Adidas and Nike have been in competition since the beginning. Both companies sell similar products, including shoes, clothing, athletic equipment and many more things in the sporting world. As a result they are selling to the same target market, and customers have to make the choice based on what they are purchasing. They both are very popular and have a huge customer base. They are constantly competing every year for sales and are always trying to top each other. They each are so well managed and have such developed business techniques that it might seem hard to improve more than they already are. Nike might be more popular in America but Adidas has a strong grip in Europe, and has rarely shown signs of weakness.
However recently Adidas has been struggling to keep pace with the retail powerhouse that is Nike. Third quarter sales for Adidas did not meet projections, and this set off alarms for management. Adidas golf alone has gone down 29% from this time last year, which is over 180 million dollars. To combat this Adidas has vowed to drastically increase inventory management. The company is on a mission to keep surplus stock down to combat holding costs. Analysts claim that if they can cut surpluses it will turn company earnings back towards projections.
Adidas is especially worried about their golfing line because of how expensive it is and how quickly new products are developed. If anyone has ever shopped for golf clubs you will know how crazy expensive they can be. We are talking about a thousand dollars for a good set of clubs. Customers constantly want the newest and most high tech clubs available. So if they are overstocked on a certain set of golf clubs and a new and improved set is released, it now becomes much harder to sell the surplus and they could be stuck losing value the longer they hold them.
They even decided to “not chase sales” for the second half of 2014 in attempt to focus more exclusively on their inventory management. They are trying to reduce inventory to further increase profit. Better inventory management gives Adidas the flexibility to react quickly to market sentiment, and adjust to the popularity of certain items over others. If they have less quantity of a unpopular product in their inventory then it minimizes potential loss on unsold goods.
Adidas is confident that increased inventory management will grow sales and margins in 2015, especially in their golfing department, returning them to profitable levels.
Do you think Adidas made a smart decision to step away from emphasis on sales to focus more on inventory management?
Will better inventory management allow them to surpass Nike?
How important do you think inventory management is for companies like Adidas and Nike?
Sources:
http://seekingalpha.com/article/2660085-adidas-addyy-ceo-herbert-hainer-on-q3-2014-results-earnings-call-transcript
http://blogs.wsj.com/source/2012/11/08/adidas-is-fast-catching-nike-in-china/
http://www.wallstreetdaily.com/2014/11/11/adidas-nike/
Interesting post. I didn’t know Adidas sold golf apparel and clubs. In response to your discussion questions, I believe that Adidas did make the right move to step away from the emphasis on sales and focus on inventory management. Once they can create a great product and enhance their inventory management then the sales will increase itself. You cannot go the other way around. I believe the inventory management will leave adidas better off, but I do not see them passing nike. Nike is too large and too successful and it seems like adidas has the larger market share for sports apparel. I believe inventory management is very important for companies like these. They produce tangible goods therefore inventory management has to be a priority for these companies because the inventory is the exact products they sell.
I think that Adidas is going to have a hard time in the golf market because it seems like Golfers generally like golf-only brands with the exception to Nike. Yes, both Nike and Adidas are both very well-known brands. However, when you think of Nike I think all sports Baseball, Football, Basketball, Running, Soccer. When I think Adidas I do not think of the big 3 sports I mentioned. I really only think running, soccer, shoes, and outerwear. Adidas before diving into the Golf community needs to focus on making themselves a more every sport brand. Nike got away with it because it is probably the most popular brand on earth. In my sports management class last night for our final project we had to analyze a company and one group did Nike. One member of the group at the beginning of the presentation and asked “who is wearing something Nike?” and half the class raised their hand. Then he asked, “who is wearing something Adidas?” and only a select few hands were raised. Therefore I think Adidas needs to do a little more before they continue these operations.
I think that is a interesting and effective strategy to pursue and it seems like it’s working out well for Adidas. Like you said Nike has a hold on the American sports apparel and accessories market but recently it seems that Adidas is focusing on something different. While they still sell sports apparel I’ve seen and increase of them marketing their streewear apparel. With more creative and stylish designs they’re capitalizing on the young streestyle market, standing alongside companies like The Hundreds, Mishka, and Obey. It’s a smart move to focus more on their inventory, by doing that they reach a new market and thereby increase sales.
I think Adidas shifting focus from sales to inventory is Adidas giving up the fight to Nike. Most athletes do not choose to buy Adidas or Nike gear because one is cheaper than the other, they buy it because an athlete wears it or other people think its cool. Athletes may buy one or the other because they think it will help them perform better. If a person’s main concern is cost when choosing what to athletic gear to wear, they will choose a brand like Reebok. I do think Adidas can excel at being the coolest, fairly priced athletic wear, but without a sales focused approach, I do not think Adidas can be #1 in athletic wear.
I believe that Adidas should indeed focus on the inventory management but not overlook the emphasis of sales. Inventory management is only a cost center and Sales are a revenue center and here we are talking about two different things which are still strongly interlinked. From a personal experience, and based on the facts stated in the post, to surpass Nike, Adidas should first focus on the design and innovation made in their Golf brand. Globally Adidas is a well reputed brand which can easily gain customer confidence hence the barrier seems that they should only offer a new product. Given that strategy as a start, the need to do a proper forecasting for demand (and not sales) arises in order to put a more effective framework for inventory management. Definitely Adidas should take advantage of the scale of the company to reduce costs across the supply chain of the Golf line. Not doing so, Adidas will take a great risk in increasing its obsolete inventory and causing costs that would deteriorate the bottom line of the company.
It would also make sense to me that Adidas tries to sponsor the top players in the world as part of their marketing strategy in order to boost sales and increase customer awareness about their products.
Companies like Adidas and Nike will have definitely to keep their inventory at watch. The inventory could be their biggest asset on their balance sheet which life cycle might not extend beyond the length of 6 month.
I believe that Adidas is in an aggressive competition with Nike and not emphasizing on sales is not an option at this stage, giving the fact that both companies are targeting the same market, any slackness in sales for Adidas can be quickly absorbed by a very solid competitor like Nike therefore, stepping away from emphasis on sales could harm Adidas even more, but Adidas is doing a great job on targeting their inventory management because at this scale having a better control over their cost center (inventory) would save them a significant amount of resources and improve their financial health drastically.
By having more control over inventory, Adidas would be able to reduce MUDA, which in a competitive market like this would be a competitive advantage allowing Adidas to surpass Nike.
Inventory management is an essential tool at this level and using it efficiently will allow Adidas to benefit more from its small margin comparing to Nike but still this strategy will not have a direct influence on increasing their sales. Adidas will be better off implementing the 3 A’s in their inventory management which are being Adoptive to more new trends, Align with the market, and Agile to the environment.
Giving the fact that both: Adidas and Nike are well known brands with huge customer base, there have always been an aggressive competition between them. From my personal point of view, I think Adidas made a smart decision when it decided to focus more on increasing its inventory management, as it would allow them to reduce their waste cost. By having a better management on their cost center, Adidas will be able to focus more on redesigning their golf products leading to higher market share and keep pace with Nike. I believe, Inventory management is really important, Adidas may be able to increase its sales through such strategy but I don’t think it will be able to exceed Nike’s sales.
For companies like Adidas and Nike, managing inventory is really important to the success of a business as it will enable them to address the most important issues like: maintaining adequate inventory as well as minimizing the investment in inventory to smooth production and enhance their profitability.
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