Adidas runs past rivals, grows net profit by 53%
German sportswear group Adidas has managed to grow the net profit of its India business by 53 per cent in 2017-18 — taking its margin beyond the 10 per cent mark, which no multinational in this space could cross for years. Its net profit for the year stood at ~1.74 billion, compared to ~1.13 billion a year ago, documents available at the Registrar of Companies (RoC) show.
While its German rival Puma remained in the red during 2016-17, American brand Nike too failed to turn profitable between 2014-15 and 2016-17. The financial details of these two companies for 2017-18 are not available yet.
Adolf Dassler-founded Adidas, however, saw its operating revenue dip during the year. It dropped marginally by 0.7 per cent to ~14.84 billion from ~14.94 billion during the year. Adidas Group India comprises cumulative number for Adidas India and its subsidiary Reebok India.
In 2017-18, Adidas India's operating revenue inched up to ~10.97 billion from ~10.79 billion. In fact, the group’s Reebok business let its topline down this time. Reebok’s revenue declined 6.5 per cent to ~3.88 billion from ~4.15 billion. Adidas, that had acquired UK-headquartered Reebok in 2005, was the first multinational sportswear brand in India to cross the ~10 billion-mark in revenue in 2016-17.
The group said in an email statement volatility due to the after effects of demonetisation that was felt in some channels and the introduction of GST temporarily affected its sales.
At a time all major MNC sportswear companies have struggled to improve their margins, mostly due to a price-sensitive local consumer base, the latest numbers reflect Adidas’ strategy to weed out nonperforming stores and focus on larger and profitable outlets. The accounting fraud at Reebok India in 2012 had forced the Adidas group to overhaul its operations.
Despite the company’s prominent presence in large markets such as Mumbai, Chennai, Delhi and Bengaluru, sales growth at Adidas remained in either single digit or low double digit between 2012-13 and 2015-16. The net profit margin was stuck between 1.88 per cent and 4.78 per cent. But, that was also the time when a turnaround began. Soon after taking charge in 2014, Dave Thomas, managing director of Adidas India, was puzzled by the trend of low margin. “It became evident that while earlier smaller stores were selling products and were considered low risk propositions by Indian partners, it was a drag on our business. So, we decided to shut down many of the smaller stores and replace these with larger ones. Today, larger stores, with wide ranges and separate product sections, offering a world-class buying experience, are lifting our business. People stay longer in these stores, the chances of conversion go up and so is the average ticket size,” Thomas had told Business Standard in September.
Adidas has also parted ways with many local partners who were not aligned with the new plan. “Today, we have fewer franchise partners but they are aligned with this idea,” Thomas had said. Despite flat growth in store count, the weeding has resulted in bigger store space. Now, Adidas has 436 stores, including company owned and franchise-run, and 203 franchise-run Reebok stores. In some cases, a simple change in franchise partners had resulted in improved sales. “For example, sales have tripled in Goa. It is also ramping up the multi-brand retail play now, a channel that was ignored,” he said. In 2018, the group has added 57 stores and renovated 50 existing stores according to latest formats. It said it would open 200 branded spaces with multi-brand partners this calendar year, taking the total number to over 700.