SOCIAL COMMERCE: A CASE STUDY OF ADIDAS

In the case study, the performances of Adidas are examined during social commerce. The main aim of this examination is to understand how commerce strategies, specifically social commerce, contributed to the growth of Adidas companies. I can divide the history of Adidas company as the first era, before e-Commerce, refers to the period where Adidas depended on the presence of physical shops to sell their products. The second one, which is the e-Commerce era, refers to the period where Adidas added a new revenue stream to their businesses, online selling. Lastly, the era of social commerce represents the period where it started to be active on social media and took advantage of this new network to enhance their businesses. After that same examination is gonna be done for Nike in order to examine how the two companies performed in the social commerce era based on three main perspectives: financial, web, and social media analysis. It is important to identify whether they followed the same strategy during these periods or not.

Adidas’s case consists of three parts. the company’s profile, history, and performance analysis. The last part is based on three main categories, Financial analysis, website analysis, and social media analysis.

ADIDAS- COMPANY PROFILE

Adidas, a German sportswear company headquartered in Herzogenaurach, Germany. Adidas is engaged in the design, development, production, and marketing of athletic and sports lifestyle products worldwide. The company’s segments include Western Europe; North America; Greater China; Russia/CIS; Latin America; Japan; Middle East, South Korea, Southeast Asia/Pacific; TaylorMade-adidas Golf; Runtastic and Other centrally managed business (Reuters, 2019 b). In each of these markets, there are wholesale, retail, and e-Commerce business activities responsible for the distribution and sale of products of both the “Adidas” and “Reebok” brands, where the latter is a brand owned by Adidas. There are approximately 57,000 people working for Adidas group, in which the company has employees from nearly 100 nations in their headquarters. On average, every year the company, along with their manufacturing partners, produces more than 900 million units of sport lifestyle products. As stated in their website, the company’s mission is to be the global leader in the sporting goods industry with brands built on a passion for sports and a sporting lifestyle. The vision of the company is to be the best sports company all over the world. In 2017, the company was able to achieve €21.218 billion sales and €1.430 billion net operating income. (Adidas-group, 2018).

HISTORY OVERVIEW

The journey of Adidas started in Bavaria, Germany by its founder, a soccer player, Adi Dassler. In 1920, at the age of 20, Adi started developing sports shoes in the “wash kitchen” of his parents’ house. His first trial was a “spiked shoe” which could be used for multiple athletic events. Four years later, his brother joined where they established “Gebrüder Dassler Schuhfabrik” with the aim of providing athletes with the best possible equipment. (Adidas-group, 2018). Since its early beginnings, famous athletes were wearing Adi’s products where the company started gaining a worldwide reputation. The company was able to earn its first rewards and milestones in both Amsterdam (1928, Lina Radke), and Berlin (1936, Jesse Owens). During the summer of 1947, Adi Dassler established the “Adi Dassler adidas Sportschuhfabrik” and set to work with 47 employees in Herzogenaurach. On the same day of the opening, Adi registered a shoe that included the famous adidas “3-Stripes”. (Flippo, 2019) (Adidas-group, 2018)

The year 1954 was a turning point in the company’s history. The German national football team faced the unbeatable Hungarians in the World Cup final, where they won much more than just a trophy. This great success made the company’s name as well as its founder name shine brighter in football pitches everywhere. Due to the founder’s experience gained since the year 1920, Adi realized the importance of being close to the company’s customers. Between 1968 and 1970, he intended to meet with athletes, examine their needs, observe the possibilities to improve, and develop the best possible products (Adidas-group, 2018) (Flippo, 2019).

Adidas’s innovations were not only limited to footwear, but also, they included any possible sports equipment. In 1970, the company delivered “Telstar”, the official ball for the FIFA 1970 World Cup. The main idea behind the ball was to increase its visibility on black and white TV. This was the beginning of an essential partnership for the company where they provided the official match ball for every FIFA World Cup since then. Two years later, the Olympic Games were held in Munich. Just in time for the event, the company introduced a new logo “the trefoil”, the symbol of performance. (Flippo, 2019) (adidas-group, 2018)

Between the period from 1972 and 1978, the company became a “true multi-sport specialist”. The company’s portfolio widened its horizon to include more and more sports through the years, and a broad range of athletes were wearing the company’s logo in famous sports events.

Adidas’s endorsements were not only limited to football, outdoor icon Reinhold Messner climbed mountains wearing Adidas shoes, and gymnast Nadia Comaneci scored a perfect 10 in Montreal — 1976. In 1978, Adidas’s founder passed away having more than 700 patents related to sports shoes and other athletic equipment. Yet, the company remained a family business and Adi’s son, Horst, took over and continued to master his invention. Once again, in 1984, the company introduced an innovation ahead of its time, the “Micropacer” or what is known today as “miCoach”. The new shoe was Micro pacer featured which provide performance statistics to athletes. During the 1980’s, the US shoe market was dominated by German firms. When referring to German firms, we meant Adidas. In 1986, a US based hip hop group Run DMC released “my adidas”, the main idea was shedding the light on hard working people in troubled neighborhoods. Even Adidas did not know about this love story until the band held up the 3-Stripes shoes during a 40,000 fans’ concert. This merge of art and music helped in setting the everlasting street fashion trend off, as well as it was the beginning of non-athletic promotions in the sporting goods industry. (adidas-group, 2018)

The end of the family business was in the year 1987 when Horst Dassler died just two years after his mother passed away. During the period between late 80’s and early 90’s, the company faced troubles in leadership and strategic decision, and its financial figures experienced a loss which brought the company near bankruptcy. In 1993, a new CEO was assigned, Robert Louis-Dreyfus, in which he understood that the company simply needs a new direction. He was able to convert the company from a “sales driven” to a “marketing driven” company, and track Adidas back to its growth path. In 1995, Adidas went public and they announced their new marketing slogan “We knew then, we know now”. Despite the fact that the company was facing rough times after its founders’ death, Adidas’s innovations never stopped. In that period, the company introduced several new and innovative lines of products, Equipment concept (1991), the Streetball campaign (1992) and the Predator football boot (1994) (adidas-group, 2018) (Flippo, 2019).

After going public, Adidas performed its first acquisition in 1997 by acquiring Solomon group and its brands. Two years later, the company decided to adopt e-Commerce and offer their products on the company’s official website. With the beginning of the new century, Adidas kept on delivering innovative products to their customers, where they introduced ClimaCool (2002), adizero (2004), and the F50 football boot just in time with the 2006 FIFA World Cup. Moreover,with the beginning of the new century, the company established new divisions, lifestyle segment, partnerships with Yohji Yamamoto (2002), Stella McCartney (2004), Y-3 (2003), and Porsche Design Sport (2007). In addition to their innovativeness in the products, Adidas never missed a chance to sign endorsements with famous athletic players. One of their most remarkable campaigns was in 2004 when Adidas allowed its most famous athletes, including David Beckham, Haile Gebrselassie, and Muhammad and Laila Ali, face their fears, defeats, and challenges to prove that “impossible is nothing”. (Adidas-group, 2018) In the year 2005, Adidas decided to complete a divestiture with the previously acquired Solomon Group. Yet, one year later, the company announced the acquisition of “Reebok” and “Reebok-CCM Hockey”, bringing together two of world’s most respected and known brands in the sporting goods industry. To maintain their strong position in the industry, between 2009 and 2012, Adidas acquired Five Ten, Tylor Made, Ashworth, and Adams Golf. Moreover, in 2013, Adidas did a collaboration with a German chemical company where they introduced the “Energy Boost” running shoe which featured a completely new cushioning material. During this period, Adidas was able to be present from the court to the catwalk and the stadium to the street, they offered apparel and footwear for every sport, every fashion, and every style. On the other hand, and after dominating the fitness and aerobics wave movement in the 80’s, Reebok was able to follow back the old track and become the best fitness brand in the world in the year 2011. (adidas-group, 2018) In 2015, Adidas published their five-year strategic plan, “Creating the new”, which explains the company’s willingness to work hard and inspire people to engage the power of sports in their lives since the company believes that sport is an attitude and a lifestyle. Adidas decided to complete the divestiture of Rockport brand and focus on its core business, Adidas and Reebok. To achieve their future plan, the company identified three strategic choices: (adidas-group, 2018)

▪ Speed: the first true fast sports company — fast in satisfying consumer needs, fast in internal decision-making.

▪ Cities: the focus on six key cities to grow share of mind, market, and trend: New York, Los Angeles, Shanghai, Tokyo, London, and Paris.

▪ Open Source: the first to involve athletes, consumers, and partners as part of the company’s brands.

Aligning with their future goal, in 2016 and 2017, Adidas decided to focus more on “digital”, where they consider their website as the most important shop; therefore, they completed the divestiture of their hockey brand CCM, golf brands TaylorMade, Adams Golf, and Ashworth to focus on the 2015 plan, “Creating the New” (adidas-group, 2018).

Financial Analysis: Social Commerce Era

It is quite difficult to know exactly the date of the beginning of the social commerce era. However, I considered the beginning of the social commerce era when Adidas opened its first social media account. Adidas started joining different social media platforms during the period between 2009 and 2010. For that reason, it was considered the year 2010 as the beginning of the social commerce era for Adidas.

* ROI

ROI: 2010- 2017

Generally speaking, based on the figure, ROI faced an increase during the social commerce era. ROI increased from 8.94% in 2010 to 14.25% at the end of 2017. However, there is a significant decline in the ROI value in the year 2014 by more than 40% if compared with the previous year. Based on Adidas’s Annual Report (2014 a), the reason behind this decrease was due to the negative effects from the lower gross margin as well as higher other operating expenses as a percentage of sales. Moreover, total assets increased from €11599 million to €12.417 billion in 2014.

* Sales

Sales 2010–2017

Between 2010 and 2017, Adidas’s sales increased from € 11.990 billion in 2010 to €21.218 billion in the year 2017. Adidas’s sales had an increasing trend at the beginning of the social commerce era; however, the company’s sales faced an inertia between 2012 and 2014. In the year 2014, Adidas’s sales surged until the year 2017. This surge, as explained in Adidas’s annual report, is the result of the increase in the sales of Adidas Originals and Y-3 products (Adidas-group, 2015). Moreover, as mentioned in Adidas’s history, in 2015 the company launched a new strategic plan “Creating the New”, which shows the company’s willingness to work hard and inspire people to engage the power of sports in their lives because believe that sports is an attitude and a lifestyle (Adidas-group, 2016).

* Cost of Sales

Cost of Sales 2010- 2017

The cost of sales graph takes the same path as the sales’ one. None of the commerce strategies contributed to any change, whether positively or negatively, in the cost of sales with respect to the sales. Away from the year 2013, cost of sales surged from €4.254 billion in 2010 to €10.514 billion in 2017. However, in 2013, cost of sales experienced a slight decrease due to the declination in raw material prices and currency fluctuations (Adidas-group, 2013).

* R&D Expenses

R&D Expenses 2010–2017

“Creating innovative products to meet changing needs of athletes and consumers is essential to drive brand perception. As a result, R&D is cornerstone for the success of our business” (Adidas-group, 2010). Adidas started publishing financial figures related to R&D since the year 2010, for that reason this financial figure was absent in the previous years. In 2015, Adidas confessed that R&D activities are decentralized by each brand within Adidas group where each brand owns an independent R&D department. Moreover, these departments are responsible for sourcing, designing and product marketing functions. Moreover, in Adidas report 2015, the company described the role of their R&D team by saying “Employees in our so-called FUTURE teams analyze new materials, production processes and scientific research to increase the exchange and scope of idea generation. Their scope also extends to areas such as consumer insights and social media. This helps promote a holistic and innovation-focused culture which gives deeper consumer insights, while also fueling creativity and synergies across the organization” (Adidas-group, 2015). In addition to their internal activities, this team is engaged in long-term and exclusive partnerships with well-known third parties. Moreover, R&D activities are based on an Open Source Approach which is based on collaborations with athletes, universities, leading companies, and governments. Adidas is the first company, in the sports industry, to invite athletes, consumers, partners, and customers to be part of the company’s brand.

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Figure and Table show clearly the increase in R&D expenses through the period between 2010 and 2017. R&D expenses increased from €102 million in 2010 to €187 million at the end of 2017. Despite the increasing amount of R&D expenses, the R&D/sales ratio is almost the same between 2010 and 2017. Since 2010, the ratio of R&D/sales fluctuated between 0.8% and 0.9%. However, it is clear that the value of sales is not continuously increasing. Thus, I can assume that R&D expenses could be linked to the value of sales the company achieves.

* Gross Profit

To a certain extent, the path of gross profit is similar to the one of sales and cost of sales. Gross profit increased from €5.730 billion in 2010 to €10.703 billion in 2017. The surge observed in the year 2015, after three consecutive years’ inertia, is due to the same reasons for the sale’s increase in the same year.

* Net income

Adidas’s net income increased by more than 100 % between 2010 and 2017. In 2010, Adidas had a net income of €563 million euro, yet, this value surged to a maximum of €1.173 billion in the year 2017. However, in 2014, Adidas’s net income experienced a sudden decrease due to the increase in the tax rate less unfavorable earnings mix (Adidas-group, 2014 a). One the other hand, Adidas stated that the increase in sales in 2017 was due to their strong presence in the US market, share price development, improving retail profitability and improving sustainability.

it is fundamental to observe the trends of some financial figures through the three eras. The average values in each period were calculated and then graphed to analyze the general trend. As observed in the Figure, we can notice an increasing trend in all the financial figures’ averages along the three periods.

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Average of Adidas Financial Figures in the three main eras

it is quite clear that Adidas is willing and investing to strengthen its position and boost their performance in online selling. According to an interview done with “Financial Time”, the CEO of Adidas, Kasper Rorsted, stated, “Our website is the most important store we have in the world” (Rorsted, 2018). Despite the fact that the company did not mention any financial figures regarding the revenues derived from their online sales and based on all the facts and analyses mentioned previously, it is clear that Adidas is expecting much from the social commerce adoption.

WEBSITE ANALYSIS

In Adidas’s 2017 annual report, the company stated that the digital transformation changes not only the behavior of customers but also their working style. Moreover, they admitted that technology has increased the speed of maintaining relationship with the customers. According to Adidas, “digital competences” are not only useful for enhancing the relationship with their customers but also these competencies are essential for organizations within the company (Adidas-group, 2017). In the same year, the company announced the creation of a “Digital Leadership Team” which is responsible for harmonizing the digital initiatives across the company, as well as supporting provisions for functional teams in their decision-making process.

Even though Adidas owns more than 2500 retail stores, approximately 13000 mono branded franchise stores, and roughly 150000 wholesale doors, the company considers its website as the most important shop they won. Moreover, Adidas’s CEO mentioned, during an interview with CNBC, that the company’s target, from e-Commerce revenues, is €4 billion in the year 2020.

Based on “Similar Web’s” web analytics, Adidas recorded an average visit duration of 2 minutes and 57 seconds. If compared with the average provided by Wolfgang “KPI report 2019”, it shows that Adidas’s average is three seconds below the benchmarked one. However, we cannot assume that Adidas’s website is not attractive for two reasons. First, three seconds is a small percentage if compared to the 2 minutes and 57 seconds. Moreover, there are several ways to perform a proper benchmarking, yet our reference depends on the average numbers of different websites not necessarily belonging to the same industry nor operating in the same geographical areas. As for the pages per visit, Adidas was able to record an average of 5.15 pages per visit, whereas the average is 5 pages per visit. Thus, if compared to the average, Adidas is performing a bit better than the averages in the report. On the other hand, Adidas performed much worse than the average in terms of the bounce rate. The company recorded 50.25%, however, the average is 41%. Unlike the previous indicators, the higher the level of the bounce rate, the worst the situation. These numbers mean that only half of Adidas’s website visitors interact with the content of the website.

* Marketing Channels

Adidas reported lower than average in all the traffic sources except for the direct, which represents the highest portion of traffic, and social traffic sources with 41% and 6% respectively. On the other hand, the hugest difference between Adidas and the average was reported in the paid search with more than 13% difference. Therefore, we can assume that Adidas can invest more in the paid search (paid keywords) to grab more traffic to their website. Moreover, despite the fact the company heavily invests in marketing activities, they reported only 0.19% higher than the average in the display source of traffic.

Adidas Website Traffic Sources

As a conclusion from the previous part, we can highlight some important aspects regarding the website traffic. First of all, based on the information provided by “similar web” we can say the Adidas’s website is not the best in its category ranking, where the company had lower KPI’s averages if compared to the figures mentioned in the “Wolfgang KPI report 2019”. Moreover, it is not surprising that the main website traffic comes from the US which is one of the major markets for Adidas. I assume that the company can benefit more from the paid search due to the fact that their figures are extremely below the average. Finally, it is clear the Facebook is the most important traffic source to the company’s website among all the social media platforms.

SOCIAL MEDIA ANALYSIS

With respect to Facebook, Instagram, and Twitter, Adidas segment its pages based on different kinds of sports, pages related to specific social groups, pages related to specific lines of products, and pages related to brands owned by Adidas.

However, Instagram and Twitter share an additional category of pages, those related to specific geographical areas, which are completely absent on Facebook. Adidas’s Facebook main page detects the geographical location of its customers, and automatically the language and the website of the company change based on their geographical location. For example, when opening Adidas’ main page from Italy, the language will automatically change to Italian, and the company’s website that will appear is “www.adidas.it” and not “www.adidas.com”. This feature is just present on the company’s Facebook main page and not on other pages on the platform. Back to Instagram and Twitter, as mentioned previously, these pages have an additional category that is related to the customer’s geographical areas. However, the majority of Adidas’s Instagram pages, which are based on geographical segmentation, are also present on twitter. From these pages, we can mention those related to France, Mexico, Brazil, Los Angeles, and ZA (South Africa).

As for the services provided by each social media platform, Adidas’s strategy is somehow blurred on Facebook, however, it is clearer on Instagram. As for Facebook, the “shop now” tool is available for all kinds of pages except in Adidas Basketball, Football, Rugby, and Reebok. However, the message option is available for less than half of the pages in (Continued) Table. On the other hand, for Instagram, the IGTV is available in all the pages except in three, whereas, the shop now is available in all the pages except in two. Whereas, the message option is just available in three pages. Therefore, I can assume that Adidas tends to offer shopping services, provided by each social media platform, much more than the message service on both Instagram and Twitter. However, the message tool is just provided for six pages on Instagram and three pages on twitter. Yet, it is essential to mention that when examining Adidas’s different accounts, we assume that a different strategy was implemented in Twitter, where the company tends to interact with customers more, if compared to other media platforms, through tweets. To a certain extent, both Instagram and Twitter are being approached by Adidas in the same way regarding both page segmentation and the services provided.

Lastly, for YouTube, the company’s strategy is a bit different from the other social media platforms. Their strategy is almost aligned with the way this platform works. Posts are rare, fewer followers if compared to other social media platforms, people interact but less frequently with respect to the interactions on other social media platforms, it is a platform where page owners can only post videos and not pictures or written posts. Adidas owns eight official YouTube pages that fall under the same categories as those on Facebook.

In conclusion, it is clear that Adidas maintains a solid presence on different social media platforms. Moreover, it is also clear that they are approaching each social media platform with a unique strategy that suits it. In addition, we can clearly state that the main aim of their presence on these social media platforms is to engage and interact with customers by creating different communities based on the interests and preferences of these customers. Finally, regarding the geographic-based pages, despite the fact that Adidas tends to follow their customers on their most preferred social media platform, they also tend to duplicate several pages. For instance, Adidas owns both Instagram and Twitter pages for France, Brazil, Canada, Los Angeles, Mexico, and South Africa.

To be continued, stay tuned :)