Annual Report 2023


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To our Shareholders

Interview with
our CEO

Bjørn Gulden, CEO (Photo)

Bjørn, you have now completed your first full year at the helm of adidas. How do you look back on the year 2023?

I think it was a positive year in the sense that a lot of positive things happened vis-à-vis our consumer. At the beginning of the year, we had little success when it comes to the sell-through of our product. But then, during the year, we had a couple of franchises in the Lifestyle area starting to do very well. And they actually continue to develop very well in 2024. First it was the Terrace trend with Samba, Gazelle, and Spezial, but then also Campus accelerated at the back end of the year. We have been steadily increasing the supply to better please the demand of the consumer and, of course, to also give our retail partners good sell-throughs.

In the Performance area, the launch of the Predator was fantastic. This football franchise is probably the best we have ever had. In Running, our athletes continued to win a lot of races and break records. With the Adizero Adios Pro Evo 1 we have the shoe that set completely new standards in terms of performance. The halo effect of these victories in our shoes is that we are starting to build a better distribution for our entire running range. This will take a while, but it’s a positive start. Even in basketball, and I say even because that’s probably the area where we haven’t had the biggest success in the past, the Anthony Edwards signature shoe has been selling out every time we launch a new colorway.

‘The trust in adidas has started to come back.’

Improving the relationship with the retailers was one of your priorities for 2023. What feedback have you been receiving from them?

Since we have better products in the market and consumer demand is higher, more and more retailers would like to buy more from us now, which is positive, of course. You have to remember that we started the year 2023 with a lot of inventory in our own warehouses, but also in the warehouses of our retail partners. Sell-through was not good and discounts were high. It took a while to replace the bad inventory with good inventory. And it’s probably fair to say that many of the retailers were skeptical at the beginning. But I have the feeling that during the course of the year, they have seen that the pipeline of our products works. They have seen that they can make money with us. As a result, the trust in adidas has started to come back. I hope that the retailers see that we are a company that really wants to be a partner and that they see this all over the world.

That’s a big change from being a DTC-led company, which we were twelve months ago. I would say that the relationship between the retailers and us is also improving in the way we talk and work with each other. More importantly, the results for the retailers are starting to show. When retailers sell more with a better margin of a brand, they like to do more. And that’s always the best argument to improve the business.

What changes did you make at the product level to lay the foundation for a better future?

I don’t know if I changed so much. I think if you look at the different categories, then in the Lifestyle area, it’s obvious that we have been very classic-driven. We have been very strong on the courtside, which is Terrace and now also Campus. What I tried to do is to scale that at the right speed at the right time to build and keep the heat. We continue to do collabs and limited editions on all the franchises, but at the same time we also make sure that we increase production and give the retailers more of the products that work. And then we do takedowns of the trends that are happening on the more commercial side. We are doing this on the courtside, and now we have started to do the same in running lifestyle. SL72 and Country are two shoes coming out of our archive that we saw potential in. SL72 is also a Terrace shoe, but in an old running style. So far, it has done very well. And then on top of what we do on the classic side, because of the lack of newness in running lifestyle, we have initiated many projects when it gets to completely new silhouettes. Many of those are seeded into the market as we speak. The goal is that we will have new running silhouettes in the Lifestyle area that the market has never seen before at the back end of this year to be scaled in 2025 and beyond.

How about the performance side of the business?

Here we also looked at what kind of products do we have in the different categories that are ready to go. And we have accelerated quite a few of them. In running, as I said, the whole Adizero range is very, very successful from a performance point of view. The Adizero Adios Pro Evo 1 was initially planned for 2025 and we accelerated that. Now the goal is to scale running also into other price points and to focus more on the comfort and the value side of running. With the new Supernova, which we just launched, and a completely new UltraBoost and Adistar later in the year, the product pipeline looks very strong. And when it comes to distribution, it will be about having sales reps servicing running specialty again and being more ingrained in the running community where the action is happening.

In football, we have what we need from a product, a player, and a team point of view. So here we will continue the strategy as is. In basketball, we’ve done a lot of work. I’m very, very convinced that all our signature shoes for players like Anthony Edwards, James Harden, and Damian Lillard are a lot better in 2024 than they had been before. And I mentioned it before: The first positive results are already coming in. I am also very happy with the initial results of Fear of God. College teams in the NCAA now even play in Fear of God jerseys. In outdoor, we have the right product with Terrex. We have now started to commercialize it, also by taking it down to more commercial price points. Also here the task is more to get a better distribution.

And last but not least, Sportswear: We refocused the business unit to make sure that the entire range is more commercial, that we work closer with the accounts, that we become more local. I am pleased to see that our teams have now connected much better with the market, both with retailers and with the consumer.

How have these changes in how you create product and bring them to market also changed how you present the brand vis-à-vis the consumer?

When it comes to marketing, the strategy is to be visible in sports. Not only the big sports, but also the smaller sports, if you can even call them smaller because some of them are really meaningful in their region. We invested into cricket in India, we extended our partnership with the All Blacks in rugby. We are trying to sign partners across all sports again for the Olympics. Of course, we will not be able to sign everyone we want, but I think the attitude, again, is to be visible in many sports that adidas previously had left and to clearly show up as the best sports brand again.

Many adidas athletes performed extremely well in 2023 and in the first months of 2024: Tigist Assefa, Jude Bellingham, Noah Lyles, Patrick Mahomes, Lionel Messi, Mikaela Shiffrin – just to mention a very few. What do these successes mean to the brand?

First of all, we need athletes, teams, and federations that perform. Of course, you would like to be with winners. And then secondly, you would like to have people and teams and federations with the right adidas attitude. I think the ones you mentioned have exactly that. Seeing Mahomes leading his team in the Super Bowl to victory again in our product is simply great. He’s a fantastic athlete with a great attitude and he fits our brand extremely well. It’s the same with the fastest man in the world, Noah Lyles. Or watching Shiffrin skiing down the mountains and breaking records. These are all examples of great performing athletes who also have a great personality that fits our brand so well. I am proud that we can work with them. In my opinion, we have the best group of athletes and sports marketing partners that you can dream about.

Have these successes changed the way how consumers perceive the brand?

Consumers see the changes particularly in the Lifestyle area. Here we are currently trending in a way adidas hasn’t done for a long time. At many retailers, we have the best sell-through in years, which means that more consumers are buying our products again. As a consequence, consumer sentiment towards adidas is turning positive in almost every market. So brand desire has clearly increased. I always repeat the same thing: I don’t think the consumer ever had anything against adidas. I just think we were not visible and maybe not commercial enough in the way that we went to market. And we’re reversing a lot of that as we speak.

This year will be a year of sports, with the UEFA EURO 2024 and the Copa América in football, the Olympic and Paralympic Games in Paris all taking place this summer. How important are these events for the adidas business?

They all play a little bit of a different role, but what they have in common is that after years of covid and difficult circumstances for big events with no spectators or limited access, it’s the first year again where everything is largely back to normal. I think both athletes and spectators are looking forward to participating in big events and to celebrating sports and being together again. The summer of sport starts with the UEFA EURO in our home market Germany, which, of course, is very special. We all remember the fantastic atmosphere of the football World Cup 2006 in Germany and I think we will see the same again this year. It will be a very important event, not only for sports, but for people's mindset in general. For us, both the EURO and the Copa also have a business impact, because we sell replicas of the different teams, licensed products and the official match ball for the EURO ‘Fussballliebe.’

The Olympics and Paralympics are different because they are not necessarily commercial events where we sell a lot of products directly related to them. But the Olympics and Paralympics both create global and local heroes. And they make sport play a bigger role in people's life all over the world. That’s why in general they have a positive impact on sports companies and especially adidas which is the Olympic brand when you look back at our history. It is really good for us that these sports events all happen in 2024, because that fits perfectly with our plan to be the best sports brand again. It is also perfect timing with the product pipeline and the plans we have for 2024 and beyond.

‘I love to see and do sports. it’s my life and my job.’

You are a big sports fan. Which sports event are you personally looking forward to the most?

I look forward to all sports events. It doesn’t matter what it is. If it’s a Bundesliga game or if it’s a national championship, a college tournament or the Olympics, I don’t really separate between the events. I love to see and do sports. It’s my life and my job. There are so many good events and to be honest with you, there are good events almost every day in some kind of sport somewhere in the world. So there’s enough to look forward to and it would be kind of unfair to only pick one.

adidas will have an extra moment to celebrate this year as it is also the company’s 75th anniversary. What does this heritage mean for the future?

For me personally, the 75 as a number doesn’t mean so much because it doesn’t matter if you’re 75 or 76 or 80. The most important thing is which legacy these 75 years have created for the company. We have such a great sports history, both with products and athletes. Everything you see today is built on this foundation. There is no company in the world that has such a heritage in sports. When you visit our archive and see what we have in there, then you know what I am talking about. Therefore, the 75th anniversary gives us an enormous knowledge and product base to build on. That’s very unique for our company.

Putting it all together in 2023, what worked better than you expected?

The success in Lifestyle maybe came quicker than we had expected. And the consumer reacted positively to our brand, quicker than I thought. I think I said it when I started at adidas last year: The product pipeline that everybody complained about was much better than people said it was. And adidas had already all the ingredients to be successful. It was just that they were not put together in a way that they were visible enough. In general, although we need time to also get the financial results back to former strength, there are so many good things happening in this company – clearly many more than any negative things. All in all, I think we were a little bit further at the end of 2023 than what I expected when we started.

Talking about negative things, were there also some challenges that you didn’t see coming?

Well, there’s always challenges. I think that the negativity around the company at the beginning was quite tough to manage. But I think we are in much better territory today and can now focus on the many positive things. One thing we clearly need to continue to tackle is our internal complexity. Although we increased our agility, it still takes us too long to make decisions. But we’re on that and I feel that the attitude and the adidas DNA to do stuff is starting to come through again.

Looking forward, how will 2024 shape up from a business point of view?

The pipeline of products that is going out to the market will continue to improve quarter by quarter. Therefore, the size of the poor performing inventory, not so much in terms of age, but in terms of overall product strength, that we still have in the trade will actually become less and less compared to good inventory. As a result, sales growth should accelerate quarter by quarter. The external factors are, of course, something nobody can control. When we started a year ago, we didn’t have a crisis in the Middle East, we didn’t have the Red Sea issue. We all had hoped that the war in the Ukraine would end. Now we know that this is unfortunately not the case. So we are still living in a very uncertain world. But I think the companies that are agile and flexible in a volatile world will win. And that’s part of our strategy to be agile and flexible.

Last year, when you started, you also laid out a plan to bring adidas back to the top step by step between 2023 and 2026. How confident are you that you are on the right track?

One year ago, we described where we were and where we should go. By now, I think we confirmed that we have the ingredients to start turning things around in 2023, be a better company in 2024, be a good company in 2025, and then be a good and profitable company in 2026. From where we are today, everything else being equal in the external world, I am confident that this will happen. As a management team, it is our goal to do things short term that are also right long term. We are not trying to impress anybody short-term by doing something stupid in one quarter to look good that has a negative impact maybe in a year’s time. Our goal is to build adidas back again to be the best sports brand and the best sports company in the world, step by step. A company where people are happy to work, that retailers see as a partner, and where consumers like our product. With everything we know today, that means we can be a company that grows double digits each year and has a double-digit operating margin. It’s doable within the timeline that we talked about.

‘We have a very global and diverse workforce with people that can bring this company to the top again.’

What role will the adidas employees play in this plan?

They are the reason that we can have the plan. You have to remember that adidas is the brand and the people. I am 100% sure that we have the talents we need. We have a very global and diverse workforce with people that can bring this company to the top again. I think we need to make sure that we find the right structure and the right processes so that our talented people are able to do their job. And that’s what we are in the process of doing. But, again, people are the most important factor that our company has and always will be. You cannot replace people with machines or computers.

That’s good to hear. Last question to you, Bjørn: What’s the one thing you personally want to focus on in 2024?

Personally: Enjoy life.

Lifestyle category
Under the ‘Lifestyle’ category, we subsume all footwear, apparel, and ‘accessories and gear’ products that are born from sport and worn for style. ‘adidas Originals,’ which is inspired by sport and worn on the street, is at the heart of the ‘Lifestyle’ category.
Performance category
Under the ‘Performance’ category, we subsume all footwear, apparel, and ‘accessories and gear’ products that are of a more technical nature, built for sport and worn for sport. These are, among others, products from our most important sport categories: Football, Training, Running, and Outdoor.
Terrace range
Collection of shoes that were initially designed for indoor sports. With their rubber sole, the player had a better grip on smooth surfaces. Since many years, they have been classics of the ‚adidas Originals‘ shoe line, and include the Gazelle, Samba, and Spezial.