EUR 850.00 For Business Accounts Only

Morningstar | Narrow-Moat Adidas Riding a Fashion Wave to Stay Ahead of Competition

We think Adidas is a leader in athletic and “athleisure” apparel with a narrow moat rating based on an intangible brand asset. The firm is executing well on the five-year plan it announced in 2015, and we forecast that e-commerce, now available in more than 40 countries, will account for 15% of total 2020 sales and approach its sales target of EUR 4 billion for the year. We also think Adidas is improving its supply chain to increase the speed at which its products reach consumers. Most Adidas shoes are now produced with lead times under the previous norm of 60 days. In 2018, 37% of Adidas’ sales were generated with its faster production process, up from 28% in 2017. Despite heavy competition, we believe Adidas’ strategies support its competitive position.We forecast continuing growth for Adidas in North America, where its revenue has increased by about 50% over the past five years. Adidas has overcome weakness in U.S. physical retail by introducing innovative and fashionable products. We believe Adidas is gaining market share through fashion products and performance-sports innovations. We think these products will allow Adidas to maintain share in North America even if the recent athleisure and retro trends, which have helped the brand, cool off.We believe Adidas has a strong opportunity in the $31 billion athletic apparel market in China, where it is viewed as a premium fashion brand with high pricing. Adidas’ sponsorship of international soccer puts it in position to benefit from heavy investment in the sport in China. We think Adidas is taking share from smaller Chinese brands that cannot match its marketing or store base of more than 10,000.We think Adidas’ celebrity partnerships provide a competitive edge, too. Its growing reputation in fashion allows it to rival Nike in the market for high-priced sneakers. The firm has expanded its previously limited Yeezy line of shoes and recently beat out both wide-moat Nike and no-moat Under Armour to sign a major deal with Beyonce. While these deals are expensive, they allow Adidas to expand beyond athletics into broader fashion.