January 21, 2016 / 9:30 AM / 2 years ago

Adidas hopes fashion styles will help it win on pitch too

5 Min Read

The Adidas logo on a 3D city map is pictured at the flagship store in Berlin, Germany, January 20, 2016.Hannibal Hanschke

BERLIN (Reuters) - A combination of new and retro sneaker styles will keep driving growth at Adidas's fashion business and help attract more sports fans too, the head of the German firm's Originals unit said in an interview.

Adidas, which on Monday announced that Henkel's (HNKG_p.DE) Kasper Rorsted will take over as new chief executive in October, has lost market share to Nike as its U.S. rival has concentrated more squarely on performance-enhancing sportswear.

Adidas has started to muscle back into the U.S. market, but growth has come largely from retro fashion styles like its Stan Smith tennis sneakers, while sales of core sports products like running and soccer shoes has been more muted.

Arthur Hoeld, head of Adidas Originals, told Reuters that the fashion business made popular by collaborations with celebrities like Kanye West, Pharrell Williams and Rita Ora helps the brand win fans on the field too.

"We will capture more of the growth of the sneaker industry with our performance products, but Originals will help us to grow a more significant share," he said. "We're not concerned here internally about the balance."

Nike has done better than Adidas at launching products with new features to help athletes, and has concentrated more on deals with sports figures than celebrities.

But products like its minimalist "Free" running shoes have also become style hits and the company has been doing more collaborations with fashion designers and models - Kanye West actually switched to Adidas from Nike.

Adidas fashion brands - which include Originals and teen label NEO - accounted for 30 percent of sales in 2014 to 70 percent for sports performance products. As Nike does not run a separate lifestyle unit, it does not give comparable figures.

Analysts estimate the share rose to 35 percent in 2015 as Adidas scored catwalk hits with relaunched Stan Smiths and Superstar baseball sneakers, both white leather styles first popular in the 1970s that have been reissued in new colors.

"Originals is a great franchise. I just think Adidas should avoid being seen as a fashion brand," said Berenberg analyst Zuzanna Pusz. "In the United States, a lot of people know Adidas is a soccer brand but don't associate it with other sports."

Volatile Fashion Trends

Originals sales jumped 33 percent in the third quarter of 2015, a fifth quarter of double-digit growth. That far outpaced performance sports sales, although Adidas has said it expects strong demand for running and soccer gear this year, driven by the European soccer championships and the Rio Olympics.

The attraction of the lifestyle segment is clear - fashion sneakers generally command higher margins than performance shoes as they are easier to manufacture. But demand can be more volatile as trends wax and wane.

Puma saw sales slide after it became largely a fashion brand. Since Bjorn Gulden took over as chief executive in 2013, the German rival has been rebuilding its sports credentials by sponsoring the likes of English side Arsenal.

Hoeld declined to comment on what strategy Rorsted might adopt for Originals when he takes over. Investors hope he will boost profits by cutting costs and driving innovation.

Adidas has faced criticism for failing to replicate the broad appeal of Nike "Free" with its most notable recent innovation, high-tech springy "Boost" soles, initially pitched only to serious runners rather than fashionistas.

However, it has included "Boost" soles on the sell-out "Yeezy" shoes designed by Kanye West as well as in a new casual running sneaker dubbed "NMD" launched in December.

"We're on to the next big one here," Hoeld said, citing social media buzz around the shoes as well as retail demand.

Hoeld said Adidas will be careful not to flood the market with Stan Smiths and Superstars although he sees no sign of the retro trend waning.

"Demand is still very strong and growing for those franchises," he said. "We certainly intend to keep them on a very high but not over-exposed level.

"The number of high-end fashion brands that are copying our silhouettes right now is unheard of."

Reporting by Emma Thomasson; Editing by Sonya Hepinstall

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