Corporate Strategy

Everything we do is rooted in sport. With sport playing an increasingly important role in more and more people’s lives, on and off the field of play, we operate in a highly attractive industry. Through our authentic sports brands, we push the boundaries of products, experiences and services to drive brand desire and capitalize on the growth opportunities in sport, as well as in sports-inspired casual wear.

OUR CORE BELIEF: Through sport, we have the power to change lives

The importance of sport, however, goes far beyond that. Sport is central to every culture and society and is core to an individual’s health and happiness. Therefore, we believe that, through sport, we have the power to change lives. And we work every day to inspire and enable people to harness the power of sport in their lives.

OUR MISSION: TO BE THE BEST SPORTS COMPANY IN THE WORLD

It is our mission to be the best sports company in the world. Best means that we design, build and sell the best sports products in the world, with the best service and experience, and that we do so in a sustainable way. Best is what our consumers, athletes, teams, partners, media and shareholders will say about us. We are confident that we will see improvements with regard to market share, leadership and profitability once people are saying that we are the best.

STRATEGIC BUSINESS PLAN: ‘CREATING THE NEW’

‘Creating the New’ is our strategic business plan until the year 2020. Our ambition to further drive top- and bottom-line growth by significantly increasing brand desirability builds the core of ‘Creating the New’. The strategic business plan therefore focuses on our brands as they connect and engage with our consumers. This consumer-centric approach is driving significant improvements in the desirability of our brands and has increased our relevance with consumers around the globe. As a result, we have gained market share in those categories, markets and cities that we have identified as future growth drivers for our company.

STRATEGIC CHOICES

Our strategic business plan has a powerful foundation in our unique corporate culture and is built around three strategic choices that support us in intensifying our focus on our consumers and will drive brand desirability: Speed, Cities, and Open Source.

Culture

We have great talents in our organization who work with passion for sports and our brands. Our people bring our strategy to life and our culture makes the difference in achieving our long-term goals. We are convinced that a culture of Creativity, Collaboration and Confidence (the 3Cs) is a key enabler for us to ‘Create the New’.

Our leaders role-model this behavior. To enhance our leadership structure, we established the Core Leadership Group (CLG). This group of senior leaders, selected from the most critical roles across the company, are responsible for leading the execution of our strategic business plan, with a particular focus on improving cross-functional collaboration and decision-making. We continued to sharpen our leadership structure by adding an Extended Leadership Group (ELG), which supports the Core Leadership Group in implementing our strategy. The Leadership Framework unites all leaders in our company through a clear definition of what strong leadership looks like at adidas and commitment to enhance performance and culture. In addition, the Global High Potential Group (GHIPO) was formed in 2018 to develop high potentials who have the ability to take on more complex, demanding and higher-level responsibilities at a global senior management level. In 2019, we launched a Local High Potential Group (LHIPO) who are being developed for more complex roles at a local senior management level. Each leadership group creates a succession pool to the one above it to ensure ongoing internal talent development, as well as being leadership role models across the organization.

We believe that a performance culture is essential to successfully executing our strategy. To further promote a performance culture within our company, we have finalized a new way of developing our people and evaluating their performance. In addition, we have made significant progress in recalibrating our approach to evaluating performance and have evolved the link to performance and rewards through our compensation and benefits. Long-term remuneration for our senior management, for instance, has been simplified and linked to the development of the company’s bottom line and our share price in order to further align the interests of our senior leaders with the interests of our shareholders.

As a company, we value diversity and promote inclusivity. Today, our employee base is already very diverse in terms of gender, generation and global representation. We are dedicated to continuously increasing the representation of female leadership across the organization. We have made further progress in this regard and representation of women globally in management positions across the company increased to 34% in 2019 compared to 29% in 2015. Our GHIPO and LHIPO leadership groups have an almost balanced gender splitto ensure greater female representation for succession into senior roles. Furthermore, we are offering gender intelligence training globally to promote a more inclusive workplace. see People and Culture

Speed

Driving brand desirability begins with putting our consumers at the heart of everything we do and serving them in the best possible way. This involves ensuring that consumers always find fresh and desirable products where and when they want them and with an unrivaled brand experience. This, in turn, means being able to anticipate what consumers want and reacting accordingly in a timely manner. Being fast will give us a decisive competitive advantage. The benefits include higher product availability, reduced inventory risk, incremental net sales and higher margins. Speed is therefore a critical and powerful lever for us.

We are using our industry-leading experience to further evolve our entire business model end-to-end, from range planning to product creation, sourcing, supply chain, go-to-market and sales. In 2019, we further developed and sharpened ‘Speed’. With the revised approaches ‘fast creation’ and ‘fast replenishment’, we are able to increase the share of short lead-time ranges. Together with our customers, we define which of our product ranges qualify for these approaches. Through this, we are enabling our brands to ensure constant freshness in store for our consumers, resulting in higher-quality sales and more productive inventory.

Since the launch of the strategic priority Speed, we have steadily expanded its coverage. All categories and markets have now been fully onboarded and started to capitalize on the benefits of the Speed programs. Over the last years, the net sales share of speed-enabled products has continuously increased to a level of 47% in 2019, which is fully in line with our overall ambition to increase the share of speed-enabled products to at least 50% by 2020.

In addition to focusing on Speed in our existing supply chain and production processes, we also explore new, disruptive business models and technologies to make us faster. Together with Oechsler AG, adidas had opened two Speedfactories in 2017 to test new processes for faster production of athletic footwear and to develop new manufacturing technologies with the ultimate goal to transfer them to the company’s global supply chain. In 2019, we decided to discontinue production at the two Speedfactories in Ansbach, Germany, and Atlanta, USA, by April 2020, and to deploy the Speedfactory technology at Asian suppliers. The company will continue to develop, improve and test manufacturing processes in the ‘adiLab’ at the adidas production site in Scheinfeld, Germany. see Global Operations see Innovation

Cities

Urbanization continues to be a global megatrend. Most of the global population lives in cities and already today cities account for around 80% of global GDP. Cities are shaping global trends and consumers’ perception, perspectives and buying decisions. To be successful in the future, we therefore need to win the consumer in the world’s most influential cities. We have identified six global megacities in which we want to over-proportionally invest to grow share of mind, share of market, share of trend: London, Los Angeles, New York, Paris, Shanghai and Tokyo.

We aim to deliver extraordinary experiences to consumers in these cities across all touchpoints by engaging more deeply with them in communities where they live, places where they work, fields, courts and streets where they play, and doors where they shop. At the same time, we strive to create high synergies between our activation and commercial efforts. This also includes aligning our initiatives with similar activities of key retail partners.

It is our goal to create an end-to-end ecosystem in these cities which connects consumers to relevant products, through bottom-up activation and holistic retail experiences:

• Activation: Our global key cities offer our brands a unique platform. Over the year, we conducted individual city-led activations together with some of our most important assets such as Pharrell Williams in London, and James Harden at the ‘Republic of Sports’ event in Shanghai. On top, we continued to deliver day-to-day brand experiences for our communities such as the adidas Runners, Tango League and Versatile Female Athlete to engage with our consumers.
• Products: We continue to drive a multi-pronged strategy of product introductions, focused across all six cities, including global campaign launches and exclusive collections, for example when we launched Futurecraft Loop in New York City to the world’s media. In 2019, we utilized our Speedfactory concept to create shoes with and for consumers in all six key cities, e.g. with e-gaming partner Team Vitality in Paris. see Innovation
• Experiences: We are committed to providing premium retail experiences to our consumers with executions that connect, engage and inspire them. 2019 saw the opening of our new four-storied adidas brand flagship store on London’s Oxford Street, which was created to be our most digital store ever. With more than 100 digital touchpoints, which are powered by green energy, and immersive fitting rooms, the entire experience is curated for our consumers through innovative digital storytelling tools and interactive experiences, such as the ‘bring it to me’ feature in the adidas app that personalizes the shopping experience.

The 2019 results for specific KPIs (NPS and market share) signal we are well on track to achieve our target to double revenues in our global key cities by the end of 2020 compared to 2015.

Open Source

Open Source is a collaboration-based innovation model that aims to build brand advocacy by opening the brands’ doors to the consumer and by inviting him or her to co-create the future of sport and sports culture with us. It is about learning and sharing, about starting conversations between the brand, external experts and consumers, and about giving them the chance to have an impact on what we do. We provide access for externals to tools and resources we use to create, thereby acquiring and nurturing creative capital, and explore new territories so as to create unprecedented brand value for the consumer beyond mere transactional businesses.

We have defined three strategic initiatives for Open Source:

• Athlete collaborations: Through athlete collaborations we aim to build communities of athletes that help shape the future of their sport together with us. Such collaborations include relationships with the world’s best athletes and teams, but they also take place on a local level. To directly engage and interact with a broader consumer community, we have expanded our efforts in digital and physical spaces. For instance, in 2019 our investment in running communities through grassroots activations of ‘adidas Runners’ covered more than 60 cities in 30 countries on all continents. Our adidas Running communities drove the surge for around 2.2 million runners to step up for the Run for the Oceans campaign with many events taking place across the globe. In total, participants logged over twelve million kilometers, tracking their runs on the adidas Running by Runtastic app (and Joyrun app for those based in China).  see adidas brand strategy
• Creative collaborations: Creative collaborations increase our creative capital through new tools, new environments and new perspectives from outside creative thinkers. They are intended to give creativity a platform and provide the right tools for ideas to blossom. The most notable addition to our Creator Network roster was our landmark collaboration with Beyoncé, as a brand ambassador and co-creator. In addition, we launched a partnership with the world’s most influential gamer, Ninja, to broaden our reach into the expanding e-gaming world. Furthermore in 2019, we continued our collaborations with Kanye West, Pharrell Williams, Yohji Yamamoto, Stella McCartney, Raf Simons and Alexander Wang.  see adidas brand strategy
• Partner collaborations: The strategic initiatives in this area intend to open up our knowledge of sport by working with the best in other fields. By exchanging core competencies, we will create unique value for our brands and ultimately also for our consumers. Our partnership with Parley for the Oceansserves as a prime example. As a founding member of the organization, our support goes far beyond financial aid to fund beach clean-ups. In 2019, we expanded our efforts through partnerships with start-up incubators such as Fashion for Good, who will help us to accelerate sustainable innovation in the apparel industry, and Station F to create the best digital innovations in sport.  see Innovation  see sustainability

We remain committed to embedding external creative capital in our processes to extend our possibilities in creating the future of sport. To ensure that we are at the pulse of the consumer journey at key moments and touchpoints in their lives, we want to grow the number of users in our digital ecosystem. We have made significant progress in this regard and are now connected with more than 500 million users through our different platforms and social media channels. With the insights generated through Open Source, we craft better products and services for our consumers, driving brand desire, sales, market share and profitability.

‘CREATING THE NEW’ ACCELERATION PLAN

In March 2017, we introduced a number of initiatives to foster brand momentum and accelerate top- and bottom-line growth:

Portfolio

Every entity must contribute to the success of our company, be it a brand, a channel or a market. We constantly revisit the performance and strategic fit of our portfolio. After the completion of the sale of the TaylorMade, Adams Golf and Ashworth brands as well as our CCM Hockey business in 2017, we are now operating with a narrowed focus on our core strength areas of athletic footwear and apparel. This will allow us to reduce complexity and pursue our target consumer more aggressively with both the adidas and the Reebok brand. We have continued to execute upon Reebok’s turnaround plan ‘Muscle Up’, aimed at accelerating top-line growth, particularly in North America, and improving the brand’s overall profitability. After returning to profitability in 2018, Reebok achieved currency-neutral growth of 2% in 2019. see REEBOK BRAND STRATEGY

adidas North America

North America represents the biggest market in the sporting goods industry with a total share of approximately 40%. At the same time, from a geographical perspective, North America represents the biggest opportunity for the adidas brand, given our relatively small market share here compared to other regions. To improve the adidas brand’s overall positioning in the region, we have made North America a strategic priority and started to significantly increase our investments into North America in order to be more relevant and always visible to the consumer. In this context, over the last years, we have increased investments into our organizational set-up, including the further expansion of our US headquarters in Portland, elevated our marketing efforts and upgraded our distribution infrastructure with the opening of a new distribution center in Pennsylvania. We are pleased with the progress we have been making in recent years, as we have more than doubled our business in North America since the launch of ‘Creating the New’ in 2015. However, we are still not satisfied with our current position, which leaves significant upside for the years to come. Therefore, going forward, we will continue to execute our game plan for North America in order to continue to increase our market share and reach our target of € 5 billion in revenues for the adidas brand by 2020.

ONE adidas

We continuously strive for operational excellence. ONE adidas encompasses a set of initiatives that will enable our company to work smarter, more efficiently and in a more aligned way. After having successfully operationalized the initiatives under the Brand Leadership pillar in 2018, we are now focusing on the remaining two pillars – Operating and Marketing Efficiency. In order to create a more scalable business model, we will therefore focus on those opportunities that enable us to standardize and harmonize current processes and procedures. In this context, 2019 saw the continuation of several initiatives which are aimed at significantly improving our operating efficiency in the years to come. Our disciplined execution has already led to initial positive results in terms of generating incremental profits. We decided to use these benefits to reinvest into the business and continue our investment efforts into our scalable business model. In 2019, we focused on the expansion of Global Business Services, where we continue to work on the standardization and harmonization of processes in areas such as Accounting and HR Services. Furthermore, in the last year we saw the Non-Trade Procurement initiative deliver considerable savings as a result of successfully operationalizing the approach. These and other initiatives are designed to enable scalability and operating leverage. They are generating benefits already now and are expected to deliver further positive impact in the future.

Digital

The digital transformation is fundamentally changing the way our consumers behave and the way we work. Technology has enabled us to accelerate building direct relationships with our consumer. Improving digital capabilities along the entire value chain enables us not only to interact with the consumer, but also to become faster, better and more efficient in every part of the organization. We continue to make strong progress in multiple digital accelerators. After the initial launch in 2017, we expanded the reach of the adidas app to over 30 countries across all major markets. Our membership program Creators Club introduced in 2018 as well as the relaunch of the Runtastic app as ‘adidas Running by Runtastic’ and ‘adidas Training by Runtastic’, respectively, emphasize the importance of our investments in customer relationship management to allow a deeper consumer understanding. By providing consumers with a premium, connected and personalized shopping experience, we progress toward our 2020 own e-commerce revenue target of € 4 billion. In 2019, our own e-commerce platform was our fastest-growing channel with a currency-neutral revenue increase of 34%.

FINANCIAL AMBITION UNTIL 2020

Creating long-term value for our shareholders drives our overall decision-making process. Therefore, we are focused on rigorously managing those factors under our control, making strategic choices that will drive sustainable revenue and earnings growth and, ultimately, operating cash flow. We are committed to increasing returns to shareholders with above-industry-average share price performance and dividends. see Internal Management System

Our unique corporate culture and the three strategic choices will continue to be step-changers with regard to brand desirability and brand advocacy. In combination with the initiatives that are part of our acceleration plan, this will enable us to:

• achieve top-line growth significantly above industry average: We aim to increase currency-neutral revenues annually between 2015 and 2020 at a rate between 10% and 12% on average (initially, in March 2015: high-single-digit currency-neutral increase).
• win significant market share across key categories and markets: We have defined key categories within the adidas and Reebok brands that will spur our growth going forward. From a market perspective, we have defined clear roles for each of our markets, depending on macroeconomic trends, the competitive environment and our brand strength in the respective markets.
• improve our profitability sustainably: We plan to substantially improve the company’s profitability, growing our net income from continuing operations by an average of between 22% and 24% per year between 2015 and 2020 (initially, in March 2015: increase of around 15%; updated in March 2017: increase between 20% and 22%).
• deliver on our commitment to increase shareholder returns: ‘Creating the New’ includes a strong commitment to generating increasing returns for our shareholders. Given our firm confidence in the strength of the company’s financial position and future growth ambitions, we target a consistent dividend payout ratio in a range between 30% and 50% of net income from continuing operations. Our dividend policy is complemented by a multi-year share buyback program announced in March 2018. Under the current program, we plan to buy back own shares for up to € 3 billion in total until May 2021, of which € 1.8 billion was utilized by the end of 2019.