Adidas to boost ecommerce, recycled gear in 5-year plan

Brahm Buck

(Bloomberg)—Adidas AG, No. 17 in the Digital Commerce 360 Europe 500, is targeting sales growth of as much as 10% annually through 2025 as it doubles down on e-commerce and sustainable materials. The German sportswear maker forecast a surge in online sales and the steady build-out of shoes and apparel […]

(Bloomberg)—Adidas AG, No. 17 in the Digital Commerce 360 Europe 500, is targeting sales growth of as much as 10% annually through 2025 as it doubles down on e-commerce and sustainable materials.

The German sportswear maker forecast a surge in online sales and the steady build-out of shoes and apparel made from recycled materials to help push up profit by as much as 18% a year. The company also expects mid-teens percentage growth in products for women. The shares rose as much as 8.6% in Frankfurt Wednesday.

Adidas’s new five-year strategycalled “Own the Game”is the first concocted under CEO Kasper Rorsted. He has won praise since taking the helm in 2016 for streamlining operations amid a prolonged boom in retro footwear, which drove the shoemaker’s shares higher before the pandemic.

Last year, though, criticism mounted after Adidas needed to take out a government-backed financing package to help weather the coronavirus crisis. The damage continued when the head of human resources resigned following accusations thatand the companyhad mishandled diversity issues.

The new plan is more ambitious than Adidas’s five-year plan through 2020, which targeted annual sales growth in the high single-digit range. Adidas achieved that in 2018 and 2019, but then revenue fell 16% last year amid the pandemic.

Adidas’s stock price is still short of its January 2020 high. Shares of arch-rival Nike Inc. have advanced to record levels since last summer.

Looking ahead, Rorsted has promised a new era of innovation for Adidasa task that should be made easier, Rorsted insists, by the divestment of the Reebok brand. Adidas failed to reignite Reebok in the 15 years after acquiring it for $3.8 billion.

The company is seeking to rely less on middlemen, aiming to get about half of its revenue from direct-to-consumer businesses by 2025. That includes a doubling of e-commerce sales to as much as 9 billion euros. Such moves should make up the bulk of sales growth.

To achieve that, Adidas will invest more than 1 billion euros in digital technology, including 3D design, sourcing of supplies and advertisement efforts. It’s hiring more than 1,000 “tech and digital talents” this year alone.

Meanwhile, Adidas plans for nine out of 10 articles to be sustainably produced by 2025, meaning they will be composed with recycled or biodegradable materials, for example, or will be designed for reuse.

The company said it expects to distribute between 8 billion and 9 billion euros to shareholders via dividends and share buybacks by 2025.

Earlier Wednesday, Adidas forecast sales this year will bounce back near 2019 levels as the impact of the pandemic fades. That will be driven by particularly strong demand this year in Asia and Latin America, it said.

Adidas has replaced the government-backed financing and has hired a new head of global human resources.

Zara owner Inditex rides online boom while avoiding markdowns

Inditex SA (No. 10)  forecast a boom in online sales to continue after ecommerce surged to represent a third of the Zara owner’s total revenue last year.As it expands selling through websites and mobile apps, analysts have noted the risk that the Spanish retailer is exposing itself to a market segment that’s even more price-competitive. According to Chairman Pablo Isla, that won’t be a problem. The company is targeting a stable gross margin this year after improving it last year.

Inditex’s online revenue surged 77% to 6.6 billion euros ($7.9 billion) in the 12 months through January. That was a boon considering that the retailer had one in four of its stores on average temporarily shut down throughout the pandemic. Inditex is navigating the more competitive sector with success so far as it has a more integrated business model than competitors, sourcing both stores and e-commerce from the same inventory.

“When the stores were closed, we were able to offer to the online customers the clothes in the stores,” Isla told analysts on a call. “Five years ago this would have been impossible.”

Inditex has “stuck to its guns” avoiding markdowns as it expanded online, Sanford C. Bernstein analyst Aneesha Sherman wrote. She said Zara offers free shipping for orders exceeding 50 euros, which is double that of some competitors such as Zalando SE in some countries.

Online is still crucial for clothing retailers to make up for a shortfall in store visits. Inditex’s fourth-quarter operating profit missed analysts’ estimates by about 30%, which is Inditex’s biggest earnings miss in many years, according to Geoff Ruddell, an analyst at Morgan Stanley.

Inditex reached a target to get 25% of revenue from e-commerce two years earlier than planned as the pandemic changed shopping behavior. The company is spending 1 billion euros between 2020 and 2022 to expand its digital business, and shoppers have downloaded 132 million apps that are in active use.

As of Monday, 15% of Inditex’s shops were still shut due to restrictions. The retailer should get a respite next month, when it expects all of them to be open.

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