adidas APAC performance lags, says geopolitical situation in Greater China a big factor

Sportswear company adidas' revenue grew only 3% in Q3 2021, and shared that the geopolitical situation in Greater China was part of the reason for the slow growth. The company said the challenging market environment in Greater China, extensive COVID-related lockdowns in Asia Pacific as well as industry-wide supply chain disruptions reduced revenue growth by around € 600 million in the third quarter. In Greater China, the company said the geopolitical situation, the resurgence of COVID-related restrictions as well as natural disasters weighed on the company’s top-line performance and led to a revenue decline of 15%.

In APAC, sales declined by 8%, reflecting the impact of the extensive lockdowns in the region. Other markets such as Europe, Middle East and Africa (EMEA) as well as North America both grew by 9%. In addition, revenue in Latin America grew by 55%.

Meanwhile, in the same quarter, the company sold Reebok for up to €2.1 billion (US$2.41 billion) and it is expected that the company will receive the money in Q1 2022. CEO Kasper Rorsted  earlier said the brand will continue to focus its efforts on executing its 'Own the Game' strategy that will enable the company to grow in an "attractive industry, gain market share, and create sustainable value for all stakeholders."

The company's marketing and point-of-sale expenses grew 25% to €674 million (US$770), increased by 25.3% year-on-year, as the company leveraged major sporting events to drive brand heat, supported the launch of new product introductions and invested into the consumer experience across both its digital and physical platforms. As a percentage of sales, marketing and point-of-sale expenses increased by 2.1 percentage points to 11.7%.

Speaking of Q3 2021 performance, Rorsted said, "Double-digit growth in our direct-to-consumer businesses in EMEA, North America and Latin America is a testament to the strong consumer demand for our products. At the same time, we are navigating through the current worldwide supply chain constraints. Despite all challenges, we are on track to delivering a successful first year within our new strategic cycle," said Rorsted.

Looking ahead, adidas said it continues to expect its revenue to increase by a rate of up to 20%, but growth is anticipated to come in at the lower end of this range due to a number of reasons, such as the longer-than-expected sourcing disruptions and the challenging market environment in China.

Earlier this year, the company unveiled a new strategy that focuses on its direct-to-consumer (DTC) business. According to a press statement, adidias' investments into product development, marketing, sponsoring and the company's digitalisation are set to increase significantly over the next five years. Adidas plans to invest around US$1.1 billion more into the brand in 2025 compared to 2021. It is added that by 2025, the company's digital transformation efforts would be driven by investments of more than US$1.1 billion as well.

The sports company said its DTC business is projected to account for around half of the company's total net sales by 2025 and to generate more than 80% of the targeted top-line growth. Its eCommerce business is also forecasted to double from US$4.7 billion currently to between US$9.5 billion and US$10 billion. Additionally, adidas said it will be focusing on Greater China, EMEA and North America markets moving forward, which are expected to account for around 90% of sales growth until 2025.

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