Illustration of Opportunities Information

In this report, we illustrate financial and non-financial opportunities considered most relevant in 2023 and beyond. According to our assessment methodology, opportunities related to tax and customs regulations; opportunities related to order and supply management; opportunities related to product engineering and manufacturing processes; opportunities related to the distribution strategy; opportunities related to consumer demand and product offering; opportunities related to existing Yeezy inventory; macroeconomic, sociopolitical, regulatory and currency opportunities; and opportunities related to data analytics are considered material. The assessment is illustrated in the corporate opportunities overview table. 

Opportunities related to tax and customs regulations

The potential release of valuation allowances on deferred tax assets or the release of tax risk reserves (e.g., relating to transactions or internal reorganizations in prior years) could positively impact income tax expense. In addition, changes in local tax regulations may offer the company the option to realize benefits that could result in a reduction of tax expenses and higher net income. Furthermore, we see considerable potential in reducing the total amount of customs duties in the long term by increasing our sourcing from manufacturing partners in countries with more favorable customs treaties.

Opportunities related to order and supply management

The introduction of a more flexible order management, supported by our continued investment in our IT systems, could effectively reduce inventory risk and drive incremental net sales and higher margins. This could be achieved by reducing initial order sizes while ensuring continuous reproduction and replenishment of products. Expanded nearshoring capabilities could further reduce lead times to ensure that product demand can be fulfilled at all times and to respond more quickly to the latest trends in our industry.

Opportunities related to product engineering and manufacturing processes

We constantly monitor which of our product features are perceived as most relevant by our consumers. According to this, a further optimization of our product design could result in higher net sales and margins by consistently focusing on product features that add the most value to our consumers, while increasing the cost efficiency of less relevant components or reducing complexity in product design. By working closely with our suppliers, we also see respective potential for more efficient manufacturing processes.

Opportunities related to the distribution strategy

Our wholesale channel, where we clearly focus on partners that provide consumers with the best shopping experience and customer service, could generate higher-than-expected sales and profit. In addition, organic growth of our business in Latin America and Asia-Pacific, as well as market expansion in Emerging Markets could provide further upside potential in terms of sales and profit.

Opportunities related to consumer demand and product offering

Well-executed campaigns and marketing initiatives could increase brand desire and consumer appeal, which may drive full-price sell-through and result in higher-than-expected sales and profit. In addition, outstanding competitive performance of promotion partners such as individual athletes, club teams, or national teams may further increase their popularity among consumers. As a result, adidas may generate higher sales of signature footwear or licensed apparel and accessories. We believe that our continued focus on product innovation and the ability to fully commercialize such innovation through an attractive product offering that resonates with consumers could provide further upside potential both in terms of sales and profit. In that respect, we see untapped potential particularly for our Originals key franchises as well as our basketball and running business.  

Opportunities related to existing Yeezy inventory

adidas continues to review future options for the utilization of its existing Yeezy inventory. The full year 2023 guidance as outlined in this report already accounts for the significant adverse impact of not selling as well as completely writing off the existing stock. Should the company, however, decide to sell the existing Yeezy inventory – in full or in part –, this would have a positive impact on the company’s top- and bottom-line development.

Macroeconomic, sociopolitical, regulatory, and currency opportunities

Positive macroeconomic developments could strengthen consumer sentiment and purchasing power, for example, if inflation rates declined at a faster pace than anticipated. Favorable exchange rate developments can potentially have a positive impact on the company’s financial results. Translation effects from the conversion of non-euro-denominated results into our company’s functional currency, the euro, might also positively impact our company’s financial performance. Legislative and regulatory changes such as the elimination of trade barriers due to free trade agreements can create cost savings or potentially open up new channels of distribution and, as a result, positively impact profitability.

Opportunities related to data analytics

Data and analytics play a crucial role in enabling fact-based decision-making. Therefore, we have a dedicated Data and Analytics team to support business decision-making by leveraging the power of data. The continuous enhancement of our existing capabilities to build and scale insights-driven use cases and the use of the latest technology could bring value to our business operations across the entire company. As a result, we see the opportunity to become faster and more efficient in our operations. We may increase visibility and understanding of consumer preferences, apply these insights in our product creation and, as a result, increase sales and reduce cost of sales. Leveraging data may also help us, for instance, optimize order book management, inventory management, and purchasing. All this could result in improved financial performance.

Personnel opportunities

Creating and managing a performance-oriented culture that fosters ‘Diversity, Equity, and Inclusion’ as well as leadership accountability and clear values in the workplace could lead to increased diversity of thought, increased creativity and innovation, and higher employee satisfaction and engagement. This may positively impact the company’s financial performance. A workforce that includes diverse talent and reflects the diversity of our customers and consumers helps us better serve the communities we work in and strengthens brand reputation among our consumers, which could potentially create a competitive advantage and positively impact top- and bottom-line performance.