Kanye West's Yeezy trainers are some of the hottest around right now. But Adidas, which produces them, just isn't fashionable enough.
On Monday, the company said CEO Herbert Hainer will step down early, to be replaced by Kasper Rorsted, head of German consumer group Henkel, maker of Dial soap and Schwarzkopf shampoo.
Rorsted, no fashion expert, faces a battle on three fronts.
First is the dominance of Nike, whose $30 billion of annual revenue dwarves Adidas's $19 billion. On the other flank is upstart Under Armour, whose quarterly revenue, while far smaller, is growing at 25 percent year-on-year, according to data compiled by Bloomberg. Then there are those pesky Athleisure brands, like Lululemon, which sell sportswear as everyday apparel. They're nibbling away at Adidas's female customers.
To help defend its position, Adidas should borrow a trick from fast fashion retailers like Zara and Hennes and Mauritz. Instead of deciding what's going to sell and then pushing it out to sportswear distributors and its own stores, Adidas needs to learn to supply more of the best-sellers and cut back on what's not working -- and do this within weeks. Adidas already has already tried the technique with its fashionable Neo brand, but should expand this initiative.
That should allow Adidas to cut back on the discounts it has to offer on slow-sellers and help it to revive margins. Rorsted did just that at Henkel and he needs to repeat the trick. At 10.6 percent, Adidas's operating margin trails Nike's 12 percent and Under Armour's 14.2 percent, Bloomberg data show.
At Henkel, Rorsted closed factories and slashed costs. There is scope for all this at Adidas, as well as disposals. The company is already seeking a buyer for TaylorMade, its golf business.
Rorsted may also consider a sale of Reebok, which generated about 1.8 billion euros ($2 billion) of annual revenue, 13 percent of the total. It looks an obvious disposal candidate, but a sale would bring the risk that Reebok would fall into the hands of an owner which could transform it into yet another challenger. Keeping Reebok would allow Adidas to develop the brand's women's athleisure business.
Rorsted rewarded Henkel shareholders, delivering annual returns of 21 percent returns under his tenure, compared with the benchmark CDAX index's 6 percent return. Henkel fell 3.9 percent on Monday, while Adidas surged as much as 12 percent.
He has a good chance of executing the type of operational changes that eluded Adidas's outgoing management. That's something that's always in vogue.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
(Corrects spelling of Armour in third chart)
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