By Ellen Emmerentze Jervell
HERZOGENAURACH, Germany-- Adidas AG is betting on ramping up its
presence in New York, Los Angeles and another four of the world's
most fashionable cities to kick-start earnings growth in the next
five years and recoup ground lost to arch rival Nike Inc.
Facing criticism from investors for its recent subpar
performance, the German company, the world's number two sporting
goods company behind Nike, said on Thursday that it aims to lift
net profit by 15% a year through 2020. The promise follows two
recent profit warnings as sales fell short of management
expectations.
Central to Adidas's growth strategy is a decision to
"over-proportionally" invest in talent and marketing in
metropolitan areas around the world, focusing on Los Angeles, New
York, London, Paris, Shanghai and Tokyo.
"If we win running in New York and Los Angeles, we will win
running in the U.S.," Roland Auschel, head of global sales at
Adidas, said at a presentation of the new plan on Thursday.
Adidas has also vowed to speed up how quickly it brings new
products to market and invest more in its core brands, particularly
in the U.S. The company wants to open 55 new stores in the U.S. in
the next 2 1/2 years. It has 30 today.
The strategy should allow the company to outperform the sporting
goods industry with a "high-single-digit rate" of revenue growth
for each of the next five years, Adidas said.
"We will accelerate our growth story and deliver superior
returns to our shareholders," Chief Executive Herbert Hainer
said.
Adidas has suffered a number of setbacks lately. The company has
a large presence in Russia where slowing economic growth and the
plummeting value of the ruble have crimped the country's
contribution to Adidas's results. Waning popularity of golf has hit
sales at its TaylorMade-Adidas golf unit hard.
Mr. Hainer has also struggled to rebuild the company's position
in North America, the world's most important market for sneakers.
According to Sterne Agee and SportScanInfo, Adidas' share of the
U.S. retail market share fell to 7% in 2014 from roughly 18% in
2006.
The previous five-year strategic plan announced in 2010
anticipated sales growth of more than 45% to EUR17 billion ($18.65
billion), but Adidas jettisoned that target last year.
Adidas's fall from grace follows a decade in which the
sporting-goods company looked invincible. Mr. Hainer became known
as a focused and business-minded leader, reporting year-over-year
sales growth of up to 20%. The company's share price more than
quadrupled between 2002 and 2014. In March last year, Mr. Hainer's
contract was extended until 2017.
Then his winning streak ended. The Adidas stock price tumbled
40% last year as management issued two profit warnings and slashed
financial targets for 2014 and 2015. .
Some Adidas investors have questioned Mr. Hainer's leadership
and recently pushed for his departure. Adidas said last month that
it had started looking for his successor.
"Mr. Hainer hasn't delivered what he promised," said Ingo
Speich, a fund manager at Adidas shareholder Union Investment. "The
new strategy will only be credible with a new leadership."
Mr. Hainer said Thursday he recognized that Adidas had
disappointed investors but would "come back even stronger than
before."
As part of the new five-year strategic business plan, named
"Creating the New," Adidas said it would respond to consumer trends
immediately and push out new products in-season. In a few years,
Adidas aims to use purpose-built machines to create personalized
products instantly in its stores. It also plans to quadruple
e-commerce revenue to more than EUR2 billion by 2020.
As for the U.S., Mark King, Adidas's North American CEO, said
the company wants to increase its market share to 15% by 2020.
Adidas had gotten out of touch with U.S. consumers recently
after having "underinvested" in the region, Mr. Hainer
acknowledged.
Adidas, which won't be renewing its partnership with the
National Basketball Association when the contract expires in 2017,
said that it would remain focused on U.S. sports and run ad
campaigns in every consecutive quarter for the next three years.
The roll out of new outlets in the U.S. will include five flagship
stores.
Earlier this month, Adidas reported 2014 net profit of EUR490
million, down from EUR787 million the year before on sales worth
EUR14.5 billion.
Write to Ellen Emmerentze Jervell at ellen.jervell@wsj.com
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