guidance comes as poor demand for its golf products and low sales in Russia forced the business to scrap its long-term bid to generate €17bn sales in 2015.
Herbert Hainer, Adidas chief executive, promised “swift” action to rectify the shortfalls. A new marketing structure was implemented last week (1 August) that aligns innovation more closely with communication, a move the company said will drive faster decision-making and yield better targeted campaigns.
Hainer adds: “It is with disappointment that after such a great summer of sport, I have to report that our group has not been able to meet the high expectations we laid out in our Route 2015 agenda. We take full responsibility to rectify our shortfalls swiftly. For the remainder of 2014, our priority is to sustain the momentum we have in key categories and markets, and take corrective steps to bring more stability to our future earnings.”
Adidas plans to use World Cup success, which saw it hit its €2bn (£1.6bn) sales target, as a launch pad to drive faster growth rates and market share gains, particularly in developed markets such as North America and Western Europe. It is rolling out a campaign to promote the 20th anniversary of its predator boot and is set to launch a more integrated push around the upcoming Champions League.
The increased marketing spend could see Adidas bring forward campaigns for its running products, particularly its Boost brand. The category is considered key to future growth with the company looking to exploit consumers leading healthier lifestyles.
The business also said it would stand by plans to drive sales from its own retail outlets, which rose 22 per cent to 1.75bn in the first half of the year. Despite almost two-thirds of sales coming from third party retailers, Adidas has been rapidly expanding its own offering to enhance its premium credentials through carefully-crafted in-store experiences, which include Wi-Fi stations and tablet devices.
