Growing cost of raw materials and labor

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RETAIL INDUSTRY ANALYSIS: ADIDAS
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4/3/2020

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Contents
Introduction to retail industry.....................................................................................................2
Introduction to the company......................................................................................................2
Key relevant changes within the UK fashion retail...................................................................3
Political factors: Many systems.............................................................................................3
Economic factors: Counterfeit issues.....................................................................................4
Social Factors: Health conscious shoppers............................................................................5
Technological factors: Smart sportswear opportunities.........................................................5
Legal factors: Patents and more patents.................................................................................5
Environmental factors............................................................................................................5
Relevant changes within the micro environment.......................................................................6
Bargaining power of the suppliers:........................................................................................6
Bargaining power of buyers:..................................................................................................6
Threat of substitutes:..............................................................................................................7
Threat of new entrants:...........................................................................................................7
Level of competitive rivalry in sports fashion industry:........................................................8
Suggest and discuss strategies and tactics that could be used....................................................8
Macro environment challenges..................................................................................................8
Competitive pressure :............................................................................................................8
Growing cost of raw materials and labor :.............................................................................9
Overdependence on external suppliers :................................................................................9

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Micro environment challenges..................................................................................................9
Regulatory pressures :............................................................................................................9
Market fluctuations:.............................................................................................................10
Recommendations....................................................................................................................11
Conclusion................................................................................................................................11

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Introduction to retail industry
The retail sector includes every business or individual engaged in direct selling of goods to
customers. The associated industries include the whales (providing retailers), the logistics
(connecting wholesalers and suppliers with retailers) and manufacturing (producing retail
products). Including malls, convenience stores, restaurants, stands, door-to-door salespeople
and Web outlets, this briefing paper focuses on the retail sector1 (Rezaei, Fahim, and
Tavasszy, 2014).
In 2018, 319,125 retail firms were operating in the UK retail market, accounting for 5.6% of
all companies.4 Small and medium-sized enterprises (SMEs), as any other corporations,
make up more than 99% of retail companies. However, among many industry areas the retail
market and the country as a whole had various amounts of businesses.
• 60% of supermarket firms have a workforce of 0 relative to 76% in the global country.
• 34% of retail firms have 1 to 10 employees, while 20% of the market as a whole
• 6% have between 10 and 100 workers of retail businesses, relative to 4% for all firms
Introduction to the company.
Adidas AG is the largest maker of sportswear in Europe and the second biggest in the world
at Nike. Adidas is a global corporation located in Herzogenaurach, Germany and is renowned
for its clothing, clothes and accessories production and sale. The Nike team comprises of
Reebok, TaylorMade and Runtastic. The corporation also controls the German football team
Bayern Munich. The Adidas logo is three bars used in the manufacturing of clothing and
apparel products as a symbol for advertisement. Three Adidas 'greatest competitors are Nike,
Puma and Under Armour (Balaji & Roy, 2017).

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Adidas, with a total valuation of 16.67 billion US dollars, became the third biggest footwear
company in the world in 2019. It is now one of the most successful business in the world for
sports clothes, shoes and boots. As of 2017, Nike has a significant portion of the US market
for athletic clothing (Zakaria, Rahman, Othman, Yunus, Dzulkipli, and Osman, 2014).
In 2018, the company had around 57,000 staff worldwide. Global net revenue of the Adidas
Brand in 2018 amounted to approximately EUR 21.92 billion. In the same year, 21 percent of
the company's global net profits were generated by the North American Adidas Brand.
Boots and apparel are two of the main divisions in the Adidas Community. In 2018, 409
million worldwide sports apparel pairs and 457 million sports apparel units were made.
Adidas has since become one of the world's most famous sportswear labels for men and
women. In the United States, Adidas is still a famous company. 42% of U.S. customers
indicated that Adidas clothes, shoes and accessories were typically purchased by themselves
in 2017. Adidas is also a common high-revenue company in the U.S. 42,01 per cent in 2018
claimed they owned Adidas brand product, apparel and sneakers and 42.01 per cent reported
they had strong sales (Mahdi, Abbas, Mazar, and George, 2015).
Main major market design shifts throughout the UK.
Political factors: Many systems
Adidas manufactures, transports and distributes its goods around the nation. This allows them
to extend external supply chains and adopt strategies as they offer online goods. The

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organization often hires government institutions as a means through which fraudulent goods
may be interference.
Every nation adheres to its own method of taxation. For any sale and product sold worldwide,
Adidas will comply with these laws. The organization uses third world countries to outsource
its product production. More possibly because manufacturing prices are reduced. However,
societies do not embrace such a company. Additionally, Adidas must follow these laws
(Cleff, Dörr, Vicknair and Walter, 2013).
 International trade agreements
 Product safety laws
 Labor laws
 Consumer safety product regulations
Economic factors: Counterfeit issues
There is a huge sporting strong market. Approximately 70 per cent of industry sales are
produced by the 50 largest firms. The goods produced by Adidas are known to be "leisure
posts." They aren't a requirement. Sales are guided by patterns and desires of sports buyers.
Leisure goods must contend against one another in various categories. The entertainment
business and the music industries are vying for sporting goods. The global economy differs.
Manufacturers are adjusting to take this into consideration. Adidas wants to figure out when
goods are to be marketed and delivered. This ensures prosperity and development for
businesses (Wilson, 2012).
Adidas produces in China goods because they are labour intensive with small manufacturing
costs, especially compared to countries in North America. The award of the products will be

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intellectual for Adidas. However, when importing / exporting products they face persistent
difficulties And Adidas 'revenues are dampened by the increase in counterfeit goods.
Social Factors: Health conscious shoppers
Adidas modifies the goods 'features. Designs conform to customers 'needs. Sometimes items
for ages, sexes or lifestyles are appropriate. However, their main target community is health-
conscious sports buyers. To satisfy their target, they will stay up with fitness patterns and
expectations. They also provide service services for businesses. They empower groups and
improve people's wellbeing. Adidas still sponsors the Olympics, allowing them to take
advantage of publicity incentives and to reach international viewers worldwide (Nickson,
Warhurst, Commander, Hurrell, and Cullen, 2012).
Technological factors: Smart sportswear opportunities
In various situations Adidas tests the products. It is down to players who are handled. They
are working to make administrators and sports people more effective. In sustainable solutions
to sports challenges, we consider natural product substitutes. Internet shopping is funded by
social networking and the website. Now we are exploring the smart sportswear market.
Technology is very widespread in fitness cultures, like Fitbit. Adidas can use these technical
developments to reach new markets and create a competitive edge.
Legal factors: Patents and more patents
Intellectual property and IP programs are the responsibility of Adidas. I also have product
rights, which protect trademarks and infringement. Patents often cover for the purposes of
completing imitation businesses. Of example, they have trademark development as a big
corporation. Since Adidas endorses celebrities as a means of marketing for their link with the
sporting environment. And abide with national and local laws in its entirety (Aguzzoni,
Argentesi, Ciari, Duso, and Tognoni, 2016).

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Environmental factors
Adidas raising the climate impact. They are responsible for monitoring and extracting
hazardous chemicals. Maybe that is why they provide natural resources for their products.
They follow ethical principles by committing themselves to ensuring supplies for any country
in which their goods are made.
Relevant changes within the micro environment.
Bargaining power of the suppliers:
Although suppliers play an important role in Adidas, due to the vast number of suppliers in
the supply chain of Adidas, their bargaining power is quite small. The broad and smaller size
is due to this. While certain vendors are massive and have a certain impact on size, not all. In
reality, it is easier for the business to move to various providers.
But if a supplier faces losing Adidas company, this may trigger a substantial loss to the
supplier. Their vendors are internationally spread and neither of them will push Adidas. The
majority of Adidas production is outsourced and works in 63 countries in more than 1000
individual factories (Cullen, Tsamenyi, Bernon, and Gorst, 2013).

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It has a multi-, regional supply chain of growing forms of network vendors such as direct
entrepreneurs and not others. It means that Nike complies with the rules of the game,
including the organizational and value- criteria. Adidas provides a multi- for testing and
enforcement to insure the suppliers conform to the specifications. It is also clear that Nike
controls its vendors in a wide way.
Bargaining power of buyers:
In Adidas, the purchasing strength of the consumers is small to moderate and although the
individual customers are of limited importance, they have a certain degree of control as a
party. He has a huge driver in Adidas and many large and minor competitors, such as Under
Armour and Puma, still have him. Several local and foreign companies operate in this sector
for market share. Customers have small moving costs.
Nevertheless, the merchandise consistency and promotion of Nike reduces this aspect to a
great degree. Adidas focused on merchandise content, style and efficiency and that is why the
company has gained an unprecedented degree of consumer satisfaction. That is when the
customer's bargaining strength is limited to modest.
Threat of substitutes:
Until Adidas, the hazard of replacements is moderate to low. The number of competitors is
low, not very growing. Local and foreign rivals deliver goods at a wide variety of costs, both
small and high. Any of them satisfy the high end customer's expectations while local rivals
provide lower quality alternatives. Adidas consistency of the goods and strategic strategies
mitigate the challenge from the alternatives. Adidas has been concentrating on campaigns in
metropolitan markets to further mitigate the challenge as a major portion of its consumers
reside there.

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Threat of new entrants:
The chance of outsiders is small to moderate for Adidas. While a company is able to expand
from a limited money locally, Adidas wants a large investment to create a company that can
be recognized by the scale of the development and supply chain. Some aspects need
significant expenditures, such as infrastructure, trained staff, commercialization,
advertisement etc. So it would be complicated, if anyone did not have adequate money to
invest on the business. In fact, instantly you cannot create too much brand value. It requires
time to build up as much market value as it does. All these aspects limit the danger presented
to the business by any new competitor (Christina, Dainty, Daniels, and Waterson, 2014).
Level of competitive rivalry in sports fashion industry:
Adidas has few to intermediate prospects with outsiders. Although a business can operate
globally with a small money base but Adidas needs to build a significant commitment in the
production and supply chain that can be recognised. Some factors include considerable
investment, such as utilities, professional workers, promotion, advertisement, etc. So if
anyone had not enough capital to invest in the company, it would be difficult. You can't build
that much market equity immediately, practically. It takes time to increase stock valuation as
much as it does. All these things restrict the danger that any new competitor poses to the
business.
Suggest and discuss strategies and tactics that could be used.
Macro environment challenges

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Competitive pressure :
Concurring competition has continued to rise in the sports shoe industry. The competing
companies don't only spend in Nike, they rather actively in ads, research and development to
boost demand and profits. Rising pricing competition often causes strain on the bottom line
by high running costs. Several Adidas rivals are on the market from Nike, Under Armour,
Puma, Fila, New Balance and several others.
While Adidas is one of the world's leading companies, its company faces powerful players in
sports footwear and clothing, such as Nike, Under Armor and PUMA. Like every business,
there is always a challenge of competition. Adidas is renowned for his intense competition
with Adidas, and in that battle he can not really lower his hand. Consumers chose between
Adidas and Nike on the basis of their own choice, because the product range or price does not
vary significantly. This is why it is incredibly critical this Adidas continues cultivating his
brand identity and hence the promise of celebrity approvals previously mentioned.
Growing cost of raw materials and labor :
The expense to sports brands of raw materials often rises annually and results in higher
running costs. In addition to raw resources, labour prices are now rising which raise running
costs. In comparison, Nike only uses good quality raw content for the production of good-end
goods. This has focused on items produced of organic and recycled raw materials in the past
few years. Overall, the burden on the sporting companies in the final line is still strong, with
prices rising (Williams and Connell, 2010).

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Overdependence on external suppliers :
For the production of the goods it markets, Adidas depends solely on foreign partners.
Almost all of its output has been outsourced to foreign vendors in Asia and elsewhere in the
world. Although Adidas will focus on certain facets of industry, it reduces operating expenses
on the one side. Through backward integration, Adidas could reduce costs.
Adidas is primarily outsourced to development. According to the supply chain system, almost
800 individual production factories develop Adidas goods in more than 55 countries. 68 per
cent of the goods are produced in Asian countries such as China, India, Indonesia and Korea.
Given its insistence on long-term ties, providers also have strong bargaining forces (Pantano,
2014).
Micro environment challenges
Regulatory pressures :
The challenges confronting sports shoe manufacturers are often exacerbated by regulatory
scrutiny. Such businesses are under tremendous strain to grow and to compete with the
demand. Apart from taxation and regulations in the areas of employment, food safety and
climate, a variety of other laws need to be complied with.
The added emphasis on enforcement also contributes to the multinational brands 'compliance
costs. Adidas's main challenge is to meet with public rules and legislation. 68 percent of
Asian countries manufacture Adidas goods. The cost and financial results of the business will
be influenced by policy legislation and labour law and taxation.

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Market fluctuations:
Market instability in key areas in which Adidas markets its goods such as North America,
China and Asia Pacific can delay Adidas and lead to market declines. Declining economic
activities will result in a reduction in company sales and earnings in each of these areas.
Currency exchange rate variations can often contribute to brand losses. The earnings of sports
shoe manufacturers are still hit by a stronger dollar. Adidas also gave an alert on benefit and
accused U.K. of instability (Taylor, 2012).
Several other economic conditions have an effect, such as monetary volatility and strong
currencies, on its financial results. According to the supply chain system, almost 800
individual production factories develop Adidas goods in more than 55 countries. 68 per cent
of the goods are produced in Asian countries such as China, India, Indonesia and Korea.
Given its insistence on long- ties, providers also have strong bargaining forces.
Recommendations
1. The Business will strategize Adidas as an sporting, basketball, soccer, football, and in
sport and retail market. Reebok would be a lifestyle brand and be licensed to do
aerobics, cycling, walking and casual shoes and clothes (Penpece and Elma, 2014).
2. Growing Adidas 'overall client list, supporting sport in clubs and schools and
providing scholarships and starting to engage with the children at an early age and
allow them real clients for the remainder of their lives. Reebok would be linked to
fitness centres which may provide deals on Reebok sneakers which clothes. These
will connect with specialist hospitals to fight malnutrition and hypertension, fund
wellness checks camps and offer assistance for many related causes. This allows the

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brand two-way – firstly, to continue to build an impression of a socially conscious
business and, secondly, to improve the campaign to attract today's ever-growing
healthcare consumers.
3. Adidas will work aggressively on increasing the total client base to encourage soccer
in clubs to colleges, give scholarships and launch connections early in life to become
lifelong customers. Reebok will be willing to link up to gyms to sell Reebok trainers
to clothes discounts. It will connect to specialist clinics that battle obesity and
overweight, fund safety checks and endorse other relevant causes. This allows the
brand to build a socially positive business, two-way – firstly by helping to reinforce
its strategy of attracting today s increasingly health-care-conscious consumers.
Conclusion
Adidas is now in its own division apart from its nearest rivals Puma and New Model. But for
two years it remained almost unchanged. Adidas must maintain its innovation strategy
through heavy marketing and advertising campaigns for new products with this acquisition.
Reebok is able to capitalize on its successful operation of the supply chain by spreading to
existing and developing markets.
In general, the business would undoubtedly stay at its pricing point at a marginally
fluctuating level attributable to rising or decreasing sales from a weak economy or deceiving
performance until Adidas AG continues purchasing businesses within its central emphasis
and dividends.

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